2014 (4) TMI 839 - AT - Central Excise

Waiver of pre deposit - Denial of CENVAT Credit - Cenvat credit of service tax paid on housekeeping and cleaning service availed for cleaning of the factory shed, legal services and event management service availed for organising functions for honouring the employees for their outstanding work - Held that - Prima facie, I find that so far as the service of housekeeping and cleaning availed in respect of the factory shed is concerned, keeping the factory neat and clean is a statutory requirement in terms of Section 11 of Factories Act, 1948 and, hence, this service has to be treated as service having direct nexus with the manufacture of the final product, as without compliance with the provisions of the Factory Act, no manufacturer can engage in the manufacturing activity. Therefore, the impugned order disallowing the Cenvat credit in respect of this service is not correct. Impugned orders denying the Cenvat credit in respect of the above-mentioned services are not correct and the appellant have strong prima facie case in their favour. Hence, the requirement of pre-deposit of Cenvat credit demands, interest thereon and penalty is waived for hearing of these appeals and recovery thereof is stayed till the disposal of the appeals - Stay granted.

Summary

Issues Involved:
1. Eligibility for Cenvat credit of service tax paid on housekeeping, cleaning service, legal services, and event management service for specific periods.
2. Dispute regarding the denial of Cenvat credit by the department.
3. Imposition of penalties and recovery of Cenvat credit along with interest.

Analysis:

Issue 1: Eligibility for Cenvat Credit
The appellant, a manufacturer of automobile parts, availed services like housekeeping, cleaning, legal services, and event management during specific periods. The dispute arose regarding the eligibility of Cenvat credit for these services. The appellant argued that housekeeping and cleaning services are essential under the Factories Act, 1948, and have a direct nexus with manufacturing activities. The event management service was availed to recognize outstanding employee performance, thereby enhancing productivity. Legal services were also deemed necessary for managing tax disputes. The Tribunal held that these services qualify as input services, especially legal services post-1/4/11, based on precedents like Andhra Pradesh Paper Ltd. The Tribunal found a strong prima facie case in favor of the appellant, waiving the pre-deposit requirement and staying the recovery of Cenvat credit, interest, and penalties.

Issue 2: Dispute and Denial of Cenvat Credit
The department issued show cause notices denying Cenvat credit for the services availed by the appellant, invoking extended periods under the Central Excise Act, 1944. The jurisdictional Assistant Commissioner confirmed the demands and imposed penalties. On appeal, the Commissioner (Appeals) upheld the orders, leading to the filing of appeals and stay applications. The appellant argued that the services directly related to manufacturing activities and business operations, justifying the eligibility for Cenvat credit. The Departmental Representative opposed the stay applications, claiming no nexus between the services and manufacturing activities. However, the Tribunal disagreed, emphasizing the statutory requirements and business-enhancing nature of the services availed.

Issue 3: Imposition of Penalties and Recovery
The orders-in-appeal confirmed the Cenvat credit demands and penalties imposed by the Assistant Commissioner. The penalties varied for different periods of dispute. The appellant sought relief from the pre-deposit requirements, emphasizing the essential nature of the services availed. The Tribunal, after considering submissions from both sides and perusing the records, found in favor of the appellant. The Tribunal held that the denial of Cenvat credit for the services in question was incorrect, citing statutory obligations and business-related justifications. Consequently, the Tribunal waived the pre-deposit requirement, stayed the recovery of Cenvat credit, interest, and penalties, allowing the appeals to proceed.

This detailed analysis highlights the key issues of eligibility for Cenvat credit, dispute resolution, and penalty imposition in the context of the legal judgment delivered by the Appellate Tribunal CESTAT NEW DELHI.