2011 (9) TMI 486 - AT - Central Excise

Cenvat Credit - Goods manufactured were subject to inspection by third party - Inspection agency raised bill for service charges and collected service tax - Such Tax and Charges were recovered from buyers sepeartely - Credit was utilized in payment of duty - Show cause issued for Ir-regular availment of Cenvat Credit-Held That - The inspection charges did not form part of the assessable value and its value is not included the cost of final products.For a service to be an input service, it has to be used in the manufacture of the finished product then only the tax will be a value added tax. Decided in favour of Revenue. However appellant maintained proper records thus levy of penalty is not justified.

Summary

Issues:
- Claim of CENVAT credit on service tax paid for inspection charges
- Denial of CENVAT credit by lower authorities
- Imposition of penalty under Rule 15 of the CENVAT Credit Rules, 2004

Analysis:
1. Claim of CENVAT credit on service tax paid for inspection charges:
The appellant, a manufacturer of cast iron pipes, undertook third-party inspection of goods before clearance, with inspection charges and service tax collected from buyers. The appellant claimed CENVAT credit on the service tax paid. The contention was that since inspection was part of the manufacturing process, it qualified as an input service. However, the Revenue argued that post-manufacturing inspection did not relate directly to production and clearance, thus disqualifying the credit claim.

2. Denial of CENVAT credit by lower authorities:
The Assistant Commissioner issued show cause notices for irregular service tax credit availed by the appellant. Orders-in-original confirmed demands and penalties under Rule 15 of the CENVAT Credit Rules, 2004. The Commissioner (Appeals) upheld these orders. The appellant appealed against these decisions, emphasizing that inspection charges were not included in the assessable value of goods.

3. Imposition of penalty under Rule 15 of the CENVAT Credit Rules, 2004:
The issue of penalty under Rule 15 was considered. The appellant argued against deliberate evasion, stating that all transactions were recorded in their accounts. The Tribunal found no suppression of facts by the appellant and reduced the penalty imposed by lower authorities to Rs. 10,000 each, citing proper maintenance of records and absence of tax evasion intent.

In the final judgment, it was concluded that the appellant's claim for CENVAT credit on inspection charges was not valid as the cost of the service was not included in the value of the final product. Therefore, the denial of service tax credit by lower authorities was upheld. However, the penalty under Rule 15 was reduced due to the absence of deliberate suppression of facts by the appellant. The appeals were disposed of accordingly.