2011 (4) TMI 155 - AT - Service Tax

Cenvat Credit input service - van hiring charges - Demand of duty together with interest and penalty - Transporting of employees to the factory and back, has a direct nexus with the assesseees business of manufacture of final product, as without the employees being present in the factory, manufacture cannot takes place - The appeal of the assessees is allowed.

Summary

Issues:
1. Availment of credit of service tax on Van Hire charges for transport of company's employees.
2. Demand of duty, interest, and penalty based on service tax availed.
3. Appeal against confirmation of demand, interest, and penalty by lower appellate authority.
4. Revenue's appeal against reduction in penalty amount.

Analysis:

1. The case involved the assessees availing credit of service tax paid on Van Hire charges for transporting the company's employees during a specific period. A Show Cause Notice was issued, demanding duty, interest, and penalty on the grounds that the service tax paid was not related to the manufacture of final products as per Cenvat Credit Rules, 2004.

2. The Order dated 15.01.09 confirmed the demand, interest, and imposed a penalty, which was later reduced by the lower appellate authority. The assessees appealed against the confirmation of demand, interest, and penalty, while the Revenue appealed against the reduced penalty amount.

3. The Tribunal considered the lower appellate authority's reliance on a previous decision and highlighted judgments by the Hon'ble Bombay High Court. The High Court's rulings emphasized the necessity of a nexus between the service or activity and the business of the assessee to qualify as input services. The Tribunal found that transporting employees to the factory directly relates to the business of manufacturing final products, as production cannot occur without the presence of employees. Consequently, the Tribunal held that the assessees were entitled to credit, thereby setting aside the demand, interest, and penalty.

4. In conclusion, the Tribunal allowed the assessees' appeal, dismissing the Revenue's appeal for enhancing the penalty amount. The judgment emphasized the importance of establishing a direct nexus between the service availed and the business activities to determine the eligibility for credit under the Cenvat Credit Rules, 2004.