2011 (2) TMI 811 - AT - Service Tax

Cenvat credit on inputs - The dispute relates to availability of credit of service tax paid on security services which was provided for the salt pan - Security services are area specific services - the specific exclusion salt pan from the definition of the term factory which definition is applicable to the Cenvat Rules, the security services which are area specific cannot be treated as input services. As regards the issue involves interpretation of legal provisions and the respondents cannot be held to have suppressed any relevant information and that extended period is not invokable and no penalty is imposable, deserves to be accepted - The belief of the respondents that they were eligible to take credit of service tax paid on security services utilized in a captive saltpan cannot be treated as other than bonafide belief - Therefore, no demand can be sustained invoking the extended period and further penalties are not justified.

Summary

Issues:
1. Availability of credit of service tax paid on security services for a captive saltpan.
2. Interpretation of the term "input services" in relation to a factory.
3. Applicability of extended period for demand and imposition of penalties.

Analysis:
1. The appeals before the Appellate Tribunal CESTAT, Chennai involved a dispute regarding the availability of credit of service tax paid on security services for a captive saltpan owned by the respondent, a manufacturer of products like soda ash and ammonium chloride. The department issued two Show Cause Notices denying the credit for different periods and imposing penalties under the Finance Act, 1994. The original authority upheld the demands, but the Commissioner (A) set aside the orders.

2. The department argued that the saltpan is not part of the factory manufacturing excisable goods, and services used in the saltpan cannot be considered input services for the factory. They contended that the definition of factory excludes premises where salt is produced. On the other hand, the respondent maintained that the saltpan is integral to their manufacturing process, and the security services provided to the saltpan should be considered indirectly used in the manufacture of final products.

3. The Appellate Tribunal analyzed the definition of "input services" under Rule 2(l) of the Cenvat Credit Rules and the exclusion of salt factory/works from the definition of factory under the Central Excise Act. While certain services like advertisements may not be linked to the factory, security services within the factory premises are considered input services. However, security services used in the saltpan, excluded from the factory definition, cannot be treated as input services. The Tribunal also noted that salt procured from other saltpans at nil duty rate cannot avail credit for security services.

4. Despite upholding the demand for a specific period, the Tribunal found the demand for an earlier period to be time-barred. It also set aside the penalties imposed, considering the respondents' belief in their eligibility for the credit as bona fide. The Tribunal concluded by setting aside the Commissioner's orders, restoring the original authorities' decisions, and specifying the upheld demands and the annulment of penalties.

This detailed analysis of the judgment highlights the key legal arguments, interpretations of relevant provisions, and the Tribunal's decision on each issue raised in the case.