2010 (1) TMI 390 - AT - Service Tax

Cenvat Credit- The issue involved in this case is whether the appellant was entitled to avail Cenvat Credit of the Service Tax paid on certain services viz., repair and maintenance services, insurance services, surveys, technical inspection and certification services, and manpower recruitment agency services - all relating to vessels, namely tugs and barges, owned by the appellant. Held that- in the light of the decision of the Tribunal s Larger Bench in the case of Commissioner v. GTC Industries Ltd. - 2008 -TMI - 31592 - CESTAT MUMBAI , the assessee fails on the substantive issue, thus cenvat credit is not given. The penalty on them is set aside, following the aforesaid precedent. The appeal stands partly allowed.

Issues Involved:
1. Entitlement to Cenvat Credit of Service Tax paid on various services related to vessels.
2. Applicability of precedents from higher courts and tribunals.
3. Nexus between services availed and the manufacture/clearance of excisable goods.
4. Interpretation of the definition of "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004.
5. Imposition of penalty and interest.

Detailed Analysis:

1. Entitlement to Cenvat Credit of Service Tax paid on various services related to vessels:
The appellant, engaged in manufacturing hot briquetted iron and sponge iron, used iron ore pallets and lumps as raw materials. They availed services such as repair and maintenance, insurance, surveys, technical inspection and certification, and manpower recruitment for their tugs and barges. These vessels were used to transport raw materials from ships anchored at sea to the jetty and sometimes to carry the final product back to the ships. The appellant utilized the service tax paid on these services for payment of duty on their final products. The department contested this, issuing show-cause notices and proposing to recover the credit taken, along with imposing penalties and interest.

2. Applicability of precedents from higher courts and tribunals:
The appellant cited the Tribunal's decision in Manikgarh Cement Work's case, arguing they satisfied the test set out therein. They also referenced the Supreme Court's judgment in Maruti Suzuki Ltd. v. CCE, Delhi, and the Bombay High Court's decision in Coca Cola India Pvt. Ltd. v. CCE, Pune, claiming the latter was more applicable. The Tribunal considered these precedents, noting that the Supreme Court's ruling in Maruti Suzuki Ltd.'s case was binding and should be followed.

3. Nexus between services availed and the manufacture/clearance of excisable goods:
The Tribunal emphasized the need to establish a nexus between the services in question and the manufacture/clearance of excisable goods to claim Cenvat Credit. The lower authorities found that the barges and tugs were used beyond the jetty in the sea and channel. The appellant's claims of using these vessels for transporting goods to their factory lacked evidence. The Tribunal reiterated that services must be used directly or indirectly in or in relation to the manufacture of final products or their clearance to qualify as "input services."

4. Interpretation of the definition of "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004:
The Tribunal referred to the Supreme Court's interpretation in Maruti Suzuki Ltd.'s case, which required that any service listed in the inclusive part of the definition must also satisfy the main part's requirements. The Tribunal rejected the appellant's argument that the definition of "input service" should be construed liberally, as per the Tribunal's Larger Bench decision in GTC Industries' case. Instead, it followed the Supreme Court's strict construction approach.

5. Imposition of penalty and interest:
The Tribunal acknowledged the interpretative nature of the case and decided to set aside the penalty imposed on the appellant. It noted that penalties are often waived in cases involving rival interpretations of legal provisions. However, the substantive issue of denying Cenvat Credit on the services in question was upheld.

Conclusion:
The appeal was partly allowed. The Tribunal denied the appellant's claim for Cenvat Credit on the services related to their vessels, following the Supreme Court's ruling in Maruti Suzuki Ltd.'s case. However, the penalty imposed was set aside, recognizing the interpretative nature of the legal issue. The judgment underscores the necessity of establishing a clear nexus between availed services and the manufacture/clearance of excisable goods to qualify for Cenvat Credit.

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