2015 (11) TMI 1510 - AT - Central Excise

Cenvat credit on annual club membership fee denied - Held that - If we see the definition of input service we will find that the definition of input service is very wide. It covers not only services used directly or indirectly in or in relation to manufacture of finished products but also various services used in relation to business of manufacture whether prior to manufacture or after manufacture. Further I also find that the club service is utilised to promote sales and purchase activity by attending the clients and holding conferences and such expenses are part and parcel of manufacturing cost of final product as held in the case of Mangalam Cement Ltd. (2015 (9) TMI 942 - CESTAT NEW DELHI ). Adjudicating Authority has categorically held that mandatory penalty is not imposable under Section 11AC due to lack of suppression fraud collusion wilful misstatement with intend to evade payment of duty. the period in dispute is 2005-07 and the show-cause notice was issued on 02.03.2009 which is clearly beyond the period of limitation and consequently when there is no suppression fraud or wilful misstatement and collusion the extended period cannot be invoked. - Decided in favour of assessee

Summary

Issues:
- Denial of Cenvat credit on annual club membership fee
- Interpretation of the definition of input services
- Applicability of penalty under Section 11AC
- Limitation period for the show-cause notice

Analysis:
The appeal challenged the dismissal of the appellant's appeal against the denial of Cenvat credit on an annual club membership fee. The appellant, engaged in manufacturing water heaters, availed Cenvat credit for the club membership fee, which was later disallowed during a CERA audit. The Adjudicating Authority and the Commissioner of Central Excise (Appeals) upheld the disallowance. The appellant argued that the club membership facilitated client meetings to promote sales, forming part of manufacturing costs. The key issue was whether the club membership fee qualified as an input service under the CENVAT Credit Rules, 2004.

The appellant contended that the definition of input services should be broadly construed, citing judgments supporting the view that services used in business activities could qualify as input services. The Tribunal noted the wide scope of the definition, encompassing services related to manufacturing activities. It found that the club service was utilized to promote sales and purchase activities, aligning with the interpretation that such expenses are part of the manufacturing cost. The Tribunal distinguished a cited judgment, emphasizing that the appellant, not its directors, held the club membership, supporting their eligibility for Cenvat credit.

Regarding the penalty under Section 11AC, the appellant argued against its imposition due to the absence of suppression, fraud, or wilful misstatement. The Tribunal concurred, noting the lack of such elements and the invocation of the extended period beyond the limitation period. Consequently, the demand was deemed beyond limitation, leading to the allowance of the appeal with any consequential relief.

In conclusion, the Tribunal allowed the appellant's appeal, emphasizing the broad interpretation of input services, the absence of grounds for penalty imposition, and the limitation period for the show-cause notice. The judgment provided clarity on the eligibility of club membership fees for Cenvat credit and highlighted the importance of adherence to statutory limitations and requirements in tax matters.