Cenvat Credit Can’t Be Denied on Input Services Having Nexus With Manufacturing Activities: CESTAT

The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled in favour of a two-wheeler manufacturer and held that Cenvat credit cannot be denied on multiple input services having a direct or indirect nexus with manufacturing activities. The bench of S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) also dismissed the Revenue's appeal challenging the admissibility of credit on manpower supply services used for statutory canteen facilities. The dispute arose from a series of seven show cause notices issued for the period from April 2004 to March 2012. The Department alleged that the assessee had wrongly availed Cenvat credit on several services on the ground that such services did not qualify as "input services" under Rule 2(l) of the Cenvat Credit Rules, 2004. The Commissioner had partly confirmed a demand of approximately ₹3.87 crore along with equal penalty and applicable interest, while dropping the demand relating to manpower supply for canteen services. The disputed services included freight and clearing on export, construction services, insurance and mediclaim for staff, works contract services, mandap keeper services, interior decorator services, club and association services, photography services, asset portfolio and fund management services, vehicle repair services, architect services, outdoor catering services and after-sale repair and maintenance services. Before the Tribunal, the assessee argued that the definition of "input service" under Rule 2(l) was intended to have a broad scope and included not only services directly linked to manufacturing but also those indirectly connected to business operations and manufacturing activities. It was contended that all the services in question contributed to the cost of the final products and, therefore, formed part of the overall manufacturing chain. Reliance was placed on numerous judicial precedents, including the Bombay High Court's ruling in Coca Cola India Pvt. Ltd., which recognized that services forming part of the value of the final product should ordinarily qualify for Cenvat credit. The assessee also challenged the validity of the show cause notices, arguing that the notices were vague and lacked specific reasons explaining why the credits should be disallowed. It was submitted that the notices merely relied upon audit observations without independent investigation and therefore failed to satisfy legal standards. The assessee further argued that the Department was already aware of its practice of availing such credits because earlier notices covering previous periods had already been issued, making allegations of suppression of facts unsustainable. After examining the issue, the Tribunal observed that the controversy was no longer res integra and had already been settled through various decisions of courts and tribunals, including earlier rulings in the assessee's own cases. The Bench noted that the definition of "input service" contains both specific and inclusive elements and that courts have consistently interpreted it broadly to cover services having even an indirect connection with manufacturing or output activities. The Tribunal specifically referred to earlier decisions in the assessee's own matters where Cenvat credit on many of the disputed services had already been allowed. Regarding insurance and mediclaim services for employees, the Bench relied on the Bombay High Court decision in Axis Bank Ltd., which had recognized eligibility of such credit. Accordingly, the Tribunal held that denial of Cenvat credit on the disputed input services was unsustainable and set aside the adverse findings against the assessee. On the Revenue's separate appeal regarding manpower supply for canteen services, the Tribunal upheld the Commissioner's findings and rejected the Department's challenge. The Bench observed that factories employing more than 250 workers are statutorily required under the Factories Act, 1948 to provide canteen facilities. Referring to the Larger Bench ruling in GTC Industries Ltd., the Tribunal held that canteen-related expenses form part of the cost of production and therefore satisfy the requirements of input services under Rule 2(l). The Tribunal allowed all appeals filed by the assessee and dismissed the Revenue's appeal. Case Details Case Title: M/s Hero Honda Motors Ltd Versus Commissioner of Central Excise, Goods & Service Tax, Faridabad Citation: JURISHOUR-1426-CES-2026(CHAN) Case No.: Excise Appeal No. 60153 of 2013 Date: 26.05.2026 Counsel For Appellant: Srinivas Kotni and Mr. Akshay Kumar, Advocates Counsel For Respondent: Siddharth Jaiswal and Mr. Shantanu Kumar Meena Click Here To Read Order Read More: Refund Can’t Be Denied Merely Because Deposit Made During Investigation Was Not Marked ‘Under Protest’: CESTAT

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