2018 (2) TMI 129 - AT - Central Excise

CENVAT crediit - whether can cenvat credit of service tax paid on the services in relation to issue and receipts of Foreign Currency Convertible Bond (FCCB) in Singapore, a place outside India, be used for paying central excise duty on the goods manufactured in India? - whether the entire cenvat credit taken can be used even when no separate account has been maintained in respect of receipt and consumption of common input service used in the manufacture of dutiable final product or in providing output taxable services and such input services are also used for manufacture of exempted final products or for providing exempted services? Held that - The Rule 6(5) of the Cenvat Credit Rules, 2004 covers the input services of banking and other financial services and specifically allows the credit of input services, even if they are partly used for the provision of taxable activities. The respondent has filed the breakup of their turnover during the relevant financial year which has been quoted hereinabove. From the perusal of the turnover, it is evident that the major part of the turnover is with respect to manufacture and clearance of dutiable packaged software which is almost 50% of the total turnover. Thereafter the balance turnover is with respect to exempted goods customised software and for services - the respondent has utilised the cenvat credit taken in their business activities in India and a major part of it is with regard to manufacture and clearance of dutiable output/services. Respondent-assessee is entitled to consequential benefit - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Whether cenvat credit of service tax paid on services related to Foreign Currency Convertible Bond (FCCB) issue outside India can be used for paying central excise duty in India.
2. Whether cenvat credit can be used without maintaining a separate account for common input services used in manufacturing both dutiable and exempted products/services.

Analysis:

Issue 1:
The appeal revolved around the utilization of cenvat credit on services received for FCCB issue outside India for paying central excise duty in India. The respondent, engaged in software manufacturing, availed services from foreign providers for FCCB, paying service tax on them. The Revenue contended that the services used outside India lacked correlation to the manufacture of dutiable products. However, the adjudicating authority found the credit correctly availed, considering the services' use in manufacturing dutiable products. The respondent argued that as the services were for financing manufacturing activities, credit should be allowed. The Commissioner upheld the credit utilization for manufacturing activities, which the Revenue failed to disprove. The Tribunal upheld the Commissioner's findings, dismissing the appeal by Revenue.

Issue 2:
The second issue focused on maintaining separate accounts for input services used in manufacturing both dutiable and exempted goods/services. The Revenue alleged lack of proper records for input service consumption, contrary to Rule 9(6) of the Cenvat Credit Rules, 2004. The respondent argued that the services were utilized for manufacturing activities in India, supported by the utilization statement. The Commissioner found the credit admissible for manufacturing and service provision in India, with no evidence against it. The Tribunal concurred, emphasizing the utilization of credit in dutiable activities. The respondent's compliance with Rule 6(5) and proper credit distribution by the Input Service Distributor were upheld, leading to the dismissal of the Revenue's appeal.

In conclusion, the Tribunal upheld the respondent's right to cenvat credit for services related to FCCB issued outside India and its utilization in manufacturing dutiable products/services in India. The proper maintenance of records and compliance with Cenvat Credit Rules were crucial in determining the admissibility of the credit. The appeal by Revenue was dismissed, granting consequential benefits to the respondent as per the law.