2017 (7) TMI 396 - AT - Central Excise

CENVAT credit - duty paying invoices - job-work - department took the view that no service was rendered by BIL, hence, availment of credit of service tax component reflected in those invoices was incorrect - Held that - the activity performed by BIL for monitoring of production activities of the appellants cannot by any stretch of imagination be considered as an input service in or in relation to the manufacture of final products of the appellants. At the most, the billing made by BIL to the appellants can be termed as an arrangement for passing on of the costs - even in the invoices dated 28.12.2013 of BIL submitted by the Ld. Advocate during the hearing, while under the head description of service it has been mentioned as BSS however the said invoices also clearly indicates MPLS cost 2013-14-III Qtr. This aspect also shows that the whole exercise was only for the benefit of BIL and that billing was only an exercise to shift part of the MPLS cost to the appellants - appeal dismissed - decided against appellant.

Summary

Issues:
1. Availment of input service credit on Multi Protocol Label Switching (MPLS) service by job workers from the principal manufacturer.
2. Dispute regarding the nature of services rendered by the principal manufacturer to the job workers.
3. Proposing demand of service tax credit allegedly availed wrongly, interest liability, and penalty under Finance Act, 1994.

Analysis:

Issue 1: Availment of input service credit on MPLS service
The appellants, job workers to the principal manufacturer, availed input service credit on MPLS service based on invoices issued by the principal manufacturer. The department contended that no service was actually rendered by the principal manufacturer, leading to incorrect availment of service tax credit.

Issue 2: Nature of services rendered by the principal manufacturer
The principal manufacturer had availed input service tax credit on MPLS and IT support charges and raised invoices to the job workers towards reimbursement of these charges. The job workers argued that the principal manufacturer facilitated the use of MPLS service and billed them proportionately for the usage. However, the department maintained that the services were not utilized by the job workers and were merely for monitoring purposes.

Issue 3: Demand of service tax credit, interest liability, and penalty
Proceedings were initiated against the appellants for allegedly wrongly availing service tax credit, leading to demands, interest liability, and penalties under the Finance Act, 1994. The original authorities and Commissioners (Appeals) upheld the demands, resulting in the appeals before the forum.

The Ld. Counsel for the appellants argued that the service tax discharged by the principal manufacturer was under Business Support Service (BSS) and that the appellants' availment of the credit should not be questioned. However, the Ld. AR opposed this, stating that no beneficial service was provided to the job workers by the principal manufacturer.

Upon hearing both sides, the tribunal found that the services like MPLS and SAP were utilized by the principal manufacturer for monitoring the job workers' activities. The tribunal noted that the job workers themselves admitted that the data was retrieved and processed by the principal manufacturer. The tribunal concluded that the activity of monitoring production cannot be considered an input service for the job workers, but rather a cost-passing arrangement by the principal manufacturer.

The tribunal dismissed the appeals, citing that the reliance on case laws by the appellants was misconceived, as the services were not directly related to the job workers' manufacturing activities. The tribunal found no infirmity in the impugned orders, leading to the dismissal of the appeals.