2015 (5) TMI 381 - AT - Service Tax

Denial of input service credit - goods transport services - Held that - Appellant has availed Cenvat Credit on transportation services availed by them for transportation of cane seeds and bio manure to the place of the farmers. Both the sides disputed that whether the farmer who is growing sugarcane is supplying to the appellant or not. This fact has not been disputed in the show cause notice. The show cause notice only alleged that this transportation services have no nexus with the manufacturing activity of the appellant. Therefore, they are not entitled to take Cenvat Credit for these services. - As per Rule 2(L) of the Cenvat Credit Rules the assessee is entitled to take Cenvat Credit on the services which were used by them as a manufacturer directly or indirectly in relation to manufacturing of their final product. Therefore, the issue before me is that whether transportation availed by the appellant have any nexus to their manufacturing activity directly or indirectly. A similar issue came up before this Tribunal in the case of VST Industries Ltd 2012 (5) TMI 374 - CESTAT, BANGALORE . As in the case of VST Industries Ltd 2012 (5) TMI 374 - CESTAT, BANGALORE . this Tribunal held that the supply of tobacco seeds free of cost to the farmers and also necessary advice to be given to them by experts. These advisory arrangements were made under agreement between appellant and the services provider. In those circumstances, this Tribunal has held that providing of free tobacco seeds and security services are advisory services and are having nexus to the manufacturing activity of the cigarette manufacturer. Therefore, following the decision of this Tribunal in the case of VST Industries Ltd. (2012 (5) TMI 374 - CESTAT, BANGALORE) I hold that in this case the services availed by the appellant is having a nexus indirectly to the manufacturing of their final product. - Appellant are entitled to take Cenvat Credit on GTA services availed by them in question. In these circumstances, I set aside the impugned order - Decided in favour of assessee.

Summary

Issues involved:
Appeal against denial of input service credit for transportation of cane seeds and bio manure for manufacturing sugar; Interpretation of Rule 2(L) of Cenvat Credit Rules 2004 regarding nexus with manufacturing activity.

Analysis:
The appellant, a sugar and molasses manufacturer, appealed against the denial of Cenvat Credit for transportation charges of cane seeds and bio manure supplied to cane growers. The Revenue contended that these services lacked nexus with the manufacturing activity. Both lower authorities upheld the denial, imposing penalties. The appellant argued that the transportation services were essential for procuring good quality sugarcane, enhancing sugar production. They cited precedents to support their claim. The Revenue argued that the services were unrelated to manufacturing. The Adjudicating Authority and Commissioner (A) rejected the appellant's contentions, emphasizing the independence of the factory and cane growers. They concluded that the transportation services did not contribute to sugar manufacturing. The Revenue highlighted differences from precedents cited by the appellant, asserting the lack of nexus to the final product.

The Tribunal analyzed Rule 2(L) of the Cenvat Credit Rules, which allows credit for services used directly or indirectly in manufacturing. Referring to a similar case involving tobacco manufacturing, the Tribunal found a nexus between advisory services and the final product. Citing the decision in the tobacco case, the Tribunal concluded that the transportation services for cane seeds and bio manure indirectly related to the manufacturing of sugar. Therefore, the Tribunal allowed the appeal, granting the appellant the right to claim Cenvat Credit for the transportation services.