2023 (2) TMI 894 - AT - Service Tax

Recovery of Cenvat Credit wrongly taken - export of services - input services - Air Travel Agent Service (ATAS) - Business Auxillary Service (BAS) - short payment of Service Tax on Overriding Commission - short payment of service tax - period from October, 2007 to September, 2010 - HELD THAT - During the period covered in these impugned notices, denial of Cenvat credit on input services such as Car hire charges, Insurance charges, Travel expenses and Staff welfare expenses is not legally maintainable in terms of Rule 2 (1) of CCR, 2004, as all these services are input services considering the sweep and depth of definition of input service as per Rule 2 (1) of CCR, 2004. It includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, activities relating to business etc. This being an inclusive definition of an input service , these expenses are having a connection with the provision of output services. Hon ble High Court of Judicature of Mumbai (Nagpur Bench) in the case of CCE, Nagpur Vs. Ultratech Cement Ltd. 2010 (10) TMI 13 - BOMBAY HIGH COURT , has held that for an input service the expression activities in relation to business in the definition of input service postulates activities which are integrally connected with the business of the assessee. If the activity is not integrally connected with the business of the manufacture of final product, the service would not qualify to be input service under Rule 2 (1) of the CCR, 2004. The definition of input service seeks to cover every conceivable service used in the business of manufacturing the final products. The categories of services enumerated after the expression such as in the definition of input service do not relate to any particular class or category of services, but refer to variety of services used in the business of manufacturing final products. Nothing in the definition of input service to suggest that the legislature intended to define the expression such as restrictively. The inclusive part of the definition of input service is only illustrative and not exhaustive. In the absence of any intention of the legislature to restrict the definition of input service to any particular class or category of services used in the business. Appeal allowed.

Summary

Issues Involved:
1. Taxability of overriding commission received by the appellant.
2. Eligibility of Cenvat Credit on input services such as Car hire charges, Insurance charges, Staff welfare expenses, and Travelling expenses.

Issue-wise Detailed Analysis:

1. Taxability of Overriding Commission:
The appellant, M/s. ETA Travel Agency Pvt. Ltd., Chennai, functioned as a General Sales Agent for M/s. Travel Pie LLC, Arizona (Alaska Airlines), USA, and received overriding commission for services provided. The primary contention was whether the services provided qualify as export under Rule 3(3) of Export of Service Rules, 2005 (ESR, 2005). According to the rule, services are considered as export if they are provided in relation to business or commerce and the recipient is located outside India. The department argued that since the tickets were sold in India and the recipients of the service were in India, the condition of provision to a recipient outside India was not fulfilled, thus demanding service tax on the overriding commission.

The appellant contended that the services were indeed used by the foreign company (Travel Pie LLC, Arizona) and the payments were received in convertible foreign currency. They relied on the Tribunal's decision in Arafaath Travels Pvt. Ltd. Vs. Commissioner of Service Tax, which held that services provided under a General Sales Agency agreement to a foreign airline constituted export of service, even if the payment was received in Indian rupees, as it was akin to receipt of money in convertible foreign exchange.

The Tribunal, referencing the decision in Arafaath Travels and the Supreme Court's dismissal of the department's appeal in Suprasesh General Insurance Services, concluded that the overriding commission received by the appellant amounts to export of service and is not liable to service tax. Thus, the demand for service tax on the overriding commission was set aside.

2. Eligibility of Cenvat Credit on Input Services:
The second issue pertained to the eligibility of Cenvat Credit on input services like Car hire charges, Insurance charges, Staff welfare expenses, and Travelling expenses. According to Rule 2(1) of Cenvat Credit Rules, 2004 (CCR, 2004), "input service" includes services used in relation to business activities such as advertisement, sales promotion, market research, storage, and activities related to business like accounting, auditing, and financing.

The department contended that the expenses on which the appellant availed credit were not connected to the provision of output services (Air Travel Agent Service and Business Auxiliary Service). However, the appellant argued that these expenses were essential for providing their output services and relied on the Bombay High Court's decision in Ultra Tech Cement Ltd., which held that input services include all services integrally connected with the business of the assessee.

The Tribunal, referencing the inclusive definition of "input service" under Rule 2(1) of CCR, 2004, and the Bombay High Court's decision, concluded that the denial of Cenvat credit on input services was not legally maintainable. The Tribunal recognized that the services in question were integrally connected with the business and thus eligible for Cenvat credit.

Conclusion:
The Tribunal allowed all three appeals, setting aside the demand for service tax on the overriding commission and recognizing the eligibility of Cenvat credit on the input services in question. The order was pronounced in the Open Court on 20.02.2023.