2010 (3) TMI 356 - AT - Service Tax

Cenvat Credit Input Service The Appellants avail the credit of duty paid on inputs and capital goods and credit of the service tax paid in terms of the Cenvat Credit Rules 2004. Cenvat Credit was denied upon the ground that cost of straightening bending and cutting does not form part of the assessable value of the goods manufactured and cleared by the appellant. Held that- in the light of the decision of State Co-operative Marketing Federation Ltd. and Ors. v. Commissioner of Income-tax - Since this would be in relation to business in addition to the activities relating to the manufacture the appellants action of availing Cenvat credit on the service tax paid by the C&F Agency on such activities cannot be considered as irregular. Thus the impugned orders are liable to be set aside. Appeal is allowed

Issues Involved:
1. Eligibility of Cenvat credit on service tax paid for services of cutting, bending, and straightening rebar coils.
2. Inclusion of value of input services in the assessable value of final products.
3. Invocation of the extended period of limitation.
4. Imposition of penalties and levy of interest.

Issue-wise Detailed Analysis:

1. Eligibility of Cenvat Credit on Service Tax Paid:
The primary issue was whether the appellant could avail Cenvat credit for the service tax paid to Clearing and Forwarding (C&F) agents for services such as cutting, bending, and straightening rebar coils. The appellant argued that these services fall under "activities relating to business" as per Rule 2(l) of the Cenvat Credit Rules, 2004. The Tribunal referenced the Bombay High Court decision in Coca Cola India Pvt. Ltd. v. CCE, Pune-III, which broadly interpreted "activities relating to business." The Tribunal concluded that since these services facilitate the marketing and transportation of the final product, they qualify for Cenvat credit.

2. Inclusion of Value of Input Services in the Assessable Value:
The appellant contended that there is no requirement under the Cenvat Credit Rules, 2004, to include the value of input services in the final product's assessable value to claim Cenvat credit. The Tribunal agreed, noting that the rules do not stipulate such a condition. The Tribunal found that the services in question were integral to the appellant's business operations, thereby justifying the credit.

3. Invocation of the Extended Period of Limitation:
The appellant argued against the invocation of the extended period of limitation, asserting that they had regularly filed ER-I returns and cooperated with the department. The Tribunal agreed, citing precedents like Sarabhai M. Chemicals v. CCE and Gopal Zarda Udyog. v. CCE, which held that suppression or fraud cannot be alleged when returns are filed regularly. The Tribunal found no grounds for invoking the extended period of limitation.

4. Imposition of Penalties and Levy of Interest:
The Tribunal examined the penalties imposed under Rule 15(4) and Rule 15(3) of the Cenvat Credit Rules, 2004. The appellant argued that they had not contravened any provisions or suppressed facts, and were under a bona fide belief that they were entitled to the credit. The Tribunal agreed, referencing the Supreme Court's decision in Hindustan Steel Ltd. v. The State of Orissa, which emphasized that penalties should not be imposed unless there is deliberate evasion of tax. Consequently, the Tribunal found the penalties and interest levied to be unsustainable.

Conclusion:
The Tribunal set aside the impugned orders, allowing the appeals with consequential relief. The Tribunal held that the services provided by the C&F agents were indeed "activities relating to business," thereby making the appellant eligible for Cenvat credit. The Tribunal also ruled against the invocation of the extended period of limitation and found the imposition of penalties and interest to be unjustified.

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