2007 (12) TMI 59 - AT - Service Tax

Credit on input services i.e. GTA, insurance & telephone service - Authorized Service Station also selling vehicles from their showroom as a dealer - paid the tax on GTA service for receiving the two wheelers from M/s. Hero Honda Ltd., which they utilized for service of Service Station - there is no nexus between the service station providing service to vehicles & receipt of vehicles from Co. matter remanded to examine whether these services are related to the activities of business

Summary

Issues:
1. Denial of credit on GTA service for receiving two-wheelers.
2. Denial of credit on insurance service and telephone service.

Analysis:

Issue 1: Denial of credit on GTA service for receiving two-wheelers

The case involved the appellants, registered for Service Tax as an "Authorized Service Station" engaged in selling vehicles as a dealer of a specific motor company. The appellants paid service tax on GTA service for receiving two-wheelers utilized in their service station. The adjudicating authority disallowed a credit of Rs.30,790/- along with interest and imposed a penalty of Rs.2,000/-, which was upheld by the Commissioner (Appeals). The appellant argued that the denial of credit on GTA service was incorrect as the dealership agreement with the motor company indicated obligations to promote sales and provide after-sales service, establishing a nexus between the service station and the received vehicles. The Tribunal found merit in the appellant's argument, remanding the matter to examine the dealer's agreement and relevant provisions of law. The Tribunal emphasized that activities related to business, as per Cenvat Credit Rules, should be considered for credit eligibility.

Issue 2: Denial of credit on insurance service and telephone service

The denial of credit on insurance service and telephone service was also challenged by the appellant, arguing that these activities were related to business and covered under Rule 2 (l) of Cenvat Credit Rules, 2004. The Tribunal agreed with the appellant's contention, stating that such services should be examined for their relationship to business activities. Consequently, the impugned orders were set aside, and the matter was remanded back to the adjudicating authority for a detailed examination considering the dealer's agreement and applicable legal provisions. The Tribunal emphasized the need for a thorough review and a fair hearing before reaching a decision. Ultimately, the appeal was allowed by way of remand, granting the appellants an opportunity to establish the nexus between the services provided and the received credits.

In conclusion, the Tribunal's judgment focused on the necessity of establishing a clear nexus between the services provided by the appellants and the credits claimed, emphasizing the importance of examining relevant agreements and legal provisions to determine credit eligibility. The decision highlighted the significance of considering business-related activities for credit purposes under the Cenvat Credit Rules, ensuring a fair and thorough review process before reaching a final decision.