2015 (1) TMI 505 - AT - Service Tax

Denial of CENVAT Credit on Input Service - quality control services / Business Auxiliary Service - Reverse Charge Mechanism - Nexus with manufacturing activity - service activity was rendered outside India, outside the place of removal of excisable goods - whether service tax paid by the respondent as recipient of service under Section 66A of Finance Act is eligible to be taken as cenvat credit under CCR 2004 during the period of dispute viz. March 2007 to July 2007 - Held that - respondent is a 100% EOU for manufacture and export of Rear Axels Housing which is classifiable under CH 87089900 of CETA 85 as motor vehicle parts. These goods are manufactured by the respondent as per the design and specification provided by the buyer. These Rear Axles Housing are used in the assembly/ manufacture of motor vehicle at the buyer s end. The respondents have carried out the activities of removing the rust developed during transit, deburring of certain machined area of axels and also cross checking of dimensions. I find that they engaged a Overseas service provider to carry out these activities at buyer s premises at USA. As seen from the SCN, and the adjudication order the only ground on which the service tax credit was denied is that services were rendered outside the place of removal of goods from the factory premises which is in the nature of post-removal activities. Respondents have availed the services of overseas service provider to carry out quality control activity on Rear Axle Housings at buyer s premises. Appellant being 100% EOU, they have secured orders for fulfillment of export obligation. Being manufacturer of Rear Axles Housing (Motor Vehicle parts), as per the drawing, design and specifications of the overseas buyer, the respondents have to ensure that the activities viz. removal of rust, deburring, quality control checking are done at buyer s premises. If the respondent do not satisfy the quality of the parts manufactured by them, and if it results in rejection, certainly, it will be a loss to his business. Therefore, these activities are related to quality control and in relation to the business of the respondent. Therefore, I am of the considered view that the said services availed by the respondents from the overseas service provider are rightly covered in the inclusive definition of input services defined under Rule 2 (l) of CCR 2004. - Following decision of Coca-cola India (P) Ltd. 2009 (8) TMI 50 - BOMBAY HIGH COURT and CCE Vs Nilkamal Crates & Bins 2010 (2) TMI 232 - CESTAT, AHMEDABAD - Decided against Revenue.

Summary

Issues Involved:
1. Eligibility of Cenvat credit for service tax paid under reverse charge mechanism.
2. Interpretation of "input services" under Rule 2(l) of CCR 2004.
3. Applicability of case laws cited by both parties.

Detailed Analysis:

1. Eligibility of Cenvat Credit for Service Tax Paid Under Reverse Charge Mechanism:
The core issue in the appeal is whether the service tax paid by the respondent as a recipient of service under Section 66A of the Finance Act is eligible for Cenvat credit under CCR 2004 for the period from March 2007 to July 2007. The adjudicating authority initially demanded the reversal of the service tax credit availed by the respondent on the grounds that the services were rendered outside the place of removal and were considered post-removal activities. The Commissioner (Appeals) set aside this order, allowing the respondent's appeal. The Tribunal upheld this decision, stating that the payment of service tax by the respondent as a recipient of service is not disputed, and the services availed were related to quality control activities essential for the business.

2. Interpretation of "Input Services" Under Rule 2(l) of CCR 2004:
The dispute revolves around the interpretation of the inclusive definition of "input service" under Rule 2(l) of CCR 2004. The Revenue argued that the activities carried out by the overseas service provider do not qualify as "input services" since they were rendered outside the place of removal and were post-manufacturing activities. However, the respondent contended that the definition of "input service" should be read in totality and not in isolation. The Tribunal agreed with the respondent, noting that the activities such as removing rust, deburring, and quality control checks are directly related to the business and fall within the inclusive definition of "input services." The Tribunal emphasized that the inclusive part of the definition must be read together, supporting the respondent's interpretation.

3. Applicability of Case Laws Cited by Both Parties:
The Revenue cited several case laws to support their contention, including CCE Ahmedabad Vs Cadila Healthcare Ltd., CCE Nagpur Vs Manikgarh Cement, and CCE Vs Gujarat Heavy Chemicals Ltd. However, the Tribunal found these cases inapplicable to the present case. For instance, the Cadila Healthcare case related to commission paid to foreign agents, which is different from the quality control activities in question. Similarly, the Manikgarh Cement case involved welfare activities unrelated to manufacturing. On the other hand, the Tribunal found the respondent's reliance on the case of CCE Vs Nilkamal Crates & Bins and the Bombay High Court's decision in Coca Cola India Pvt. Ltd. Vs Commissioner more relevant. These cases supported the view that services related to business activities, including quality control, are eligible for Cenvat credit.

Conclusion:
The Tribunal concluded that the services availed by the respondent from the overseas service provider for quality control activities at the buyer's premises are rightly covered under the inclusive definition of "input services" as per Rule 2(l) of CCR 2004. The Tribunal upheld the order of the Commissioner (Appeals) and rejected the Revenue's appeal, affirming the respondent's eligibility for Cenvat credit on the service tax paid under reverse charge. The cross-objection filed by the respondent was also disposed of.

(Pronounced in open court on 9.1.2015)