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HC : Allows input credit on land lease rentals & factory construction services, pre-2011

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  • P&H HC dismisses Revenue appeal, allows service tax credit on civil construction services for setting up of factory as also land lease rentals, prior to 2011;
  • Rejects Commissioner’s view that though definition of ‘input service’ is wide, does not cover services that remotely or in roundabout way contribute to manufacture of final products and that since factory is an immovable property i.e neither ‘service’ nor ‘goods’, input credit ineligible;
  • Concurs with assessee’s analysis of Rule 2(l) of CENVAT Credit Rules that present case would fall under both ‘means’ and ‘includes’ parts as phraseology is wide enough to cover said services, same being directly or indirectly or in any event in relation to manufacture of final products; Observes, “….land and the factory were required directly and in any event indirectly in or in relation to the manufacture of the final product and for the clearance thereof up to the place of removal. But for the factory the final product could not have been manufactured and the factory needed to be constructed on land….”;
  • As plain language of Rule 2(l)(ii) indicates, services mentioned therein are only illustrative, hence it can hardly be suggested that lease rental is not for use of land in relation to final product manufacture; Also notes that construction services were excluded from Rule 2(l) ambit vide amendment in 2011, which is neither retrospective nor applicable to assessee’s case; Refers to Bombay HC judgement in Coca Cola India Pvt Ltd to uphold CESTAT findings and accordingly, answers questions of law in favour of assessee  : Punjab & Haryana HC
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