2019 (3) TMI 2026 - AT - Service Tax

CENVAT Credit - availment and distribution of credit - input services - Air Travel Agency - Membership Club Association - Rent-a-cab - Event Management - Car Insurance - invocation of provisions of Rule 14 ibid read with Section 73 ibid for recovery of the alleged amount of Cenvat Credit availed by the appellant - HELD THAT - The provisions for recovery of Cenvat Credit wrongly taken by the assessee are contained in Rule 14 ibid. The said statutory provision mandates that irregularly availed or utilized Cenvat Credit can be recovered from the manufacturer or the provider of output service. In this case the corporate office of the appellant is registered with the service tax department as an Input Service Distributor and distributed the Cenvat Credit in respect of service tax paid on the input services among its manufacturing units. It is not the case of the department that the appellant is either avails or utilizes the Cenvat Credit of service tax paid on the input services. Input Service Distributor neither provides any service nor engages in manufacture of excisable goods. Thus the question of payment of service tax or Central Excise duty on the taxable services or the manufacturing activities respectively do not arise. The provision of Rule 14 is applicable only to the manufacturer or service provider and not to the Input Service Distributor who merely distributes the credit. Since the provisions of Rule 14 ibid was invoked for effecting recovery of the Cenvat Credit amount from the appellant such proceedings initiated by the department are not in conformity with the Cenvat statute and accordingly both the orders passed by the lower authorities cannot be sustained. This Tribunal in the case of MAHINDRA MAHINDRA LTD. VERSUS COMM. OF SERVICE TAX MUMBAI 2017 (7) TMI 167 - CESTAT MUMBAI has held that Rule 14 ibid can be made applicable only on the person who avails or utilizes the Cenvat Credit wrongly and the show cause notice cannot be issued to the Input Service Distributor for recovery of Cenvat Credit. The above disputed services were used/utilized by the appellant for accomplishing the business purpose of ultimate manufacture of final products removed from the factory on payment of appropriate Central Excise duty. All the disputed services are falling under the definition of input service for taking of Cenvat Credit of service tax amount paid thereon. The issue with regard to consideration of the disputed services as defined Input Service is no more res integra in view of the decisions relied upon by the Ld. Advocate for the appellant. Therefore as per the settled principal of law denial of Cenvat Credit on this ground also is not sustainable. There are no merits in the impugned order passed by the Ld. Commissioner (Appeals) - appeal allowed.

Summary

Issues involved:
- Disallowance of Cenvat Credit on disputed services not conforming to the definition of 'Input Service' under Cenvat Credit Rules, 2004.
- Applicability of Rule 14 for recovery of Cenvat Credit and interest from an Input Service Distributor.
- Interpretation of disputed services as falling under the definition of 'Input Service' for Cenvat Credit availment.
- Validity of adjudication orders imposing penalties under relevant provisions.

Analysis:

Issue 1: Disallowance of Cenvat Credit on services not conforming to 'Input Service' definition:
The appellant, an Input Service Distributor, distributed Cenvat Credit to its manufacturing units for services like Air Travel Agency, Membership & Club Association, Rent-a-cab, Event Management, and Car Insurance. The department disallowed the Cenvat Credit on these services as they did not conform to the definition of 'Input Service' under Rule 2(l) of the Cenvat Credit Rules, 2004. Adjudication orders were issued for recovery of the Cenvat Credit along with interest and penalties. The Ld. Commissioner (Appeals) partially modified the original order, leading to the appellant's appeal before the Tribunal.

Issue 2: Applicability of Rule 14 for recovery from Input Service Distributor:
The appellant argued that Rule 14 for recovery of irregularly availed Cenvat Credit cannot be applied to an Input Service Distributor like them. The Tribunal held that Rule 14 is applicable only to manufacturers or service providers, not to Input Service Distributors who distribute credit. Citing precedents, the Tribunal ruled that proceedings for recovery from an Input Service Distributor are not in line with the Cenvat statute, leading to the setting aside of the lower authorities' orders.

Issue 3: Interpretation of disputed services as 'Input Service' for Cenvat Credit availment:
The disputed services were used by the appellant for business purposes related to manufacturing final products. The Tribunal found that all disputed services fell under the definition of 'Input Service' for Cenvat Credit availment. Relying on legal principles and precedents, the denial of Cenvat Credit on these grounds was deemed unsustainable.

Issue 4: Validity of penalties imposed under relevant provisions:
The Tribunal, after considering arguments from both sides and reviewing the records, found no merit in the impugned order by the Ld. Commissioner (Appeals). Consequently, the appeals were allowed in favor of the appellant, setting aside the lower order.

This comprehensive analysis of the judgment highlights the key issues, legal interpretations, and the Tribunal's decision, providing a detailed understanding of the case.