2014 (1) TMI 610 - AT - Service Tax

Disallowance of CENVAT Credit - Imposition of penalty - Nexus with input service and manufacture - Held that - credit could be availed on the tax paid on the input service, as long as the manufacturer could demonstrate that the advertisement services availed had an effect or impact on the manufacture of the final product and establish the relationship between the input service and the manufacture of the final product. Once the cost incurred by the service had to be added to the cost, and was so assessed, it was recognition by Revenue of the advertisement services having a connection with the manufacture of the final product. This test would also apply in the case of sales promotion. We find that this observation on the link with the assessable value of the final product was incidental in the facts of that case and that the language of the definition and the reading of their lordships do not find such a requirement for services to qualify as input services. It would, therefore, appear that all services which constitute activities related to business need not have a nexus with manufacture - issues involved are complex and do not lend themselves to one clear interpretation - Therefore, penalties are set aside - Other matter remitted back to Commissioner - Decided partly in favour of assessee.

Issues Involved:
1. Jurisdiction of the Commissioner, Belgaum.
2. Admissibility of CENVAT credit for various input services.
3. Requirement of integral connection between input services and the business of manufacturing.

Detailed Analysis:

1. Jurisdiction of the Commissioner, Belgaum:
The appellant challenged the jurisdiction of the Commissioner, Belgaum, to adjudicate the show-cause notices proposing to disallow and recover credit of service tax distributed by the Input Service Distributor (ISD) based in Bangalore. The Tribunal unanimously held that the Commissioner must decide the jurisdiction question in the remand proceedings.

2. Admissibility of CENVAT Credit for Various Input Services:

(i) Air Travel Agent's Service:
The appellant claimed credit for service tax paid on air tickets for employees' travel related to sales promotion. The Commissioner denied the credit due to lack of evidence. The Tribunal remanded the matter to allow the appellant to establish entitlement to the credit.

(ii) Rail Travel Agent's Service:
Similar to the Air Travel Agent's service, the credit was disallowed due to insufficient evidence. This issue was also remanded for re-evaluation.

(iii) Car Hiring/Rent-a-Cab Service:
The appellant claimed this service was used for marketing and sales. The matter was remanded to allow the appellant to provide evidence supporting their claim.

(iv) Authorized Service Station Service:
The appellant claimed the service was used for maintaining vehicles used in sales promotion. The Tribunal remanded the matter for fresh consideration.

(v) Management Consultancy Service:
The appellant availed consultancy services for employee welfare measures. The Tribunal held that these services could qualify as input services if they are activities related to business and remanded the matter for re-evaluation.

(vi) Maintenance or Repair Service:
The appellant provided free services during the warranty period and charged services post-warranty through dealers. The Tribunal allowed credit for services during the warranty period and for post-warranty services as they were related to sales promotion.

(vii) Recovery Agent's Service:
The service was used for recovering payments from customers. The Tribunal held that the credit could be allowed if the service is related to business activities and remanded the matter.

(viii) Insurance and Courier Service:
The appellant claimed credit for insurance of business premises and medical insurance for employees, and for courier services used in transporting materials. The Tribunal allowed credit for these services as they were related to business activities.

(ix) Professional Fee Service:
The appellant claimed credit for professional fees related to accounting and documentation. The Tribunal remanded the matter for the appellant to establish the nature of the services.

(x) Annual Maintenance Contract of Photocopier Machines:
The Tribunal allowed credit for this service as it was used for business operations.

(xi) Club Association Service:
The Tribunal upheld the Commissioner's decision to deny credit for this service as it was not related to business activities.

(xii) Courier Service:
The Tribunal allowed credit for courier services used in transporting spares for maintenance and repair services.

(xiii) GTA Service:
The Tribunal allowed credit for transportation from the factory to the depot and from the factory to the customer's place if certain conditions were met. The matter was remanded for verification.

(xiv) Packing Expenses:
The Tribunal remanded the matter to verify if the packing services were related to the business activities.

3. Requirement of Integral Connection Between Input Services and the Business of Manufacturing:
The Tribunal discussed the requirement of establishing an integral connection between the service and the business of manufacturing. The decision in the case of Ultratech Cement Ltd. was considered, which held that activities must be integrally connected with the business of manufacturing to qualify as input services. The Tribunal remanded several issues to the Commissioner to determine if the services were integrally connected with the business of manufacturing.

Conclusion:
The Tribunal set aside the impugned order and remanded the matter to the Commissioner for de novo adjudication. The Commissioner must determine whether the services involved activities integrally connected with the business of manufacturing and provide the appellant with a reasonable opportunity to present their case.

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