2013 (10) TMI 681 - AT - Service Tax

CENVAT credit - Nexus of credit with manufacturers of hot briquetted iron and sponge iron - Held that - The shipping fee has been paid for the usage of tugs and barges for the transportation of the goods from the high seas to the jetty. If the service has been provided by an outside agency and not by the appellant themselves, the question of taking Cenvat credit by the appellant of the service tax paid by the provider such services would not have arisen at all. Therefore, there is merit in the contention of the Revenue that the service tax paid on shipping fee is not an eligible input service as defined in Rule 2(l) of the Cenvat Credit 2004. Merely because the appellant had undertaken the operation of the tugs and barges, it cannot be said that such services would be an eligible input service as defined in Rule 2 (l) of the Cenvat Credit Rules, 2004. However, this issue will have to be examined in depth at the time of final disposal of the appeal. Inasmuch as in appellant s own case for the previous period, credit has been allowed without examining the issue in detail, at the interim stage of stay, I grant waiver from pre-deposit of dues adjudged against the appellant and stay recovery thereof during the pendency of the appeal - stay granted.

Summary

Issues:
1. Eligibility of Cenvat credit on service tax paid for shipping fees related to transportation of raw materials.
2. Nexus between transportation of goods using tugs and barges and manufacturing activity.

Analysis:
1. The appellant, a manufacturer of hot briquetted iron and sponge iron, paid shipping fees for tugs and barges used to transport raw materials. The Revenue contended that there was no nexus with the manufacturing activity, proposing to deny Cenvat credit of Rs.1,01,467/- availed by the appellant. The appellant argued that transportation of goods using tugs and barges directly impacted their manufacturing activity, citing a Tribunal decision in their favor. The Ld. Counsel sought a stay based on this argument.

2. The Revenue argued that the transportation activity did not relate to the manufacturing process, as the cost of transportation was included in the assessable value of imported goods. They claimed that the shipping fee was for transportation from high seas to the jetty, not directly linked to manufacturing. The Tribunal considered both sides' submissions and noted that if the service was provided by an outside agency, the issue of Cenvat credit would not arise. While acknowledging the Revenue's argument, the Tribunal granted waiver from pre-deposit of dues and stayed recovery pending appeal, emphasizing the need for a detailed examination during the final disposal.

This judgment highlights the importance of establishing a direct nexus between input services and manufacturing activities to claim Cenvat credit. The Tribunal's decision to grant a stay reflects a cautious approach pending a thorough examination of the issue.