2013 (9) TMI 393 - AT - Service Tax

Stay Application - Denial of CENVAT credit of service tax - The appellants are manufacturers of L.P.G. stoves and these stoves were marketed through distributors of BPCL and IOCL - The appellant (manufacturer of stoves) paid lump sums annually to BPCL and IPCL, and also a commission to their distributors on the basis of the sales turnover - Paid service tax under the head business auxiliary services As per revenue is that this credit is not admissible to the appellant inasmuch as it related to activities beyond the place of removal. This case is based on the definition of input service . Held that - Prima facie, the appellant was receiving commission agents services from BPCL and IOCL and their distributors stay granted.

Summary

Issues:
Denial of CENVAT credit to the appellant by the adjudicating authority for a specific period and imposition of penalty based on payments made to Bharat Petroleum Corporation Ltd. (BPCL) and Indian Oil Corporation Ltd. (IOCL) and their L.P.G. distributors.

Analysis:
The judgment by the Appellate Tribunal CESTAT Bangalore pertains to the denial of CENVAT credit amounting to Rs.1.19 crores to the appellant for the period from May 2006 to May 2010, along with the imposition of an equal penalty. The disputed demand arose from the denial of CENVAT credit of service tax on payments made by the appellant to BPCL, IOCL, and their L.P.G. distributors during the relevant period. The appellant, engaged in manufacturing L.P.G. stoves, distributed their products through the distributors of BPCL and IOCL, making lump sum payments annually to these entities and commissions based on sales turnover. It was noted that BPCL, IOCL, and their distributors had paid service tax under "business auxiliary services" on the amounts received from the appellant, for which the appellant claimed CENVAT credit. The revenue contended that this credit was inadmissible as it pertained to activities beyond the place of removal, based on the definition of "input service." Conversely, the appellant argued that the services provided by BPCL, IOCL, and their distributors were directly related to their business activity of stove manufacturing, supported by a Board's Circular and a Tribunal's Final Order.

The Tribunal considered the submissions and found a prima facie case in favor of the appellant. It was acknowledged that the credit in question was taken for service tax paid by BPCL, IOCL, and their distributors on the amounts paid by the appellant, directly related to the latter's business activities. The Tribunal noted that the Board's Circular had clarified a similar point favoring the assessees, and a previous Final Order by the Tribunal had dealt with a comparable scenario regarding CENVAT credit entitlement on services provided by commission agents. The Tribunal observed that the appellant was receiving services from BPCL and IOCL akin to "commission agents' services." Consequently, the Tribunal granted waiver and stay as requested by the appellant, indicating a favorable stance towards the appellant's position based on the prima facie assessment of the facts presented.

In conclusion, the judgment highlighted the importance of the direct connection between the services received and the appellant's business activities in determining the eligibility for CENVAT credit, emphasizing the relevance of supporting circulars and precedents in interpreting such matters within the realm of tax law.