2018 (7) TMI 688 - AT - Central Excise

CENVAT Credit - input services - rent-a-cab service - the ground on which the credit has been disallowed is that the said services are primarily used for personal use or consumption of the employees - Held that - If the motor vehicle is designed to carry passengers and is registered in the name of the service provider, for being used for providing output service of transportation of passengers or for renting of vehicle, then the said motor vehicle will fall within the definition of capital goods . So if the motor vehicle is registered in the name of the service provider and used to render the services of rent-a-cab service, the said services would qualify as input services. In the present case, the department has not alleged that the motor vehicles are not registered in the name of the service provider. In fact, there is no allegation that the motor vehicle which was used for providing rent-a-cab service was not capital goods for the service provider. When the definition of input services makes an exclusion specifying the category of vehicles / service provider, which does not fall within the definition, it is incumbent upon the department to examine whether the impugned services fall within such exclusion or not before disallowing the credit - As the show cause notice does not raise any allegation with regard to the category of motor vehicle / service provider, which is excluded as per clause (B), the disallowance of credit stating that the services fall within the exclusion clause is not correct. Credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
Disallowance of CENVAT credit on input services related to rent-a-cab service.

Analysis:
The appellants, engaged in manufacturing aluminum castings, availed CENVAT credit on input services for rent-a-cab service from October 2014 to September 2015. The department alleged the credit was ineligible, issuing a show cause notice for recovery of ?3,95,915 along with penalties. The original authority disallowed the credit, confirmed the demand, and imposed penalties, upheld by the Commissioner (Appeals), leading to the current appeal.

The appellant argued that rent-a-cab services were used for business purposes, not personal consumption, and had a direct nexus with manufacturing activities. They contended that motor vehicles used for rent-a-cab services were capital goods for the service provider, making them eligible for credit. The department, however, supported the disallowance based on the exclusion of renting motor vehicles from the definition of input services post-1.4.2011.

Upon review, it was noted that the disallowance was based on the assumption that the services were for personal use or fell within the exclusion clause post-1.4.2011. The definition of capital goods and input services was examined to determine eligibility. It was clarified that if motor vehicles used for rent-a-cab services were capital goods for the service provider, they qualified as input services. The absence of allegations regarding the registration status of motor vehicles or service providers meant the disallowance was unjustified.

The appellant provided certificates showing the motor vehicles were considered capital goods by the service providers, which aligned with previous tribunal decisions allowing similar credits in comparable cases. Consequently, the disallowance of credit was deemed unsustainable, leading to the setting aside of the impugned order and allowing the appeal with any consequential relief.

In conclusion, the judgment favored the appellant by overturning the disallowance of CENVAT credit on input services related to rent-a-cab service, emphasizing the importance of verifying the capital goods status of motor vehicles to determine eligibility under the relevant provisions.