2017 (3) TMI 250 - AT - Service Tax

CENVAT credit - input services - Legal services - Chartered Accountant services - denial on account of nexus - Held that - The Department has proceeded to deny credit stating that the due diligence reports were not acted upon by the appellant for which it was sought for. This cannot be a ground for disallowing credit - Whether due diligence report has been accepted and acted upon, is wholly an internal matter of the company which the Department cannot dictate - The appellants are engaged in providing stock broker services and therefore the due diligence report obtained before committing the purchase of share warrants is definitely a service which qualifies as input service - appellant eligible for credit - appeal allowed - decided in favor of appellant.

Summary

Issues: Disallowance of CENVAT credit of service tax paid on legal and chartered accountant services.

Analysis:
The appellant, a service provider registered for rendering stock broker services, availed CENVAT credit of service tax paid on legal and chartered accountant services during a specific period. The credit was denied on the grounds that these services did not qualify as input services. The appellant argued that the services were received for providing financial and due diligence review reports on acquiring share warrants, even though the proposal did not materialize due to commercial reasons. The appellant contended that the authorities erred in denying the credit based on the amended definition of input services, which includes accounting and legal services. The appellant emphasized that the Department cannot dictate internal decisions regarding acceptance or rejection of reports, as long as the services were received, tax paid, and intended for providing output services.

The Department, represented by the learned AR, maintained that the appellant received due diligence services for expanding their business by acquiring share warrants but did not act upon the reports, leading to the denial of credit. However, the judge noted that the Department's argument regarding non-acceptance of due diligence reports as a ground for disallowing credit was unfounded. The judge emphasized that the crucial factors were the receipt of services, payment of service tax, and the services being intended for providing output services. In this case, as the appellant was engaged in providing stock broker services, obtaining due diligence reports before committing to the purchase of share warrants qualified as an input service. Consequently, the judge held that the appellant was eligible for credit, setting aside the impugned order and allowing the appeal with any consequential reliefs.

In conclusion, the judgment by the Appellate Tribunal CESTAT Hyderabad ruled in favor of the appellant, granting them the CENVAT credit for service tax paid on legal and chartered accountant services. The decision emphasized the importance of the nature of services received, the payment of service tax, and the intended use for providing output services, rather than internal decisions or actions taken by the company post-service receipt.