CESTAT Overturns CENVAT Denial, Rules 11 Input Services Eligible Despite Department's Objections [Read Order]

In a significant ruling, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Chennai Bench has set aside the denial of CENVAT credit on 11 input services availed, holding them eligible under the CENVAT Credit Rules, 2004. The Tribunal rejected the department’s objections, emphasizing the nexus of these services with the manufacture and clearance of final products.

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Cetex Petrochemicals, a manufacturer of Methyl Ethyl Ketone (MEK) and Secondary Butyl Alcohol (SBA), had availed CENVAT credit on various input services during February and March 2013. The department disallowed the credit, alleging that these services were not used in or related to manufacturing. However, CESTAT scrutinized each service and found the denial unjustified.

The Tribunal clarified that the definition of "input service" under Rule 2(l) of the CENVAT Credit Rules is wide and includes services used directly or indirectly in manufacturing. It noted that the department failed to disprove Cetex’s claims with evidence. For instance, commercial or industrial construction services were linked to plant maintenance and storage tanks, critical for handling inflammable products. Similarly, management and repair services were engaged for specialized machinery like mechanical seals, which in-house staff couldn’t handle.

Designing and consulting engineer services, denied by the department for allegedly being related to a power plant, were found integral to plant expansion and maintenance. The Tribunal cited precedent cases (2014, 2015) where similar services were upheld as input services. Erection and commissioning services for new equipment were also deemed eligible, as they directly supported production.

Business auxiliary services, including market research and sales promotion, were held to aid manufacturing decisions. Cargo handling services, used for raw material receipt and export dispatch, were ruled eligible, with the Tribunal noting that place of removal for exports is the port, not the factory. Cleaning services, though partly for statutory compliance, were deemed necessary for safety and quality in a petroleum-based industry.

Manpower recruitment services were upheld as the workers were skilled and directly involved in production, not gardening or civil work. Courier services for business correspondence were also allowed, as they indirectly supported manufacturing operations. Only rent-a-cab services, already reversed by Cetex, were disallowed.

The CESTAT Bench comprising Ajayan T.V (Judicial Member) and Vasa Seshagiri Rao (Technical Member), emphasized that the department’s blanket denial lacked merit. It modified the original order, allowing credit on the 11 services and waiving penalties, while directing interest payment only if the reversed credit was utilized. The ruling underscores the importance of evidence-based adjudication in tax disputes.

To Read the full text of the Order CLICK HERE

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