2021 (2) TMI 870 - Commissioner - Central Excise

CENVAT Credit - denial of credit mainly on the ground that there was no service rendered by ABMCPL to the appellant which could be defined as input service for them as the arrangement between ABMCPL and its member companies (including appellant) was merely sharing of common expenses and there was no concrete proof that these expenses were made for such services provided by ABMCPL which were used by the appellant in manufacture of their final product - HELD THAT - The confirmation of the demand has been made on the pretext of having no nexus, direct or indirect, between the impugned services and the manufacturing activities of the Appellant. The Adjudicating Authority has observed that the impugned bills/ invoices have been issued on the basis of performances of previous years of the user companies and not on the basis of actual services rendered by the service provider and hence the nexus of input services being used by the manufacturer breaks. The bills/ invoices being issued on the basis of previous years performances, the same may still be issued by the service provider when the user company does not avail or utilise any service. The Adjudicating Authority has further observed that there is no provision in the CCR to avail credit on notional input service and such services cannot be stated to be services used by the manufacturing company - the observation of the Adjudicating authority is neither supported by law nor even is followed in actual prevalent practices. It is a general prevalent practice that the service recipients enter into an annual maintenance contract with their service providers. In such cases the service recipients may or may not have the situation to utilise the services of the service provider but have co pay the contracted sum. If any service tax is paid by the service provider in such cases and is realised from the service recipient, no bar can be put on the availment of Cenvat credit. CESTAT in the case of M/S AMARA RAJA POWER SYSTEMS LTD. ANOTHER. M/S AMARA RAJA ELECTRONICS LTD. VERSUS THE COMMISSIONER C C. E, TIRUPATHI 2015 (12) TMI 1558 - CESTAT HYDERABAD has answered the identical issue in favour of the appellants assessee taking plea that when the department has accepted the tax on the services provided by sister concern to appellants, then they cannot deny credit alleging that no services were rendered - Now in the instant case it is submitted by the appellant that ABMCPL are separate legal entities incorporated under the Companies Act, 1956 and they are separately assessed to Income tax. ABMCPL, being independent legal entities, such money collected from appellant for the services provided to them and also expenses recovered to compensate the cost of sourcing the services, would be taxable under BSS. There is no evidence to establish that there is no intention to provide service and it was mere understanding with the sister companies for sharing of common expenses. The demand of irregular availment of cenvat credit on input services which were utilized by the appellant in production of their final product is unjustified - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Legitimacy of Cenvat Credit utilization on service tax paid for services by ABMCPL.
2. Nexus between services provided by ABMCPL and the manufacturing activities of the appellant.
3. Applicability of penalties for alleged contravention of Cenvat Credit Rules (CCR).

Detailed Analysis:

1. Legitimacy of Cenvat Credit Utilization:
The appellant was issued a Show Cause Notice for wrongly taking and utilizing Cenvat Credit on service tax paid for services which were not considered input services. The respondent confirmed the demand under Rule 14 of CCR read with Section 11A of the Central Excise Act, 1944, along with interest and penalties. The appellant contended that ABMCPL provided business support services to its member companies, including the appellant, and these services were not exempted under the Finance Act, 1994. Therefore, the credit taken on service tax paid should not be considered improper.

2. Nexus Between Services and Manufacturing Activities:
The main allegation was that the services provided by ABMCPL did not constitute input services for the appellant as they were merely sharing of common expenses without concrete proof of utilization in manufacturing activities. The adjudicating authority observed that the bills/invoices were issued based on previous years' performances, not actual services rendered, breaking the nexus between input services and manufacturing activities. However, the judgment noted that such an observation is not supported by law or actual practices. It was highlighted that service recipients often enter into annual maintenance contracts where services may not always be utilized, yet service tax paid can still be claimed as Cenvat credit.

3. Applicability of Penalties:
The appellant argued that they acted under a bona fide belief that they were entitled to avail credit of the service tax paid to ABMCPL, and therefore, penalties should not be imposed. The judgment supported this view, indicating that the department had accepted service tax payments from ABMCPL without objection, and thus, denying credit at the recipient's end was unjustified.

Conclusion:
The judgment concluded that the demand for irregular availment of Cenvat credit on input services utilized by the appellant in the production of their final product was unjustified. It emphasized that the services provided by ABMCPL fell within the definition of "input service" as per Rule 2(l) of CCR, which includes services used directly or indirectly in relation to the manufacture of final products. The appeal was allowed, and the impugned order was set aside with consequential relief.

Key Points:
- The appellant's utilization of Cenvat credit on service tax paid for services provided by ABMCPL was deemed legitimate.
- The nexus between the services provided and the manufacturing activities was established.
- Penalties for alleged contravention of CCR were not applicable as the appellant acted under a bona fide belief.

The judgment underscores the broad interpretation of "input service" under CCR and the importance of consistent departmental practices in accepting service tax payments.