2008 (1) TMI 819 - Commissioner - Service Tax

Summary

Issues Involved:
1. Entitlement to avail credit of Service Tax paid on specific services as input services.
2. Applicability of extended period for demand.
3. Imposition of penalty and interest.

Summary:

Entitlement to Avail Credit of Service Tax Paid on Specific Services as Input Services:
The appellant, engaged in manufacturing excisable goods, availed Cenvat credit on input services such as health club, medi-claim insurance for staff, insurance for computers, transit insurance, and security services. The adjudicating authority disallowed the credit, arguing these services were not directly or indirectly related to the manufacture of final products. However, the appellant contended that these services fell under the definition of "input services" u/s 2(l) of the Cenvat Credit Rules, 2004, as they were used in or in relation to the manufacture and clearance of final products. The appellate authority agreed with the appellant, stating that services like insurance for staff, health club, and insurance for computers were essential for the manufacturing process. However, credit for security services was disallowed as they were not used within the factory premises.

Applicability of Extended Period for Demand:
The lower authority invoked the extended period u/s 11A of the Central Excise Act, 1944, alleging suppression of facts. The appellant argued that all credits were reflected in monthly returns and audited without objections. The appellate authority found that the appellant had filed returns in good faith, and the department had ample opportunity to verify the records. Therefore, the extended period was not applicable.

Imposition of Penalty and Interest:
The lower authority imposed penalties u/s 11AC of the Act and Rule 15 of the Cenvat Credit Rules, along with interest u/s 11AB of the Act. The appellant argued that penalties and interest were unwarranted as there was no fraudulent intent. The appellate authority concurred, noting that the appellant acted in bona fide belief and that penalties were not justified in cases involving interpretation of law. Consequently, penalties and interest were set aside.

Conclusion:
The appeal was allowed with modifications, permitting credit for most services except security services, and setting aside penalties and interest.