2016 (9) TMI 677 - AT - Central Excise

Cenvat credit - input services - Clean Development Mechanism Service in relation to Carbon Credit Management Services - Held that - the service tax paid for providing Consultancy Services in relation to greenhouse gas emission reduction and carbon credit management service as per guidelines under the Koyoto Protocol falls under the definition of input service and the appellants are entitled to Cenvat credit and the impugned order denying the Cenvat credit on the said services on account of lack of nexus is wrong and not sustainable in law. - Decided in favor of assessee.

Issues Involved:
1. Entitlement to service tax credit on Consultancy Services used for Clean Development Mechanism (CDM) Service in relation to Carbon Credit Management Service.
2. Definition and interpretation of "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004.
3. Nexus between the consultancy services received and the manufacturing activity of the appellant.
4. Invocation of a longer period and imposition of penalty due to irregular credit availment.

Issue-Wise Detailed Analysis:

1. Entitlement to Service Tax Credit on Consultancy Services:
The core issue is whether the appellants are entitled to service tax credit on consultancy services used for CDM Service in relation to Carbon Credit Management Service. The appellant argued that these services are essential for reducing emissions and complying with environmental regulations, thus qualifying as input services. The consultancy services include project design, obtaining approvals, validation, monitoring, and transaction of Certified Emission Reductions (CERs), which are crucial for the manufacturing process by reducing clinker usage and CO2 emissions.

2. Definition and Interpretation of "Input Service":
The definition of "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004, includes services used directly or indirectly in relation to the manufacture of final products and clearance from the place of removal. It also encompasses services related to setting up, modernization, renovation, repairs, advertisement, sales promotion, market research, storage, procurement of inputs, and activities related to business such as accounting, auditing, financing, recruitment, quality control, and more. The definition is inclusive, covering services directly or indirectly related to manufacturing activities.

3. Nexus Between Consultancy Services and Manufacturing Activity:
The appellant contended that the consultancy services for greenhouse gas emission reduction and carbon credit management are directly related to their manufacturing activity. These services help in reducing emissions, complying with environmental norms, and ultimately contribute to the manufacturing process. The Tribunal referenced several judgments, including the Bombay High Court's decision in Ultratech Cement Ltd. and the Karnataka High Court's decision in Stanzen Toyotetsu India Pvt. Ltd., which supported the view that services used directly or indirectly in manufacturing activities qualify as input services.

4. Invocation of Longer Period and Imposition of Penalty:
The respondent argued that the consultancy services are related to earning Carbon Emission Certificates, which can be traded in the market, and thus do not qualify as input services. They also justified the invocation of a longer period and imposition of penalty due to the irregular credit availment discovered during the audit. However, the Tribunal found that the services in question are indeed related to the manufacturing process and fall under the definition of input services.

Conclusion:
After considering the submissions and judgments, the Tribunal concluded that the service tax paid for consultancy services related to greenhouse gas emission reduction and carbon credit management qualifies as input service under Rule 2(l) of the Cenvat Credit Rules, 2004. The impugned order denying the Cenvat credit was set aside, and the appeal was allowed with consequential relief to the appellant. The Tribunal emphasized that the services in question are directly related to the manufacturing activity and environmental compliance, thus entitling the appellants to the claimed credit.

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