2013 (10) TMI 738 - AT - Service Tax

CENVAT credit - input services in respect of port services - Nexus of credit with manufacturers of hot briquetted iron and sponge iron - Held that - The shipping fee has been paid for the usage of tugs and barges for the transportation of the goods from the high seas to the jetty. If the service has been provided by an outside agency and not by the appellant themselves, the question of taking Cenvat credit by the appellant of the service tax paid by the provider such services would not have arisen at all. Therefore, there is merit in the contention of the Revenue that the service tax paid on shipping fee is not an eligible input service as defined in Rule 2(l) of the Cenvat Credit 2004. Merely because the appellant had undertaken the operation of the tugs and barges, it cannot be said that such services would be an eligible input service as defined in Rule 2 (l) of the Cenvat Credit Rules, 2004. However, this issue will have to be examined in depth at the time of final disposal of the appeal. Inasmuch as in appellant s own case for the previous period, credit has been allowed without examining the issue in detail, at the interim stage of stay, stay granted.

Summary

Issues:
1. Eligibility of Cenvat credit on shipping fees paid for tugs and barges used in transportation.
2. Nexus between transportation services and manufacturing activity.
3. Applicability of Rule 2(l) of the Cenvat Credit Rules.

Analysis:
Issue 1: The appellant, a manufacturer of hot briquetted iron and sponge iron, paid shipping fees for tugs and barges used in transporting raw materials from the mother vessel to the jetty. The Revenue contended that there was no nexus between the transportation activity and manufacturing, denying Cenvat credit. A notice was issued proposing to recover availed credit. The appellant appealed, arguing a direct nexus between transportation and manufacturing. The Tribunal granted waiver from pre-deposit during appeal, pending detailed examination.

Issue 2: The appellant argued that transportation of raw materials using tugs and barges was crucial for their manufacturing activity, justifying Cenvat credit on shipping fees. The Revenue claimed the transportation costs were part of the assessable value of imported goods, lacking nexus with manufacturing. The Tribunal acknowledged the importance of transportation but noted that mere operation of tugs and barges did not automatically qualify as an eligible input service under Rule 2(l) of the Cenvat Credit Rules.

Issue 3: The Tribunal emphasized the need for a detailed examination of whether the shipping fees qualified as an eligible input service under Rule 2(l) of the Cenvat Credit Rules. While granting waiver from pre-deposit during the appeal, the Tribunal highlighted that the issue required thorough scrutiny at the final disposal stage. The Tribunal considered the previous allowance of credit to the appellant without detailed examination, indicating the necessity for a comprehensive review in the pending appeal.