2024 (6) TMI 441 - AT - Service Tax

Eligibility of Cenvat Credit on input services used beyond the place of removal - services falling within the definition of Rule 2 (l) of Cenvat Credit Rules, 2004 or not - HELD THAT - The Appellant has not been able to provide proper documentary evidence and explanation to these authorities in support of their case. In the interest of justice, the Appellant should be given an opportunity to present all the factual details and documentary evidence before the Adjudicating Authority very clearly specifying as to how they are eligible for taking the Cenvat Credit. The Adjudicating Authority should take into consideration the fact that the Appellant is registered as manufacturer in the Central Excise Department where they are eligible for all the input services used by them which are used in or in relation to manufacturing and clearing activities up to the place of removal . The Appellant as provider of service would be eligible to take the Cenvat Credit for the input services utilized by them for provision of their output service. Thus the Appellant should clearly bring out the details of input services used inside the factory for which they would be eligible to take the credit in the ER 1 Returns. In respect of the job work service, the Appellant would be required to maintain the ST-3 Returns which would show the Cenvat Credit taken for various input services - The nexus is required to be established for allowing cross-utilization of Cenvat Credit. The Adjudicating Authority should keep in mind that while the input tax credit is eligible on account of outward GTA services by the Job Worker as a service provider, the same is not available to him as a manufacturer, when the finished goods are cleared on payment of freight, where they are required to pay the Service Tax on RCM basis. Therefore, if any services such kind have been utilized for job work, the same would not be eligible for transfer to the normal manufacturing Cenvat Credit Account, in view non existence of nexus. These have to be verified from the documentary evidence to be placed by the Appellant. The Adjudicating Authority should follow the principles of natural justice and give an opportunity to Appellant to present all their arguments, submissions, documentary evidence, case law etc. while deciding the issue - Since the matter pertains to the year 2015, the Adjudicating Authority is directed to complete the proceedings within three months from the date of communication of this Order.

Summary

Issues Involved:
1. Eligibility of Cenvat Credit on input services used beyond the place of removal.
2. Nexus between input services and manufacturing activity.
3. Validity of documentary evidence for availing Cenvat Credit.
4. Cross-utilization of Cenvat Credit for manufacturing and service activities.

Summary:

1. Eligibility of Cenvat Credit on input services used beyond the place of removal:
The Department contended that the Appellant irregularly availed input service credit totaling Rs. 41,00,000/- for services used beyond the place of removal, which is not permissible as per Rule 2(l) of the Cenvat Credit Rules, 2004. The services in question included "Manpower Supply Agency," "Maintenance or Repairing Service," "Security Service Agency," and "GTA Services."

2. Nexus between input services and manufacturing activity:
The Adjudicating Authority found that the Appellant availed input service credit on services that were not used directly or indirectly in or in relation to the manufacture of final products and their clearance up to the place of removal. The services were used at various sites beyond the place of removal, and no nexus with the manufacturing activity was established.

3. Validity of documentary evidence for availing Cenvat Credit:
The Appellant failed to provide valid duty-paying documents as required u/s 9(1) of the Cenvat Credit Rules, 2004. The credit was availed based on entries like "Service Tax input credit from Service Tax Khata," which were not valid documents for availing credit. The Appellant also did not produce any documentary evidence to show that the input service credit was availed on valid duty-paying documents.

4. Cross-utilization of Cenvat Credit for manufacturing and service activities:
The Appellant argued that they could utilize the input tax credit available in the ST-3 account for the clearance of their finished goods, citing case laws like S. S. Engineers Vs. Commissioner of Central Excise and Sumita Tex Spin Pvt. Ltd. The Tribunal noted that while cross-utilization of Cenvat Credit is permissible, the nexus between the service and manufacturing activity must be established. The Adjudicating Authority should verify the documentary evidence to determine the eligibility of such cross-utilization.

Conclusion:
The Tribunal directed the Adjudicating Authority to give the Appellant an opportunity to present all factual details and documentary evidence clearly specifying their eligibility for Cenvat Credit. The Adjudicating Authority should complete the proceedings within three months, following the principles of natural justice.