Indirect Input Services for Manufacture of Final Products also Eligible for CENVAT Credit: CESTAT Allows Appeal [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi Bench, allowed an appeal wherein it was held that indirect input services for manufacture of final products are also eligible for availing Cenvat credit.

The appellant, National Engineering Industries Ltd., had taken credit for service tax paid on activities as that of Insurance, Professional/Consultancy Fees and Air fare expenses. A show cause notice (SCN) was issued denying these activities to be eligible input services for which Cenvat Credit of Service Tax was availed and in the SCN, it was proposed that the same is to be disallowed.

The demand of Cenvat credit of Rs.24,36,061/- was confirmed as mentioned in the order which was upheld by the Commissioner (Appeals). The penalty was ultimately reduced.

The counsel for the appellant submitted before the CESTAT that the insurance policies were taken towards safety/performance of capital goods and such policies are imperative for the business. Additionally, it had been submitted that to escape the losses from global market fluctuations, the method of hedging was chosen and for that purpose, consultants were appointed and paid for their input service.

It was mainly contested that the activities were indirectly related to the manufacture of the final product and so the order denying the said amount of Cenvat credit was liable to be set aside. The tribunal concurred with this contention and referred to Rule 2(1) of Cenvat Credit Rules, 2004 and Bannari Amman Spinning Mills Ltd. v. Commr. Of C. Ex. & S.T. (2016).

Another contention was accepted wherein it was mentioned that employee productivity increased through the HR company engaged in training (communication skills, new idea generation) and was indirectly related to the manufacture of final products. The bench of Dr. Rachna Gupta (Judicial Member) set aside the order under challenge denying Cenvat credit and allowed the appeal accordingly.

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