Security services qualify as input service u/r 2(l) of CCR, as service utilized for manufacture of dutiable final products: CESTAT [Read Order]

The Allahabad bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that security services qualify as input services under rule 2(l) ofthe Cenvat Credit Rules (CCR),2004, as services utilized for the manufacture of dutiable final products.

Grasim Industries Limited (earlier known as Aditya Birla Chemical (India) Ltd.) has filed the appeal against Order passed by the Commissioner (Appeals), CGST, Allahabad. The Appellant is engaged in the manufacture of Caustic Soda lay & Products, CP, HM HDPE, Metal Container and Fly Ash Bricks falling under Chapter Heading 28, 29, 39, 68 and 73 of the Central Excise Tariff Act, 1985 and was availing Cenvat credit on inputs, capital goods and input services under provisions of the Credit Rules.

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The factory of the Appellant is located at a remote place, significantly away from any established locality and is running on continuous (24 x 7) basis. These facts are not in dispute. Thus, in order to have prompt availability of the workers, employees and office staff, the Appellant is required to extend proper residential accommodation.

In order to safeguard the factory alongwith adjoining residential area from any theft, damage or destruction, the Appellant engaged M/s Fitcomb Secure Service for provision of security staff. The staff extends security to the factory and the employees residing with their families in the adjoining colony. Considering the isolated nature of the location of the factory, such security is not only imperative for the property of the Appellant but also for its employees/ staff as without such safety measures, the members of the staff would not be interested in joining the organization. Therefore, providing of proper security in the factory as well as colony area is sine qua non for running the factory.

In lieu of security services, M/s. Fitcomb Secure Service, raised invoices on the Appellant with applicable Service Tax. Upon receipt of such invoices, the Appellant paid the total consideration amount, including the service tax, to M/s, Fitcomb Secure Service and availed Cenvat credit of the Service Tax paid on such invoices. Cenvat credit was availed by the Appellant under a bona fide belief that the said services had a direct nexus with the manufacturing activity of the Appellant, thereby qualifying as an eligible input service defined under Rule 2 (1) of the Credit Rules.

The Appellant was regularly filing ER-1 Returns and had duly disclosed the fact of availing the credit of Service Tax on input services in the monthly ER-1 returns filed by the Appellant. An audit of records of the Appellant for the period November 2014 to October 2015 was carried out by the Central Excise & Service Tax Audit Commissionerate, Lucknow on 10.12.2015 to 12.12.2015, wherein certain objections with respect to payment of service tax and availment of credit were raised.

Based on the audit observations, the Show Cause Notice was issued to the Appellant which proposed to demand Cenvat Credit amounting to Rs. 6,21,904 under Rule 14 of the Credit Rules read with Section 11A(4) of the Central Excise Act and Service Tax amounting to Rs. 7,43,296 under Section 73(1) of the Finance Act.

The SCN also alleged that the Appellant had willfully suppressed facts and had contravened the provision of Credit Rules & Central Excise Act. The Appellant filed a detailed reply on 27.3.2018, wherein it contested the demand on merits as well as on limitation and explained that Cenvat credit was rightly availed on security services and that the differential Service Tax was not payable.

The Appellant was accorded a personal hearing on 27.9.2019 and again on 4.11.2020 for adjudication of the SCN. Thereafter, the Original Order was passed, whereby the demand of Service Tax of Rs.7,43,296 alongwith interest & penalty, was dropped. However, demand of Cenvat credit of Rs.6,21,904 was confirmed alongwith interest & penalty.

The issue involved herein is admissibility of input credit in respect of security services deployed at the residential colony situated outside/adjacent to the factory under Rule 2(l) of the CENVAT Credit Rules, 2004.

A single bench of Mr. P.K. Choudhary, Member (Judicial) observed that the residential colony/township is located at a remote place, where no municipal services are available. Further, it is an admitted fact that an industrial township is set up by the Appellant/Assessee so that trained manpower is available to run their plant for production of dutiable output.

The Tribunal held that the security services qualify as input service under Rule 2(l) of CENVAT Credit Rules, 2004 being the service utilized by the manufacturer in relation to manufacture of dutiable final products. Further observed that, there is a mistake of fact in the order of the Lower Authority in observing that the colony is located away from the manufacturing area. I

The CESTAT held that the appellant/assessee requires the residential colony for workers for manufacturing dutiable goods. Security service is essential in order to maintain the residential/industrial colony of the Appellant.

While setting aside the order and allowing the appeal, the tribunal held the Appellant entitled to CENVAT credit under dispute.

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