2016 (10) TMI 648 - AT - Central Excise

Denial of CENVAT credit - construction service - input service - Rule 2(l) of the Cenvat Credit Rules, 2004 - Held that - reliance placed on the decision of Suzuki Motorcycle (I) Pvt. Ltd Versus Commissioner Central Excise 2011 (2) TMI 56 - CESTAT NEW DELHI - the denial of credit on construction service to the appellant is not legally sustainable as the period involved is prior to amendment in Rule 2(l) made on 01.04.2011. Architect service availed by them in connection with project planning, designing, consultancy etc - Held that - the said services are covered within the definition of service under Rule 2(l) of the Cenvat Credit Rules, 2004. Denial of credit is not justifiable - the decision in the case of BHARAT FRITZ WERNER LTD. Versus COMMISSIONER OF C. EX., BANGALORE 2011 (2) TMI 1276 - CESTAT, BANGALORE relied upon. Insurance service - no statutory obligation for such cover and it is for personal consumption of the employee - Held that - Statutory obligation is only an indicator to show the legal necessity of such insurance to the employees. In terms of the contractual arrangement, the appellant have to take such insurance cover for the Japanese employees. Prior to amendment of the cenvat credit Rules in 2011 there is no specific bar/exclusion in the definition. Accordingly, the appellants are entitled for credit on service tax paid on life insurance during the material period. However, such credit shall not be available in respect of medical claim for family members as held by the tribunal in the case of SUNDARAM BRAKE LININGS Versus COMMISSIONER OF C. EX., CHENNAI-II 2014 (9) TMI 877 - CESTAT CHENNAI where denial of such credit is upheld. Club or association service in respect to membership taken by directors - Held that - the park extended/charged for the directors is part of their employment benefit as such has no direct nexus with the manufacturing activity of the appellant. Such services are far removed from the activities of the appellants and cannot be considered heaving any nexus to sustain their eligibility. Such employment benefit not having nexus with the activities of the appellant and cannot be covered under the category of input services. Reliance placed on the decision of Mahindra & Mahindra Ltd Versus Commissioner of Central Excise 2015 (6) TMI 407 - CESTAT MUMBAI . Time bar - Held that - as all credits taken have been recorded and reported in the prescribed returns, the appellants are correct in contesting the case for extended period. There is no merit in invoking extended period and imposing penalty in the facts and circumstances at the present case. Service tax credit allowed on renting of immovable property service - The appellant/assessee has provided boarding/lodging to the experts from parent company in Japan during their stay here for supervision of installation of machinery and other projects - Held that - the contributions of these personnel has direct nexus to the manufacture and sale of the final products by the appellant/assessee. The service tax paid towards accommodation of these experts are rightly covered by the input service in terms of Rule 2(l) of Cenvat Credit Rules, 2004 - credit eligible. CENVAT credit allowed on all services except on family insurance and club services availed by Directors - The demand on these credits is restricted to normal period - penalties set aside - appeal dismissed - decided against Revenue.

Summary

Issues:
Appeal against denial of Cenvat Credit for service tax paid on various activities.

Analysis:
1. The dispute revolves around the eligibility of the appellants for Cenvat Credit of service tax paid on four types of activities. The appellants claimed credit for services related to factory expansion, construction, repair, and maintenance. The lower authority denied the credit, stating that there was no nexus between the input services and the manufacturing activity. However, it was found that the services fell under the category of input services as per the definition under Rule 2(l) of the Cenvat Credit Rules, 2004. Previous decisions by the Tribunal and High Court supported the eligibility of such credits, leading to the conclusion that the denial of credit on construction services was not legally sustainable.

2. Cenvat Credit was also denied for architect services related to project planning, designing, and consultancy. The Tribunal found that these services were covered under the definition of 'service' under Rule 2(l) of the Cenvat Credit Rules, 2004. Previous Tribunal decisions supported the eligibility of such credits, leading to the rejection of the impugned order on this issue.

3. The denial of Cenvat Credit for service tax paid on insurance services, specifically for experts from Japan deputed to provide technical assistance, was challenged. The original authority denied the credit citing lack of statutory obligation for such cover. However, it was established that the insurance cover was a contractual requirement for the Japanese employees, making the appellants eligible for credit on life insurance. The denial of credit for medical claims for family members was upheld based on a previous Tribunal decision.

4. Cenvat Credit availed for club or association services for directors was denied by the original authority. The Tribunal found that such services did not have a direct nexus with the manufacturing activity of the appellants and were considered employment benefits. Previous decisions supported the denial of credit for services not directly related to the appellant's activities.

5. The appellants contested the denial of various credits, arguing against the imposition of penalties based on the interpretation of the Cenvat Credit Rules, 2004. It was noted that all credits were recorded and reported in the prescribed returns, indicating no mala-fide intention or suppression of facts. The Tribunal found no merit in invoking the extended period or imposing penalties in the present case.

6. The Revenue's appeal against the eligibility of service tax credit for renting immovable property service was examined. The original authority allowed the credits, considering these expenses as part of administrative overhead expenses. The Tribunal upheld the eligibility of such credits, noting the direct nexus of the experts' contributions to the manufacturing and sale of final products. The appeal by the Revenue against the eligibility of credit was rejected.

7. In conclusion, the appeals filed by the appellants were disposed of by allowing credits except for family insurance and club services availed by directors. The demand on these credits was restricted to the normal period, and penalties were set aside. The appeal by the Revenue was rejected.