2018 (6) TMI 185 - AT - Central Excise

CENVAT credit - various input services - works contract service - renting of immovable property service - security services - cleaning service - internet service - business auxiliary service - time limitation - Penalty - Held that - Post 01.04.2011 the definition of input services specifically excludes credit of tax paid on works contract services, if they are rendered from setting up factory - credit rightly denied. Other input services - Held that - These services are rendered by the service providers at the Mumbai premises which was used by the appellant for the sales related activity, marketing and research of the few products - R & D activity was undertaken at Mumbai as there cannot be any dispute that it is in interest of the business, research and development is a primary requirement - the appellant is eligible to avail CENVAT credit of service tax for the Renting of Immovable Property, Security Services, Cleaning, Internet, Works Contract Services - CENVAT credit on other services disallowed. Time Limitation - Held that - The demand is raised on audit objection, wherein, Audit party, has specifically stated that CENVAT credit cannot be availed and this is first audit of the assessee - case on the limitation for the setting aside demand of CENVAT credit on the works contract services, is devoid of merits and is rejected. Penalty - Held that - As regards confirmation of demand on works contract services appellant is correctly penalized under the provisions by the lower authorities for the amount of tax liability which has been upheld by the adjudication authority as ineligible - penalty upheld. Appeal allowed in part.

Summary

Issues:
1. Irregular availing of CENVAT credit on input services exclusively used in R&D unit.
2. Irregular availing of CENVAT credit on ineligible input service.
3. Denial of CENVAT credit on services rendered at Mumbai premises.
4. Eligibility to avail CENVAT credit on works contract services.
5. Time-barred demand of CENVAT credit.
6. Penalty imposition on the appellant.

Analysis:

Issue 1 & 2:
The appellant irregularly availed CENVAT credit on input services used in the R&D unit and on an ineligible input service. The audit revealed these irregularities, leading to a show cause notice. The appellant partially paid the demanded amount but did not pay the corresponding interest and penalty. The impugned order confirmed the demand, interest, and penalty, which was upheld by the First Appellate Authority.

Issue 3:
The appellant contended that services received at the Mumbai office were utilized for sales, marketing, and R&D activities, justifying the availing of CENVAT credit. The Departmental Representative argued that the R&D activity alone does not qualify for availing CENVAT credit. The Tribunal found that services utilized for sales, marketing, and R&D activities were eligible for CENVAT credit, supporting the appellant's case.

Issue 4:
Regarding the eligibility to avail CENVAT credit on works contract services, the Tribunal determined that post-April 2011, credit on tax paid for works contract services was excluded. The works order issued for setting up the R&D facility indicated that the activity was for establishing premises, making the appellant ineligible for CENVAT credit on these services.

Issue 5:
The Tribunal rejected the argument of the demand being time-barred, as it was raised based on the first audit objection, indicating no limitation on demanding CENVAT credit for works contract services.

Issue 6:
The penalty imposed on the appellant for the confirmed demand on works contract services was upheld by the Tribunal, as the tax liability was deemed ineligible. The appeal was partly allowed and partly rejected based on the analysis of each issue, with the Tribunal providing detailed reasoning for its decision.