2012 (8) TMI 685 - AT - Service Tax

Denial of Cenvat credit payment towards royalty Adjudicating Authority concluded that TR-6 challan is not a valid document on which they could take credit Held that - Respondent is paying tax as a recipient of service - So naturally the invoice issued by the foreign collaborators would not show the service tax element - So invoice which is the normal document against which Cenvat credit is to be taken is not applicable to this situation - claim for Cenvat credit being a substantial right it cannot be denied on the basis of procedures which cannot be implemented in the facts of the case

Summary

Issues:
1. Availing Cenvat credit on royalty payment to foreign collaborators.
2. Validity of TR-6 challan for taking credit.

Analysis:
1. The Respondent, engaged in manufacturing automotive cold forgings and motor vehicle parts, paid royalty to foreign collaborators and availed Cenvat credit under Cenvat Credit Rules, 2004. The Revenue contended that the service tax liability on the royalty payment was not discharged initially, but upon audit, the tax was paid. However, the Revenue argued that the service was not an input for the final product manufacturing, disallowing the credit of Rs. 6,81,953/- and imposing a penalty under Section 11AC of the Central Excise Act, 1944. The Adjudicating Authority found the service to be an input but disallowed the credit due to the use of TR-6 challan, which was deemed invalid before 16-6-2005 as per Rule 9 of the Cenvat Credit Rules, 2004.

2. The Respondent appealed to the Commissioner (Appeals), who allowed the credit based on a Tribunal decision and the essential nature of the technical know-how as an input service. The Revenue contested this decision, arguing that intellectual property services were not input services and TR-6 challan was not a valid document for credit. The Tribunal, after hearing arguments, upheld the Commissioner's decision. It reasoned that technical know-how was indeed essential for manufacturing, and the TR-6 challan could be used for credit before 15-6-2005, considering the unique circumstances of paying tax as a service recipient from foreign collaborators. The Tribunal rejected the Revenue's appeal, affirming the validity of both the credit on royalty payment and the use of TR-6 challan for Cenvat credit.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the Respondent's right to avail Cenvat credit on royalty payment to foreign collaborators and validating the use of TR-6 challan for the same purpose. The judgment emphasized the importance of technical know-how as an input service and the practicality of considering alternative documentation for credit in specific situations.