2024 (8) TMI 993 - AT - Central Excise

Refund claim of amount which was reversed - CENVAT credit taken on House Keeping Services, Courier Services, Hospitality services and Car hiring services - Statutory interest. Refund claim of amount which was reversed - whether the appellant could claim input-service tax credit on an output which is neither a service nor excisable goods? - HELD THAT - A Coordinate Bench of this Tribunal examined the issue in detail in M/S WOODWARD GOVERNOR INDIA LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE-DELHI-IV 2023 (5) TMI 564 - CESTAT CHANDIGARH where it was held that 'The appellants have claimed that credit attributable to input services used in the manufacture of dutiable goods cleared by them was also sought to be denied. In terms of Rule 2(l), the input services used in the manufacture of dutiable goods cleared by them qualify to be called input services and therefore, credit cannot be denied on the same.' This being so the period during which the input credit was taken cannot find shelter from credit reversal, just because as per the appellants averments, Notification No. 3/2011-CE (NT) dated 1.3.2011 did not considered trading as an exempted service prior to the introduction of explanation, in Rule 2 of Rules, w.e.f. 01.04.2011 and the notification did not have retrospective effect. The fact whether trading is an exempted service or not is not a relevant consideration, so long as the output for which the input credit is taken, itself is neither a service nor excisable goods. CENVAT credit taken on House Keeping Services, Courier Services, Hospitality services and Car hiring services - HELD THAT - Restriction on input used for personal use or consumption of employees etc. came about only after 01/04/2011. There is nothing to show that the said services were not used for the provision of output service. Further considering the low tax amount involved in these appeals and the appellant being prima facie eligible for the refund it would be in order, to grant such benefits without straining the plain words of the section at this distant date. Statutory interest - HELD THAT - The same would be payable on the credit utilized and reversed towards trading activity only. The impugned order is modified setting aside the portion pertaining to refund claimed on various input services as shown in the table above and allow the refund of an amount of Rs. 98,578/- as claimed by the appellant along with interest paid on the said amount. The rejection of refund on the service tax paid on various services used for trading activities of Rs 39,71,696/- along with interest is upheld. Appeal allowed in part.

Summary

Issues:
Claim for refund of CENVAT credit on trading activity and other input services, retrospective application of amendment to CENVAT Credit Rules, denial of input-service tax credit on trading activity, eligibility for refund of input services used for trading activities, applicability of statutory interest on credit utilized for trading activity.

Analysis:
The appellant, M/s. Alstom T&D India Ltd., filed a refund claim for CENVAT credit on trading activity and other input services along with interest paid under protest. The refund claim was rejected by the refund sanctioning authority, stating that the input services were not used directly or indirectly in manufacturing activity and did not fall under the exhaustive list of inclusive input services as per Rule 2(l) of CENVAT Credit Rules, 2004. The appellant appealed before the Commissioner (Appeals), who upheld the rejection. The Tribunal considered whether the appellant could claim input-service tax credit on an output that was neither a service nor excisable goods. The Tribunal referred to the judgment in the case of M/s Woodward Governor India Limited Vs Commissioner of Central Excise-Delhi-IV, which highlighted that trading activity was not covered under the CENVAT Credit Rules. The Tribunal also cited the Supreme Court's decision in Lally Automobiles Ltd. Vs Commissioner, affirming that CENVAT credit was not admissible on input services related to trading activity.

The Tribunal emphasized that trading activity could not be considered a taxable service and was not covered under the CENVAT Credit Rules. The Tribunal noted that a deemed fiction was created by including trading as an exempted service in the Rules from 01.04.2011, making it clear that trading activity could be considered exempted for CENVAT Credit Rules' operation. Prior to this clarification, trading was not covered under the credit scheme. The Tribunal held that the appellants should not have availed credit for input services used for both taxable output services and trading activity. The Tribunal upheld the denial of CENVAT credit on input services used in trading activities, following the law established in the Lally Automobiles case.

Regarding other input services like House Keeping Services, Courier Services, Hospitality services, and Car hiring services, the Tribunal noted that the period in question was before the changes brought by Notification No. 3/2011 dated 1.3.2011. The definition of "input services" at that time was broad, covering almost all services used for final product clearance. The Tribunal found no evidence that these services were not used for output services provision. Therefore, the Tribunal granted the refund for these services, considering the low tax amount involved and the appellant's eligibility.

In conclusion, the Tribunal partly allowed the appeal, granting a refund for certain input services used for trading activities but upholding the denial of refund for trading activity-related input services. The Tribunal also addressed the applicability of statutory interest on credit utilized for trading activity, emphasizing the importance of following established legal precedents.