2010 (6) TMI 365 - AT - Service Tax

Waiver of pre-deposit - loan arranged using the services and the loan amount was used in their business activity - term input service is wide enough to cover the services utilised by them for the purpose of arranging loan - credit taken is regular - Held that - applicant could be treated as input service and therefore, the applicant has made out a case for waiver of pre-deposit of the dues - disposal of the appeal

Summary

Issues: Denial of Cenvat credit on service tax paid by a third party for arranging a loan for business activities; Interpretation of 'input service' under business auxiliary service; Validity of penalty imposed.

Denial of Cenvat credit on service tax paid by a third party for arranging a loan for business activities:
The case involved the denial of Cenvat credit amounting to Rs. 2,20,320/- in respect of credit taken on the service tax paid by a third party, M/s. Kapsons Associate Pvt. Ltd., for arranging a loan for the applicant's business activities. The original authority and Commissioner (Appeals) upheld the denial of credit and imposed a penalty of the same amount. The applicant argued that the loan was utilized in their business activity, and the term 'input service' should cover services used for arranging the loan. However, the Respondent contended that the applicant failed to provide details on how the loan amount was utilized to determine if the services were related to the business activity.

Interpretation of 'input service' under business auxiliary service:
The main issue revolved around the interpretation of 'input service' under the business auxiliary service. The applicant claimed that the services provided by M/s. Kapsons Associate Pvt. Ltd. for arranging the loan should be considered as input services, as the loan amount was used in their business activities. The Tribunal, after considering submissions from both sides and examining the records, found that the services utilized for arranging the loan could be treated as input services. Consequently, the Tribunal waived the pre-deposit of the dues and stayed the recovery until the appeal's disposal.

Validity of penalty imposed:
In addition to the denial of Cenvat credit, a penalty of Rs. 2,20,320/- was imposed on the applicant. The Tribunal's decision to waive the pre-deposit of the dues also indirectly addressed the validity of the penalty imposed. By considering the nature of the services provided by M/s. Kapsons Associate Pvt. Ltd. and their relevance to the applicant's business activities, the Tribunal impliedly acknowledged the regularity of the credit taken on the service tax paid by the third party. This, in turn, cast doubt on the validity of the penalty imposed, as it was based on the denial of the Cenvat credit, which was subsequently considered justifiable by the Tribunal.

This detailed analysis of the legal judgment highlights the key issues of denial of Cenvat credit, interpretation of 'input service,' and the validity of the penalty imposed, providing a comprehensive understanding of the Tribunal's decision and the arguments presented by both parties.