2025 (1) TMI 529 - AT - Central Excise

Eligibility to take input service credit on Road Side Assistance Service, Market Research and Service Tax paid on Demurrage - levy of penalty - demand of interest on Cenvat Credit wrongly taken in the Books but not utilised. Cenvat Credit on Road Side Assistance - HELD THAT - On going through Section 4(3) of the Central Excise Act, 1944 it is found that the transaction value means the price actually paid or which are payable for the goods when sold and those includes servicing and warranty also. Admittedly the service and warranty is post manufacturing expenses which are to be provided to the customer after the sale. As per the provision of Section 4(3)(d) the value of warranty and servicing, which is a post manufacturing activity are includible in the assessable value and therefore, these expenses incurred are entitled for input service credit. Thus RSA being in the nature of post-sale customer facilitation service, is actually availed by customers after sale of the vehicle and would be squarely covered under the definition of the activity related to business and therefore is entitled for input service credit - thus, input service credit is allowable on Roadside Assistance Service. Cenvat credit availed on the services used for Study on Automobile Manufacturing investment - HELD THAT - A perusal of the records indicate that the Assessee have engaged M/s. IPN Associates to conduct a study on incentive benefits provided by various State Governments in order to decide on the place of investment. We find that the above study has no relation with the business activity of the Assessee i.e., manufacturing and selling of cars. No nexus exists with the business activity of the Assessee. The work assigned does not have anything to do with the customer needs, demand and supply in car market, consumer feedback or any analysis of market data. The study was not research about the products of the Assessee or their marketability. As such, the Assessee s argument that the service availed was in the nature of market research or relating to their business is not acceptable. It cannot be said to be connected either directly or indirectly with the manufacturing process or the business of the Assessee and as such, it cannot be covered under the definition of input service under Rule 2(l) of the CCR, 2004. Cenvat Credit on demurrage charges - HELD THAT - Though service tax is not chargeable on container detention charges, the Assessee is eligible to take input tax credit of service tax paid on demurrage charges paid to the Port Trust as it is related to procurement of inputs and also it can be said to be connected and in or in relation to the business of the Assessee. As the Assessee had paid the said demurrage charges together with the service tax to the Port Trust, the transaction being revenue neutral, the availment of credit need not be interfered with. Demand of Interest on irregular Cenvat Credit taken - HELD THAT - Hon ble High Court, Madras in the case of CCE, Madurai Vs. M/s. Strategic Engineering (P) Ltd. 2014 (11) TMI 89 - MADRAS HIGH COURT , considering the fact that the Assessee had an accumulated credit balance of around Rs.70 Crores evidencing that the ineligible credit availed was not utilised. The Hon ble High Court of Karnataka in the case of Commissioner of Central Excise Service Tax, LTU, Bangalore Vs. M/s. Bill Forge Pvt. Ltd. 2011 (4) TMI 969 - KARNATAKA HIGH COURT has held that mere wrong availment of Cenvat credit does not attract interest liability unless such Cenvat credit was taken and utilised wrongly - no interference is called for on this issue and the issue is decided in favour of the Assessee. Therefore, the appeal filed by the Revenue cannot be sustained and so ordered to be set aside on the issue of demand of interest. Levy of penalty - HELD THAT - As the main demands i.e., Cenvat credit on Road Side Assistance and also demand of interest on reversal of ineligible Cenvat credit are not sustained, imposition of penalty is not called for as there is a genuine problem of interpretation of whether these services are eligible for credit or not and no intent to evade or suppression can be attributed to the conduct of the Assessee. Conclusion - i) Cenvat Credit on service tax paid on Road Side Assistance is eligible as input service credit. ii) Cenvat Credit on Study on Investment is not eligible as input service credit and the Assessee is liable to reverse the input service credit taken. iii) Demand of interest on reversal of ineligible Cenvat Credit taken is set aside. iv) Penalty imposed is also set aside. The appeal filed by the Assessee is partly allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

i. Whether the Assessee is eligible to take input service credit on Road Side Assistance Service, Market Research, and Service Tax paid on Demurrage, and whether the penalty imposed was justified?

ii. Whether demand of interest would be attracted on Cenvat Credit wrongly taken in the Books but not utilized?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Eligibility of Cenvat Credit on Various Services

Relevant Legal Framework and Precedents:

The definition of "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004, is pivotal. It includes services directly or indirectly related to the manufacture of final products and extends to activities like sales promotion and market research.

Court's Interpretation and Reasoning:

The court analyzed each service to determine its eligibility under the definition of input service. The court emphasized the inclusive nature of the definition, covering services indirectly related to manufacturing.

Key Evidence and Findings:

1. Road Side Assistance Service: The court found that this service, akin to warranty services, is a post-sale customer facilitation service. The cost being included in the transaction value for duty payment supports its eligibility for input service credit.

2. Study on Automobile Manufacturing Investment: The court determined that this study was not directly related to the Assessee's business activities, as it focused on incentives for investment rather than market research on the Assessee's products.

3. Demurrage Charges: Although service tax is not chargeable on detention charges, the court found that the Assessee is eligible for input tax credit on service tax paid on demurrage charges, as they relate to procurement of inputs.

Application of Law to Facts:

The court applied the inclusive definition of input service to each service in question, considering their connection to the Assessee's business activities.

Treatment of Competing Arguments:

The court considered the Assessee's arguments that these services were related to business activities and eligible for credit. It also reviewed the Revenue's stance that these services were beyond the scope of input services.

Conclusions:

The court concluded that Road Side Assistance qualifies for input service credit, while the study on investment does not. The credit on demurrage charges was upheld due to its relation to business activities.

Issue 2: Demand of Interest on Cenvat Credit

Relevant Legal Framework and Precedents:

Rule 14 of the Cenvat Credit Rules, 2004, and precedents from the Supreme Court and High Courts regarding interest on wrongly availed credit were considered.

Court's Interpretation and Reasoning:

The court relied on precedents that interest is not payable unless the credit was both taken and utilized. It emphasized that mere book entry does not attract interest liability.

Key Evidence and Findings:

The court noted that the Assessee had an ample credit balance, indicating that the ineligible credit was not utilized.

Application of Law to Facts:

The court applied the principle that interest is only due when credit is utilized, not merely taken.

Treatment of Competing Arguments:

The court considered the Revenue's argument for interest based on precedents but found them inapplicable due to the Assessee's non-utilization of the credit.

Conclusions:

The court upheld the decision to drop the demand for interest, as the credit was not utilized.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning:

"Interest cannot be claimed from the date of wrong availment of CENVAT credit and that the interest would be payable from the date CENVAT credit is taken or utilized wrongly."

Core Principles Established:

The court reinforced the principle that input service credit eligibility depends on the service's relation to business activities. Interest on Cenvat credit is only applicable when the credit is utilized.

Final Determinations on Each Issue:

i. Cenvat Credit on Road Side Assistance is eligible.

ii. Cenvat Credit on Study on Investment is not eligible.

iii. Demand of interest on reversal of ineligible Cenvat Credit is set aside.

iv. Penalty imposed is also set aside.

The Assessee's appeal is partly allowed, and the Department's appeal is dismissed.