2015 (1) TMI 1147 - AT - Service Tax

Denial of Input service credit - technical know-how fees and travel agent service - Held that - the service tax paid on services provided by travel agent for travelling of company officials is eligible for CENVAT credit and even the Commissioner (Appeals) has conceded as much. However, he has not given any reason as to why the impugned credit was not admissible when the appellants clearly stated that the services were for the official travels of the officials for the purposes mentioned earlier. Thus, I do not find the denial of the said credit sustainable. - Following decision of Vidyut Metallics Pvt. Ltd. Vs. CCE 2012 (11) TMI 376 - CESTAT, MUMBAI . Commissioner (Appeals) has denied the credit on the ground that the said amount of service tax was in relation to the technical know-how for production of two products namely Candisartan and Irbesartan and has been denied on the ground that the said products have not been manufactured by the appellants - observation of the Commissioner (Appeals) does not flow from any legal requirement. The technical knowhow once obtained begins to be utilised for the purpose of manufacture of products for which it was obtained as such technical knowhow is relevant/required right from the point of setting up the necessary wherewithals required for manufacturing the product. Further as per Rule 4(7) of Cenvat Credit Rules, 2004, CENVAT credit in respect of input services becomes available on or after the date on which payment is made for the value of the input service. Commissioner (Appeals) has stated that they should have been initiated the production of their final goods utilising the said technical knowhow within a reasonable period of time, but has failed to elaborate what in his view would be a reasonable period of time or whether there is any legal yardstick to determine such reasonable period. - Commissioner (Appeals) has attempted to distinguish the judgement 2009 (8) TMI 172 - CESTAT, AHMEDABAD on the ground that in that case the appellant had initiated the trial production. But as is evident, in that case also no duty was paid on the final product as it never reached the market. The ratio of the CESTAT judgement in the case of Cadila Healthcare Ltd. (supra) is clearly supportive of the appellants claim. Thus, I do not find sufficient reasons for denial of the impugned credits - Following decision of Cadila Health Care Ltd. Vs. CCE 2009 (8) TMI 172 - CESTAT, AHMEDABAD - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of input service credit for technical know-how and travel agent service.

Detailed Analysis:

1. Disallowance of Input Service Credit for Travel Agent Service:
The Commissioner (Appeals) disallowed the input service credit of Rs. 59,651 for travel agent services, stating that the credit is admissible only to the extent of use in the manufacture of the final product. The appellants argued that the services were availed for official purposes like promoting goods or procuring raw materials. They referenced a previous case where service tax paid to a travel agent for company officials' travel was deemed eligible for CENVAT credit. The Commissioner did not provide a valid reason for denying the credit when the purpose of the services was clearly stated by the appellants. The Tribunal found the denial of this credit unsustainable.

2. Disallowance of Input Service Credit for Technical Know-How:
The Commissioner (Appeals) denied the input service credit of Rs. 14,42,000 related to technical know-how for the production of two products, Candisartan and Irbesartan, as the appellants had not manufactured these products. The Commissioner held that credit is allowed only if the services are used in or in relation to the manufacture of the final product. The appellants argued that they intended to manufacture the products in the future and relied on a case precedent. The Commissioner stated that the appellants should have initiated production within a reasonable period, but no specific timeframe was provided. The Tribunal noted that the Commissioner had conceded that if the appellants start using the technical know-how for production, they can claim the credit. The Tribunal emphasized that the CENVAT Rules do not require the final products to be manufactured before claiming input service credit. The Tribunal found the denial of this credit unjustified and allowed the input service credit of Rs. 14,42,000 and Rs. 59,651, setting aside the impugned order.

In conclusion, the Tribunal allowed the appeal, holding that the input service credits for technical know-how and travel agent services were admissible. The judgment emphasized that the time lag between acquiring input services and actual production is acceptable, as long as the services are intended for use in manufacturing the final products.