2014 (1) TMI 148 - AT - Service Tax

Availment of CENVAT Credit - Service tax paid for Business auxiliary service - Adjudicating authority disallowed CENVAT Credit - Nexus between its output and the two services - Held that - vehicles owned and used by the appellant for efficient execution of its business of manufacture of cement and allied products and the expenditure incurred in the legitimate use of such vehicles i.e. by obtaining statutory insurance for the vehicles and expenditure incurred for their maintenance i.e. for periodical service of the vehicles, would be inputs and wherever the service providers, of insurance of the vehicles or for maintenance of such vehicles are compensated in respect of the service tax payable by those entities for having provided the taxable services, those amounts could lawfully be treated as input services on which cenvat credit could be availed - impugned order is unsustainable and is accordingly quashed - Decided in favour of assessee.

Summary

Issues:
Appeal against common order-in-original involving cenvat credit on input services and capital goods under Cenvat Credit Rules, 2004. Dispute over availing cenvat credit on service tax for various periods based on bills of invoices issued by service providers. Disallowance of cenvat credit on insurance auxiliary service and authorised service station service. Nexus between output and input services in question. Interpretation of Rule 2(l) of the 2004 Rules.

Analysis:

The appellant, a company engaged in manufacturing excisable goods, cement, and cement clinker, availed cenvat credit on inputs, input services, and capital goods under the Cenvat Credit Rules, 2004. The Revenue observed discrepancies in availing cenvat credit on service tax for different periods based on invoices from service providers for Business Auxiliary Service, Insurance Auxiliary Service, and authorised service station service related to motor vehicles. Four show cause notices were issued covering these periods. The adjudicating authority dropped the demand for service tax, interest, and penalty concerning Business Auxiliary Service but assessed liability for other input services, namely insurance auxiliary service and authorised service station service, due to lack of nexus between output and these services.

The authority disallowed cenvat credit for insurance auxiliary service and authorised service station service, citing the need for an integral connection between the input services and the manufacture of the final product, referencing the Supreme Court decision in Maruti Suzuki Ltd. vs. CCE. However, the Tribunal's previous judgment in KPMG vs. CCE, New Delhi clarified the interpretation of Rule 2(l) of the 2004 Rules, expanding the definition of input service to include services used for miscellaneous repairs, procurement of inputs, and activities related to the business.

The Tribunal emphasized that "input service" encompasses any service used directly or indirectly by the manufacturer in relation to the manufacture of final products and clearance from the place of removal. The Tribunal concluded that the vehicles owned and used by the appellant for manufacturing cement and allied products, along with expenses for vehicle insurance and maintenance, qualify as inputs. Therefore, the amounts paid to service providers for taxable services like insurance and maintenance could be considered as input services eligible for cenvat credit.

Based on the statutory definition of input service and the legitimate use of vehicles for business operations, the Tribunal found the impugned order unsustainable and quashed the common adjudication order dated 25.09.2012. The appeals were allowed without costs, highlighting the importance of a broad interpretation of input services under the Cenvat Credit Rules, 2004.