2017 (12) TMI 1372 - AT - Central Excise

CENVAT credit - input service - Department took the view that appellants have availed ineligible input service credit of tax paid attributable to non-manufacturing activities mainly in respect of sales commission and other input services like, advertisement charges, audit fees, bank charges, cleaning charges etc. - Held that - It is very common that part of the manufacture is given to the job worker on the basis of design and drawing supplied, as in this case. Job workers are not responsible for the marketing or sales of the goods, that has to be looked after by the appellants only. Hence input services like sales commission etc. are very much eligible input services in terms of Rule 2(l) of CCR during the period under dispute - there cannot be any denial of input service credits availed by the appellant - appeal allowed - decided in favor of appellant.

Summary

Issues: Disallowance of input service credit for non-manufacturing activities mainly related to sales commission and other input services like advertisement charges, audit fees, bank charges, cleaning charges. Applicability of Rule 2(1) of Cenvat Credit Rules in defining input service. Nexus between commission paid for obtaining orders and manufacturing activity. Eligibility of input service credit for turnkey projects. Interpretation of Rule 2(1) of CCR, 2004 in the context of manufacturing cum business activity. Invocation of extended period for tax liability determination.

Analysis:

The case involved the disallowance of input service credit for non-manufacturing activities, particularly sales commission and other services, leading to a cumulative demand of service tax. The department contended that the appellant availed ineligible credit due to the low percentage of manufactured goods in their turnover. The impugned order disallowed a significant amount of input service credit, along with penalties imposed under relevant provisions of law.

During the hearing, the appellant argued that they obtained turnkey project orders through service providers who facilitated order reception and coordination with customers. The appellant contended that commission paid for obtaining orders indirectly contributed to manufacturing activity and should not be disallowed. They relied on legal precedents to support their claim that such activities qualify as input services under Rule 2(1) of Cenvat Credit Rules.

The department, on the other hand, argued that input services must be directly related to manufacturing and utilized by the manufacturer for availing credit. They referred to specific rules to support their contention that input services should be used in the factory of manufacture for such manufacture. However, the Tribunal found no dispute that goods manufactured by job workers were done based on designs provided by the appellants, and the job workers were not responsible for marketing or sales.

The Tribunal analyzed the facts and ruled in favor of the appellant. They noted that goods manufactured by job workers were done on behalf of the appellant, and input services like sales commission were essential for their business activities. The Tribunal emphasized that Rule 3 of Cenvat Credit Rules allows for availing service tax credit in such scenarios. Therefore, they concluded that there was no basis for denying the input service credits availed by the appellant, leading to the setting aside of the impugned order and allowing the appeal with consequential relief as per the law.

In conclusion, the Tribunal's decision highlighted the importance of establishing a nexus between input services and manufacturing activities, emphasizing that services facilitating order procurement and other business functions are integral to the manufacturing process and qualify for input service credit under the relevant rules.