2008 (9) TMI 575 - AT - Service Tax

Waiver of pre-deposit - Appellant availed Cenvat/MODVAT credit of duty paid on a gear box used in their windmill - availed credit of the service tax incurred on maintenance and repairs of the windmill - the appellants had also taken credit of service tax incurred by it towards premia on workers welfare policy as well as passengers carrying policy - authority demanded the inadmissible credit availed of duty paid on the gearbox and the service tax paid on the repairs and maintenance of the windmill under Rule 14 of CCR together with applicable interest - Held that - Admissibility of credit relating to capital goods and services required for running the windmill whose output was available to run the assessee s factory cannot be ruled out without a debate - service tax paid on insurance premia cannot be treated as tax on a service used by PSPL in or in relation to the manufacture of final products and clearance of final products from the place of removal - waiver of predeposit and stay of recovery of the remaining amounts due from the appellant as per the impugned order till final disposal of this appeal

Issues:
1. Waiver of predeposit and stay of recovery of demanded amounts.
2. Admissibility of credit availed on duty paid on a gear box and service tax on maintenance and repairs of a windmill.
3. Interpretation of 'input services' under CENVAT Credit Rules, 2004.
4. Applicability of service tax on insurance premia as an 'input service' for manufacturing operations.

Analysis:

Issue 1 - Waiver of predeposit and stay of recovery:
The appellant sought waiver of predeposit and stay of recovery of demanded amounts, including interest, based on the orders-in-original. The Commissioner (A) upheld the original authority's decision, leading to the impugned order. The appellant argued that the windmill's power generation, even located away from the factory, should entitle them to credit on capital goods and service tax on maintenance. However, the SDR opposed, stating that the windmill's activities did not have a direct nexus with manufacturing excisable goods. The Tribunal found the appellant failed to establish a strong case against the demand, interest, and penalty imposed. The Tribunal ordered the reversal of credit on insurance premia within a specified period, with a waiver of predeposit and stay of recovery for the remaining amounts until final disposal of the appeal.

Issue 2 - Admissibility of credit on gear box and maintenance service tax:
The appellant, engaged in manufacturing viscose yarn, availed MODVAT credit on a gear box used in a windmill located away from the factory. They also claimed credit on service tax for windmill maintenance. The original authority demanded the inadmissible credit, imposing penalties under CENVAT Credit Rules. The Commissioner (A) upheld this decision, stating that the windmill's capital goods and maintenance services did not directly contribute to the manufacturing operations. The Tribunal acknowledged the contentious nature of the issue, requiring detailed arguments at the final hearing stage to determine admissibility.

Issue 3 - Interpretation of 'input services' under CENVAT Credit Rules:
The Commissioner (A) found that the windmill's maintenance and repair services did not fall under the definition of 'input services' under CENVAT Credit Rules. The capital goods in the windmill were considered separate from those in the factory directly involved in manufacturing operations. Similarly, insurance services for employees were not deemed 'input services' related to manufacturing or clearance of final products. The Tribunal noted the evolving nature of tax laws and technology, suggesting that future provisions might explicitly cover such activities for credit eligibility.

Issue 4 - Applicability of service tax on insurance premia:
The appellant argued that service tax on insurance premia for factory workers should qualify as an 'input service' under the CENVAT scheme. However, the SDR contended that such service tax did not directly contribute to manufacturing or product clearance. The Tribunal agreed with the SDR, ordering the reversal of credit on insurance premia within a specified period. Compliance was required by a set date, with a waiver of predeposit and stay of recovery for the remaining amounts until final disposal of the appeal.

This detailed analysis of the judgment highlights the key issues, arguments presented by both parties, and the Tribunal's findings regarding the admissibility of credits and the interpretation of relevant legal provisions under the CENVAT Credit Rules.

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