2010 (4) TMI 740 - AT - Service Tax

Waiver of pre-deposit - stay of recovery - Cenvat credit - Rule 2 of the Cenvat Credit Rules, 2004 - The demand pertains to inadmissible credit availed by the appellants of service tax paid on various services such as insurance, outdoor catering, health and fitness, event management, house keeping service, etc. - The major input required for provision of services of the assessee is trained manpower such as qualified engineers - The assessee and their personnel are open to risk of allegations of infringing laws relating to patent or condition of contract with clients, etc - Since the service tax relatable to outdoor catering was thus part of the taxable value of the final products, it was held that service tax paid for outdoor catering by the assessee was admissible as input service credit - the eligibility to credit of all these services and the plea of limitation have to be decided after hearing both parties at length at the final hearing stage - the pre-deposit of balance due is waived and recovery thereof stayed pending decision in the appeal

Issues Involved:
1. Demand of Cenvat credit of Rs. 6,43,73,664/- along with applicable interest.
2. Penalty at the rate of 2% per month on the above demand working out to Rs. 5,92,35,267/- under Section 76 of the Finance Act, 1994.
3. Penalty of Rs. 6,44,00,000/- imposed under Section 78 of the Finance Act, 1994.
4. Nexus of input services with output services.
5. Eligibility of Cenvat credit on various services.
6. Plea of limitation and suppression of material facts.

Issue-wise Detailed Analysis:

1. Demand of Cenvat credit of Rs. 6,43,73,664/- along with applicable interest:
The appellants, M/s. Satyam Computer Services Ltd., are registered as providers of various services including information technology software service, consulting engineer service, and business auxiliary service. They sought waiver of pre-deposit and stay of recovery of Cenvat credit of Rs. 6,43,73,664/- adjudged against them. The demand pertains to inadmissible credit availed on services such as insurance, outdoor catering, health and fitness, event management, and housekeeping service.

2. Penalty at the rate of 2% per month on the above demand working out to Rs. 5,92,35,267/- under Section 76 of the Finance Act, 1994:
The appellants were also subjected to a penalty of 2% per month on the demand, amounting to Rs. 5,92,35,267/-. The appellants challenged the penalty, arguing that the services in question enhanced the efficiency of employees and promoted business, thus should be eligible for credit.

3. Penalty of Rs. 6,44,00,000/- imposed under Section 78 of the Finance Act, 1994:
An additional penalty of Rs. 6,44,00,000/- was imposed under Section 78 of the Finance Act, 1994. The appellants contended that there was no suppression of material facts and that the demand was time-barred as they had furnished all relevant particulars in May and December 2008.

4. Nexus of input services with output services:
The appellants explained the nexus of the disputed activities with their output services. For example:
- Catering Charges: Incurred for tea, coffee, and snacks during official meetings, necessary for conducting business.
- Housekeeping Services: Essential for maintaining a healthy and hygienic facility for better output service.
- Insurance Policies: Necessary to attract and retain skilled employees and protect them against risks during business activities.

5. Eligibility of Cenvat credit on various services:
The Tribunal examined the eligibility of Cenvat credit on various services:
- Group Term Life Insurance, Travel Insurance, and Group Medishield Policies: Held as necessary for retaining talent and ensuring business continuity.
- Directors and Officers Policy, Crime Insurance Policy, and Professional Indemnity: Found to be input services as they relate to business activities.
- Health and Fitness Services and Event Management Services: The nexus with output services was not clearly established by the appellants.

6. Plea of limitation and suppression of material facts:
The appellants argued that the demand was time-barred and there was no suppression of material facts. However, the Tribunal noted that the plea of limitation might not apply to the entire demand and needed to be decided after a detailed hearing.

Conclusion:
The Tribunal ordered the appellants to make a pre-deposit of Rs. 1,00,00,000/- within four weeks and report compliance. Subject to compliance, the pre-deposit of the balance due was waived, and recovery was stayed pending the decision in the appeal. The eligibility of Cenvat credit and the plea of limitation were to be decided after a final hearing.

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