Scope of CENVAT credit for "Manpower services" not restricted solely to manufacturing activities: CESTAT [Read Order]

Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has held that the definition of  manpower service shouldn’t be limited only to the ‘manufacturing activity’ and not to any other activities outside the factory premises. The two member bench observed that many services which are provided by the service provider outside the manufacturing factory premises, such as advertising or sales promotion, market research, as accounting, auditing, financing, etc could be categorised as manpower services and CENVAT credit can be availed on them.

The Appellant, M/s. Harbans Lal Malhotra & Sons Pvt. Ltd. is a manufacturer of razor and razor blades. They have availed the services of Manpower Services during the period December 2005 to February 2008. Based on the Bills raised by the service provider wherein the details of Service Tax is clearly shown, the Appellants have taken the CENVAT Credit. On the ground that the Manpower supply was in relation to Depot management, Sales and other activities which are not directly connected to manufacturing activity.

Asseessee contended that the input service also means the services which are mentioned in the inclusive portion of the definition wherein it clearly shows that various activities which are taken up even outside the factory premises are also mentioned. As a matter of fact, the services including ‘sales promotion’, ‘market research’ and ‘activity relating to absence’ etc., are very much applicable for all the services provided by the manpower service provider. The assessee contends that the Adjudicating Authority was in error in confirming the demand.

Revenue contended that the assessee had incorrectly claimed CENVAT Credit of Rs. 79,10,922/-.Revenue contended that the assessee had claimed tax exemption such as Depot management, Sales and advertising. Activities which are not directly associated with the manufacturing process. Revenue argued that these activities were not eligible for tax exemption under CENVAT credit rules.

The two member bench comprised of R.Muralidhar ( Member, Judicial ) and Rajeev Tandon( Member, Technical ) found merit in assessee’s argument that  Depot management, Sales and other activities are not directly connected to manufacturing activity. The bench held that “We find that the Adjudicating Authority has taken a very narrow view holding that the Manpower Service should be relatable only to the ‘manufacturing activity’ and not to any other activities outside the factory premises. We find this view to be grossly erroneous. Had he taken care to go through the definition of input service in a harmonious way, he would have found that there are many services which are provided by the service provider outside the manufacturing factory premises, which are all eligible for CENVAT Credit. Therefore, we set aside the OIO on merits and allow the Appeal.”

The assessee was represented by Deepro Sen & Taniya Roy. Revenue was represented by K. Choudhary

To Read the full text of the Order CLICK HERE

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