2014 (2) TMI 481 - AT - Service Tax

Waiver of pre deposit - CENVAT Credit - Input service distributor (ISD) - nexus with manufacturing activity - trading activity - Held that - Commissioner has not examined the service-wise eligibility for the credit involved but has only given a general finding in paras 27 & 28 of the adjudication order. The question whether the disputed input services were in relation to taxable output services or manufacturing activity is not examined. Further services like advertisement services continued to be covered by Rule 2 (l) of CCR Rules 2004 - Against the contention of the assessee, that they have had transferred only about 34.78% of the credit proportional to the turnover of manufacturing no finding is given - In view of these factors and the fact that the defects in ISD invoices are curable defects we are of the view that it is not proper to call for any pre-deposit for admission of appeal. Therefore, requirement of pre-deposit is waived and there shall be stay on collection of such dues during the pendency of the appeal - Stay granted.

Summary

Issues:
1. Credit distribution by Input Service Distributor (ISD) for payment of excise duty.
2. Eligibility of credit on services post amendment in Cenvat Credit Rules, 2004.
3. Compliance with details on ISD invoices for input services distributed.

Analysis:
1. The judgment concerned a manufacturer of computers engaged in providing services and trading in computers. The manufacturer's Bangalore office, registered as an ISD, transferred credit of service tax paid on services to the factory in Pondicherry for excise duty payment. Revenue raised objections regarding the credit transfer during a specific period. The first issue was the distribution of credit for trading activity, while the second issue involved credit eligibility post an amendment omitting "activities relating to business" from the definition of input services. The third issue pertained to insufficient details on ISD invoices issued for input services distribution.

2. The applicant contended that credit distribution was based on a specific ratio considering the value of manufactured goods and taxable services in proportion to traded goods. They argued that the credit was calculated in compliance with the rules, and any pre-deposit would be unjust as they had not availed benefits for which payment was demanded. The Commissioner's failure to assess service-wise credit eligibility was highlighted, with the applicant asserting that services like advertising remained covered under the Cenvat Credit Rules.

3. The Revenue argued that the amendment to the definition of input services rendered many services ineligible for credit transfer, as they were not directly or indirectly related to manufacturing activities. The Revenue contended that the services passed on by the ISD were primarily for trading activities, lacking a connection to manufacturing. The need for pre-deposit was emphasized due to the alleged ineligibility of the credit taken by the applicant.

4. The Tribunal noted the lack of service-wise eligibility assessment by the Commissioner and the absence of findings on the credit transfer ratio. It was observed that certain services continued to be covered under the Cenvat Credit Rules, despite the amendment. The Tribunal waived the pre-deposit requirement, considering the curable defects in ISD invoices and the substantial revenue involved. An early hearing application was granted, aligning the case with related appeals for efficient resolution.