2012 (7) TMI 568 - AT - Service Tax

Scope of input service - Rule 2(l) cenvat credit rules, 2004 - contention by AO that services allowed are having no nexus with the manufacturing activity - assessee contention that definition of input service is an inclusive definition and services used even in relation to setting up, modernization, renovation or repairs of a factory etc. are included in the ambit of input service - Held that - Considering the case of CCE, MUMBAI-V Versus GTC INDUSTRIES LTD. 2008 (9) TMI 56 (Tri) Commissioner has failed to discuss individually how each of the services claimed by the respondent-assesses as input services in the light of inclusive part of the definition has been accepted by him - every input service availed by the manufacturer cannot be treated as eligible for input credit without looking into the nexus - the matter is remanded to the Commissioner (Appeals) to record his finding in respect of each of the disputed services have been treated as falling under input service in terms of Rule 2(1) of the CENVAT Credit Rules

Summary

Issues:
Appeal against Commissioner (Appeals) order denying credit on specific services for lack of nexus with manufacturing activity.

Analysis:
The case involves an appeal by the Department against the order of the Commissioner (Appeals) denying credit on various services for not having a nexus with the manufacturing activity. The assessee, a manufacturer of various products, availed CENVAT credit facilities on inputs, capital goods, and input services. The original authority denied credit on specific services, amounting to Rs. 3,64,324, for not being related to the manufacturing process. On appeal, the Commissioner (Appeals) allowed credit on most services but disallowed credit on services related to telephones and insurance premium not directly linked to the business. The Department argued that not all input services used by the manufacturer can be eligible for credit without a proper nexus. They contended that services used post-clearance of goods are not considered input services as they are unrelated to the manufacturing and clearance process. The Department also challenged the findings of the Commissioner (Appeals) regarding the eligibility of certain services under the CENVAT Credit Rules.

The respondent-assessee, on the other hand, supported the Commissioner (Appeals)' decision, emphasizing that the definition of input services is inclusive, covering services related to factory setup, modernization, and business activities. They argued that services like advertisement, sales promotion, market research, and others are explicitly included in the definition of input services, making them eligible for credit if they are connected to the business operations. The respondent stressed the importance of demonstrating a nexus between input services and the company's business to justify claiming credit.

Upon careful consideration of the arguments from both sides and reviewing the records, the judge found that the original authority denied credit on specific services without proper analysis of their nexus with the business activity. The Commissioner (Appeals) allowed credit on various services based on the inclusive definition of input services but failed to provide a detailed explanation for each service in light of the CENVAT Credit Rules. Therefore, the judge decided to remand the matter back to the Commissioner (Appeals) for a fresh consideration, instructing them to individually evaluate each disputed service to determine its eligibility under Rule 2(1) of the CENVAT Credit Rules. The judge allowed the appeal by way of remand, emphasizing the need for a thorough assessment of the nexus between the disputed services and the manufacturing activity before granting or denying credit.

In conclusion, the judgment highlights the importance of establishing a direct connection between input services and the business operations to claim CENVAT credit. It underscores the need for a detailed analysis of each service to determine its eligibility under the relevant rules and regulations, ensuring a fair and just decision regarding the allowance of credit in relation to manufacturing activities.