2013 (9) TMI 515 - AT - Service Tax

Management Consultancy Services assesse had availed CENVAT Credit of the Service Tax paid on these services under Rule 6(5) of the Cenvat Credit Rules, 2004 following the judgement of RPG Enterprises Ltd. Vs. Commissioner of Central Excise, Mumbai-IV 2008 (4) TMI 168 - CESTAT MUMBAI - the matter relating to services received in area such as Strategic planning, Corporate finance, Management information system, Forex management service, Human resources development, Project development etc. and held that services received in these areas would be rightly covered under the definition of Management Consultancy Services . Demand of CENVAT credit Held that - The demand was unsustainable in law - The cap of 20% on the utilisation of CENVAT Credit was lifted on 1.4.2008 - the assesse had the liberty to reverse Service Tax credit attributable to exempted services on a proportionate basis which the assesse had done - Inasmuch as the assesse had reversed the credit attributable to exempted services - they cannot be saddled with the liability to pay amount equal to 8% of the value of the exempted services Decided in favor of assesse.

Summary

Issues involved:
Classification of services under Management Consultancy Services or Business Support Services for availing CENVAT Credit; Eligibility of appellant to avail CENVAT Credit under Rule 6(5) of the Cenvat Credit Rules, 2004; Applicability of circulars issued by the Central Board of Excise and Customs (CBE&C); Interpretation of service agreement between the appellant and foreign service provider; Sustainability of demand for CENVAT Credit disallowed by the Revenue; Liability of appellant for interest and penalties under the Finance Act, 1994.

Detailed Analysis:

1. Classification of Services: The appellant, a registered service provider, received services from abroad which were classified by the department under Business Support Services, disallowing CENVAT Credit. The appellant argued that the services fell under Management Consultancy Services as per their service agreement and the definition under Section 65(65) of the Finance Act, 1994. They relied on expert opinions and CBE&C circulars to support their claim.

2. Eligibility for CENVAT Credit: The appellant contended that even if services were classified as Business Support Services, the 20% cap on CENVAT Credit was lifted post-April 2008, and they had opted for proportionate credit utilization. They referenced a CBE&C circular to argue that only interest on excess credit should be demanded, not penalties. The appellant maintained their right to avail credit under Rule 6(5) of the Cenvat Credit Rules, 2004.

3. Interpretation of Agreements: The Tribunal analyzed the service agreement between the appellant and the foreign service provider, emphasizing the nature of services received, including sales planning, marketing, financial, and logistic management. The Tribunal found that the services aligned more with Management Consultancy Services based on the agreement terms and descriptions in invoices.

4. Sustainability of Demand: The Revenue argued that the services received were related to information tracking, distribution, and logistics, falling under Business Support Services. However, the Tribunal disagreed, citing the definition of Management Consultancy Services under Section 65(65) and previous judgments, including RPG Enterprises Ltd. The Tribunal found the Revenue's classification unsustainable in law.

5. Liability and Penalties: The Tribunal ruled in favor of the appellant, allowing the appeal and setting aside the demand for CENVAT Credit disallowed by the Revenue. The Tribunal also rejected the demand for penalties and held that any liability for excess credit availed should be restricted to interest only, as per the circular dated 21.11.2008 issued by the Board.

6. Final Decision: The Tribunal allowed the appeal, concluding that the appellant was rightly entitled to avail 100% CENVAT Credit on the services received, either under Management Consultancy Services or post-lifting of the 20% cap. The demand for penalties and excess credit for the period post-April 2008 was set aside, and the appellant's liability was limited to interest on excess credit availed.

This detailed analysis covers the classification of services, eligibility for CENVAT Credit, interpretation of agreements, sustainability of demand by the Revenue, and the final decision regarding liability and penalties.