2013 (7) TMI 781 - AT - Service Tax

Cenvat Credit - input service - insurance service - Whether the input service of the assessee would be covered under CENVAT credit rules- assessee took the input service credit in respect of insurance premium paid on turnkey contracts to the extent of cost of material procured from the open market Held that - The services are not covered under input service as defined under Rule 2(1) of the Cenvat Credit Rules, 2004 - credit was not admissible to the assessee because they had opted for payment of service tax only on the value of Erection, Commissioning and installation and not included value of material used by availing benefit of Notification No. 01/2006-ST - the services are neither used by the assessee for providing any output service nor used in or in relation to the manufacture of final products and clearance of final products from the place of removal - it is specifically written that benefit shall be available if Cenvat Credit of duty on inputs and capital goods or service tax credit of input services has not been availed appeal decided against the assessee.

Issues:
1. Admissibility of input service credit on insurance premium paid for turnkey contracts.
2. Utilization of input service credit in providing output services.
3. Correct application of Notification No. 01/2006-ST dated 01.03.2006.
4. Confirmation of demand and penalty under the Canvas Credit Rules, 2004.

Analysis:

1. The appellant, engaged in manufacturing excisable goods and providing taxable services, obtained an order for Rural Electricity Infrastructure and Household Electrification. Two separate contracts were entered into for supply of material/equipment and for Erection, Testing, and Commissioning. The appellant paid Service Tax on the value of output service but took credit of service tax paid on the entire insurance premium, including the cost of material procured from the market. The issue arose as to the admissibility of input service credit on the insurance premium for turnkey contracts.

2. The Adjudicating Authority confirmed the demand for wrongly availed input service credit against the appellant under the Canvas Credit Rules, 2004. The authority found that the credit taken by the appellant was not utilized in providing the output service of Erection, Commissioning, and Installation. The appellant had opted to pay service tax only on the value of services provided, excluding the value of material, leading to inadmissible input service credit.

3. The Commissioner (Appeals) examined the situation and Notification No. 01/2006-ST dated 01.03.2006. It was determined that the appellant had taken Cenvat credit on the entire insurance premium, including the cost of material procured from the market. As the credit was not used in providing the output services and the value of material was excluded from service tax payment, the input service credit was deemed irregular and inadmissible as per the rules.

4. The Tribunal, in the absence of the appellant during the submission, upheld the decision based on the Commissioner (Appeals) findings. It was noted that the issue was covered by the specific notification, and the appellant's arguments lacked merit. Consequently, the Order-in-Appeal was upheld, and the appeal was rejected, affirming the demand and penalty imposed under the Canvas Credit Rules, 2004.

This detailed analysis of the judgment provides insights into the issues surrounding the admissibility and utilization of input service credit, the correct application of relevant notifications, and the final decision reached by the Tribunal based on the submissions and legal provisions.

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