Input Services used for Setting Up New Unit in Existing Facility Eligible for CENVAT Credit: CESTAT [Read Order]

The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) in a recent ruling held that services utilized for setting up of an additional unit within the existing manufacturing facility qualifies to be included within the ambit of “Input Service” and thus eligible for Central Value Added Tax (CENVAT) Credit.

The present Excise Appeal was filed before CESTAT by M/s Linde India Limited, a manufacturer of various types of gases classified under Chapter 28 of the Central Excise Tariff Act, 1985. The Appellant company being existent since 1935 proceeded to establish additional facilities known as ‘Rourkela Steel Plant’ in 2014.

The Appellant went on to claim CENVAT credit on the input services used by them for the setting up of the additional facility in 2014. This process was objected to by the Revenue Department, contending that the new facility set up by the Appellant cannot be considered an ‘additional unit’ and amounts to ‘setting up of new facility’.

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The Department laid reference to the amendment of Rule 2(l) of the Cenvat Credit Rules, 2004 with effect from 01.04.2011, which excluded the term “setting up” within the definition of “inputs”, thus deeming the services used by the Appellant to establish the new facility from being disqualified as ‘input service’.

Enforcing their findings,the Department issued a Show-Cause Notice to the Appellant demanding an amount of Rs.16,88,221/-; the demand order was confirmed by the jurisdictional authority who further levied ancillary interest and penalties on the demanded amount.

The Authorized Representative for the Respondent, S.S. Chattopadhyay cited the judgment of the Principal Bench of CESTAT, Delhi in M/s Mangalam Cement Limited  vs. Commissioner, Central Goods, Excise (2023) to substantiate that “...input services which were actually used by them in the setting up of their new unit MGU which is not admissible after amendment of the definition of input service w.e.f 01.04.2011.”

The Kolkata Bench of the CESTAT presided over by R. Muralidhar, Judicial Member after considering the submissions of both sides referred to Hindustan Zinc Limited vs. Commissioner of CGST, Excise Customs, Udaipur (2021) to observe that “despite the amendment of Rule 2(l) of the Cenvat Credit Rules, 2004 in 2011, ‘Any service which is used not only in manufacture but also, in relation to manufacture will also qualify as input service. The scope of input service is further enlarged with the expression whether directly or indirectly used in the definition of input service’”.

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CESTAT held that the newly set up Mangalam Grinding Unit is a part of the Appellant’s existing Unit and any services used in the setting up of the factory prior to its functioning would encompass any further additions made to reinforce the manufacturing capability of the existing Unit. Hence, foregoing any statutory bar under the Cenvat Credit Rules, 2004

Thus, in light of the observations, CESTAT vitiated the Department’s Demand Order and permitted the Appellant’s availment of CENVAT Credit, citing the direct nexus between the services utilized by the Appellant for setting up of the Additional Grinding Unit and the products manufactured in the existing facility.

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