2011 (5) TMI 834 - AT - Service Tax

Cenvat credit - whether the appellant is eligible to take credit for the full amount of tax paid on the commission paid to the Agents and for the full amount of tax paid on insurance premium paid - Revenue submits that the appellant had two distinct contracts with their clients for supply of materials and for Erection and Commissioning. Just because commission and insurance premium are paid on the sum of the values of the two contracts it does not mean that services for executing the first contract is input service for executing the second contract Held that - When the contract for supply of material is a separate contract the service used for executing the contract cannot be considered as used in providing output service, appellant should deposit an amount of Rs. 30 lakhs, balance dues arising out of the impugned order shall be waived

Summary

Issues:
1. Eligibility of credit for tax paid on commission and insurance premium.
2. Interpretation of Cenvat Credit Rules regarding input services.
3. Contention on limitation period for invoking extended period.

Analysis:
1. The appellant, engaged in executing turnkey projects for rural electricity infrastructure, faces a dispute on credit eligibility for tax paid on commission and insurance premium. The Revenue argues for credit only on service tax paid on commission and insurance related to services, while the appellant claims full credit for taxes paid. The Revenue issued a notice demanding excess credit, contending that the commission should be split based on the value of materials and services. The appellant asserts eligibility under Notification 12/2003-S.T. and necessity of material procurement for services.

2. The interpretation of Cenvat Credit Rules is crucial. Rule 3 allows credit on tax paid for input services received by output service providers. The appellant's argument that credit was declared in ST-3 returns challenges the Revenue's invocation of the extended period for limitation. The Revenue maintains that services for separate contracts cannot be considered input services for each other. Rule 6, in conjunction with Rule 3, seemingly favors the Revenue's position, emphasizing the distinction between contracts for material supply and execution services.

3. The appellant contests the Revenue's demand on limitation grounds, citing timely reporting of credits in ST-3 returns. The Tribunal finds the objection regarding the extended period in favor of the appellant due to the timely reporting. Considering the demand within one year, the Tribunal orders a deposit of Rs. 30 lakhs for appeal admission, waiving the balance dues from the impugned order with a stay on collection during the appeal's pendency. Compliance is required by a specified date for further proceedings.