2015 (3) TMI 297 - AT - Central Excise

CENVAT Credit - suppression of facts - house keeping & dry cleaning service, event management service and legal service - Held that - Regarding event management service, appellants contended that in their own case vide 2015 (1) TMI 294 - CESTAT NEW DELHI the credit in respect of taxies used for carrying their employees for the function in respect of which the event manager was engaged has been allowed. When credit of service tax paid on taxi service utilised for carrying their employees for the function has been allowed, the credit of service tax in respect of event management service engaged for the same function has to be allowed mutatis mutandis. It has been stated that the function was in relation to business as the outstanding employees working in the factory were honored by way of rewarding and entertaining them to encourage the employees in general for better performance; it was an annual day function which is organized every year. Thus the function does have relation to business of manufacture. The appellants cited the judgment of Karnataka High Court in case of Toyota Kirloskar Motor Ltd. v. CCE, LTU, Bangalore, 2011 (3) TMI 1373 - KARNATAKA HIGH COURT . In the said judgment Hon ble High Court of Karnataka has in effect held that organising such a function cannot be separated from business of manufacture of final product. That such credit is allowable is also evident from the Cestat judgment in case of Endurance Technologies Vs. CCE Aurangabad 2013 (8) TMI 601 - CESTAT MUMBAI which allowed credit in respect of mandap keeper for the annual day function. Thus denial of credit in respect of event management service in this case cannot be sustained. As regards mandatory penalty, the adjudicating authority has stated that it is settled principle of law that in taxation matters mens rea is not an essential factor for imposition of penalty and therefore penalty is imposable under Rule 15 of Cenvat Credit Rules read with Section 11AC of Central Excise Act. This observation is obviously untenable because for Section 11AC ibid wilfull mis-statement/suppression has to be brought out and this necessarily involves mens rea. Indeed, the concerned Order-in-Original does not bring out as to how the appellants are guilty of wilfull mis-statement or suppression of facts. Thus the extended period is also not sustainably invokable in the case as a consequence the demand is also hit by time-bar and mandatory penalty also cannot be imposed. - Decided in favour of assesse.

Summary

Issues involved:
1. Eligibility of Cenvat credit for housekeeping, dry cleaning, event management, and legal services.
2. Suppression of facts leading to demand for Cenvat credit.
3. Applicability of penalty under Rule 15 of Cenvat Credit Rules and Section 11AC of Central Excise Act.
4. Sustainability of denial of credit for event management service.

Eligibility of Cenvat credit for services:
The appellants, manufacturers of motor vehicle and A.C. parts, claimed Cenvat credit for various services. The adjudication authority rejected the claim stating the services were not essential for manufacturing their products. The authority also accused the appellants of suppressing facts. However, the advocate argued citing precedents where credits for similar services were allowed. Notably, the legal service issue was conceded in favor of the appellants as per a specific judgment. The appellate judge ruled in favor of the appellants based on settled precedents, allowing the appeals and setting aside the original orders.

Suppression of facts and imposition of penalty:
The adjudicating authority imposed penalties under Rule 15 of Cenvat Credit Rules and Section 11AC of the Central Excise Act, claiming mens rea was not essential for penalty imposition in taxation matters. However, the appellate judge disagreed, highlighting that mens rea is crucial for willful misstatement or suppression of facts under Section 11AC. Since the order did not establish the appellants' guilt of willful misstatement or suppression, the demand was considered time-barred, and the penalty was deemed unsustainable. Consequently, the judge set aside the penalties imposed.

Sustainability of denial of credit for event management service:
Regarding the denial of credit for event management service, the appellants argued that since credits for related services were allowed in previous cases, their claim should be upheld. They presented arguments supported by judgments emphasizing the business-related nature of the event in question. Citing relevant case law and precedents, including a Karnataka High Court judgment, the appellants contended that the denial of credit for event management service was unjustifiable. The judge agreed with the appellants, overturning the denial of credit for event management service based on the business nexus established by the appellants.

In conclusion, the appellate tribunal, consisting of Mr. G. Raghuram and Mr. R.K. Singh, allowed the appeals filed against the original orders, citing settled legal principles, precedents, and the lack of substantiated grounds for penalty imposition. The judgment favored the appellants on the eligibility of Cenvat credit for various services and the sustainability of the denial of credit for event management service, ultimately setting aside the penalties and upholding the appellants' claims.