2016 (3) TMI 780 - AT - Central Excise

Cenvat credit of input services - denial of claim as its cost is included in the cost of production, on the ground that the same was availed outside the factory premises - utilization of credit on reverse charge mechanism - Held that - Explanation to Rule 3 (4) of Cenvat Credit Rules, 2004 amended in 2012 imposed a bar on utilization of credit on reverse charge mechanism and the period involved in the present appeal is prior to the amendment. In the instant case, the goods cleared from the appellant s premises were sent to M/s. Wuxi Sumisho Hi-Tech Logistics Company Limited, China and from there it is re-packed and sent to the ultimate buyers. M/s. Wuxi Sumisho Hi-Tech Logistics Company Limited is not the buyer. They procure orders from the potential buyers and asks the appellant to send the goods to them for onward supply to the ultimate buyers. Even after the goods are supplied to the buyers, M/s. Wuxi Sumisho Hi-Tech Logistics Company Limited does the maintenance job of the products sent by the appellant. Both the parties entered in to a contract and the warehouse of the commission agent viz., M/s. Wuxi Sumisho Hi-Tech Logistics Company Limited, China is the place of removal in the instant case. In such cases, the credit of the service tax paid up for such services would be admissible. In the case of CCE, Vapi Vs. Nilkamal Crates & Bins (2010 (2) TMI 232 - CESTAT, AHMEDABAD ), co-ordinate Bench of this Tribunal held that commission agent service is to help in promotion of business activity and thus credit is admissible on input services used in relation to it. Thus the appellant is entitled to the benefit of Cenvat credit availed on BAS service used in relation to its business activity in a foreign land. Since, the demand is set aside, the impugned penalty is also not sustainable. - Decided in favour of assesee

Summary

Issues:
Denial of Cenvat credit on Business Auxiliary Service (BAS) availed from abroad.

Analysis:
The appellant, a manufacturer of Aluminium Castings, appealed against the denial of Cenvat credit on BAS availed from abroad. The impugned credit of Rs. 9,279 was disallowed by the adjudicating authority, stating it was not used in or in relation to the manufacture of final products. The appellant argued that Cenvat credit of input services cannot be denied if its cost is included in the cost of production, even if availed outside the factory premises. They relied on a decision by the Ahmedabad Bench of the Tribunal to support their claim. The Ld. AR reiterated the findings of the authorities and supported the denial of credit on BAS used in foreign land.

The Tribunal found that the appellant used the services of a logistics company to store and deliver goods to customers. The original authority denied the service tax credit for this transaction, which was upheld by the Commissioner (Appeals). However, the Tribunal noted that the period involved in the appeal was prior to an amendment that imposed a bar on utilizing credit on reverse charge mechanism. The goods were sent to the logistics company in China for repacking and onward supply to buyers. The Tribunal concluded that the credit for service tax paid on such services would be admissible, as the logistics company's warehouse was the place of removal.

Citing a previous decision by a co-ordinate Bench of the Tribunal, the Tribunal held that credit is admissible on input services used in relation to business activities, such as those provided by a commission agent. Therefore, the Tribunal ruled in favor of the appellant, stating that they were entitled to the benefit of Cenvat credit on BAS service used in relation to their business activity in a foreign land. Consequently, the demand was set aside, and the penalty imposed was deemed unsustainable. The impugned order was set aside, and the appeal was allowed.