2017 (1) TMI 1317 - AT - Service Tax

CENVAT credit - services availed for export of goods - use of hired building - consultancy service - input services or not? - denial on the ground of absence of nexus between input and output services - Held that - When the software professionals were housed in a hired campus used in software development, absence of direct nexus between such input service and the output service is inconceivable - CENVAT credit of the service tax paid in respect of renting of immovable property is not deniable. Consultancy service - Held that - the details filed before appellate authority exhibits that those are having direct bearing on the output service because without recruitment of manpower, no output service is possible to be provided - credit allowed. Banking and financial service - Held that - The banking services which is essential for day to day movement of funds and realization of foreign currency that shall be entitled to CENVAT credit. Convention service - Held that - The convention service is explained to be membership service availed by the appellant from the federation which looks after interest of the software concerns. Appellant says that it is a statutory requirement under STPA Regulation to obtain membership of that federation. When there was a statutory obligation to be a member of a statutory body recognized by law, denial of CENVAT credit would be contrary to the object of the statutory requirement - credit allowed. Management and Business Consultancy service - Held that - the details provided by the appellant relates to availing of services of Chartered Accountant, training facility as well as manpower recruitment agency and marketing agencies. These services are also having direct relationship with the output service provided by the appellant for which it should not be denied of CENVAT credit. Credit allowed - appeal allowed - decided in favor of assessee.

Summary

Issues:
1. Denial of CENVAT credit on service tax paid for the use of hired building and consultancy services.
2. Disallowance of CENVAT credit on banking and financial service, convention service, and management and business consultancy services.

Analysis:

Issue 1: Denial of CENVAT credit on service tax paid for the use of hired building and consultancy services:
The appellant argued that the building was hired to accommodate software professionals for generating output services for export, establishing a direct nexus between the hiring of the property and the output service. The consultancy services provided, including manpower recruitment, legal consultation, marketing, and insurance, were also claimed to be directly related to the output service. The revenue contended that the definition of input service had limitations post an amendment, requiring a direct nexus to the output service without any indirect connections. The Tribunal found a direct nexus between the input services and the output service, allowing CENVAT credit for the service tax paid on both the hired building and consultancy services. The decision was based on the undeniable connection between the services availed and the output service provided.

Issue 2: Disallowance of CENVAT credit on banking and financial service, convention service, and management and business consultancy services:
In the subsequent appeals, the disallowance of CENVAT credit on banking and financial services, convention services, and management and business consultancy services was challenged. The appellant argued that these services were essential for the output service provided and provided detailed information to the adjudicating authority. The Tribunal examined each service individually. For banking services, crucial for fund movements and foreign currency realization, CENVAT credit was allowed. The convention service, a statutory requirement under STPA Regulation, was deemed eligible for credit due to its statutory nature. Similarly, management and business consultancy services, including services from a Chartered Accountant, training facility, and recruitment and marketing agencies, were found to have a direct relationship with the output service. Consequently, CENVAT credit was granted for all three services, emphasizing the direct connection between the services availed and the output service provided.

In conclusion, the Tribunal allowed all appeals, granting CENVAT credit for the various services in question, emphasizing the direct nexus between the input services and the output service provided.