2014 (4) TMI 605 - AT - Central Excise

Denial of Cenvat credit - Exempted services - Held that - Out of the Rs. 3.83 crore credit taken as mentioned above, about Rs.91 lakhs pertains to the period after 01/04/2011 when the definition of input service was amended so as to exclude certain services from the purview of input service . Therefore, the denial of Cenvat credit on these excluded services, prima facie, appears to be sustainable in law. As regards the balance services, the major amount pertains to 3 or 4 services, namely, air travel agent services, outdoor catering service, rent-a-cab service, tour operator service, and club or association service. These account for Rs.3.64 crore of the total credit taken - it is for the person availing the credit to establish the nexus between the input services and the manufacture /clearance of excisable goods and in the absence of any nexus between the two, input service credit can be rightly denied. After going through the adjudicating authority s order, we find that the reasons given by him for denying the credit are impeccable and cannot be brushed aside. The appellant has not pleaded any financial hardship. Thus, in the absence of a prima facie case and financial hardship, the balance of convenience lies in favour of Revenue - Conditional stay granted.

Summary

Issues:
Recovery of excise duty and penalty on ineligible Cenvat credit taken by the appellant.

Analysis:
The appellant, a manufacturer of paints, varnishes, and thinners, availed input service tax credit for various services used in their manufacturing activities. The department issued show-cause notices proposing to deny Cenvat credit of approximately Rs. 59 crore for 24 input services, out of which credit for Rs. 3.84 crore was denied by the adjudicating authority. The appellant contended that the denied credits had a direct nexus with their manufacturing operations, supported by documentary evidence. They argued that services like travel, catering, real estate, and club memberships were essential for their manufacturing activities. The appellant cited precedents where input service credit was allowed for similar services. They requested a remand for fresh consideration, emphasizing the need to explain the nexus between services and manufacturing activities.

The Revenue, on the other hand, defended the denial of credit, stating that the adjudicating authority allowed credit of about Rs. 55 crore but denied Rs. 3.93 crore after finding no established nexus between the services and manufacturing activities. The Revenue relied on tribunal decisions emphasizing the necessity of proving a connection between input services and manufacturing outputs. They argued for upholding the denial of credit and putting the appellant to terms.

The tribunal examined the details of each denied service credit and found that some services lacked a clear nexus with manufacturing activities. For instance, the tribunal noted discrepancies in invoices related to services like rent-a-cab, tour operators, outdoor catering, and club memberships. The adjudicating authority's findings were deemed valid, following the principle that the burden of establishing the nexus between input services and manufacturing lies with the appellant. The tribunal directed the appellant to make a pre-deposit of the denied credit amount within six weeks, with further proceedings contingent on compliance. Failure to comply would result in dismissal of the appeals without additional notice.