2013 (10) TMI 688 - AT - Service Tax

CENVAT credit - Business auxiliary service - Whether the input services namely, sale of equity shares would be applicable for the output service of the consulting engineering service, erection, commissioning and installation service, maintenance and repair service etc - Held that - final product of the applicant namely fertilizer is exempted from the central excise duty. Prima facie, we are not impressed with the submission made by the learned counsel that the sale of equity shares has nexus with the output service. We have also considered the financial hardship as revealed from the balance sheet - stay granted partly.

Summary

Issues:
1. Denial of CENVAT credit on input services related to sale of equity shares.
2. Nexus between input services and output services for availing credit.
3. Exemption of final product from excise duty affecting credit eligibility.
4. Financial hardship of the company as a mitigating factor.

Analysis:
1. The appellant, engaged in manufacturing chemical fertilizer and providing taxable output services, availed CENVAT credit on input services related to the sale of equity shares of joint venture companies. Two show-cause notices were issued proposing to deny the credit, leading to a demand of tax, interest, and penalty by the adjudicating authority.

2. The appellant argued that the input services were utilized for financing and procurement of raw materials, falling within the definition of 'input service credit'. The learned counsel contended that the credit should not be denied, emphasizing the financial hardship faced by the company. However, the respondent contended that the sale of equity shares could not be linked to any output service, especially since the final product was exempted from excise duty during the relevant period.

3. The Tribunal deliberated on the nexus between the input services (sale of equity shares) and the various output services provided by the appellant. Considering that the final product (fertilizer) was exempted from excise duty, the Tribunal expressed skepticism regarding the connection claimed by the appellant. The Tribunal also took into account the financial hardship indicated by the company's balance sheet.

4. Ultimately, the Tribunal directed the appellant to pre-deposit a specific amount within a stipulated period, with the pre-deposit of the balance dues being waived upon compliance. The recovery of the waived amount was stayed pending the appeal process, as per the pronouncement made in open court.

This detailed analysis of the judgment addresses the issues raised, the arguments presented by both parties, and the Tribunal's reasoning leading to the final directive regarding the denial of CENVAT credit on input services related to the sale of equity shares.