2013 (12) TMI 382 - AT - Service Tax

Denial of CENVAT Credit - Excise duty paid on prototypes - Consulting Engineer s Service - Benefit under Notification No.167/71 - Held that - any service used by the manufacturer whether directly or indirectly, in or in relation to the manufacture of final products would be eligible for Cenvat Credit. When a manufacturer receives Consulting Engineer s Service for the design of the vehicle and utilised those services in the manufacture of prototypes, the usage is in relation to the manufacture of vehicles - Therefore, consulting engineers service which they received from the foreign as well as domestic service provider are in relation to the manufacture of commercial vehicles by the appellant and therefore, the appellant is eligible for the benefit of service tax paid thereon. CBE&C vide order dated 29/11/1973 held that the appellant would be eligible for the benefit of the said notification only when the prototypes manufactured by them get destroyed in the process of testing of the goods or it is scrapped after testing and experimentation is over. It is also on record that the appellant had cleared the prototype goods on payment of duty either for export or for other purposes. If that be so, the prototypes cannot be construed as exempted goods. In such scenario, provisions of Rule 6 (5) of the Cenvat Credit Rule come into play. As per the said Rule, when input services are used both in the manufacture of dutiable goods as also in exempted goods, then the appellant is eligible to avail Cenvat credit of service tax paid on certain specified services manufactured by the said rule. Consulting Engineers Service is one of the specified services under sub-rule (5) of the said Rule 6. Viewed from this perspective, the appellant is not required to reverse any credit of the service tax paid on consulting engineers service and we hold accordingly. The adjudicating authority has not considered the issue on merits and therefore, the Revenue s appeal has to be allowed by way of remand and the adjudicating authority is directed to consider whether the appellant is eligible for Cenvat credit of the service tax paid on these services - Decided in favour of assessee by way of remand.

Issues Involved:
1. Eligibility for Cenvat credit on service tax paid for consulting engineer's services.
2. Applicability of Rule 6(5) of the Cenvat Credit Rules, 2004.
3. Exemption status of prototypes under Notification No. 167/71-CE.
4. Validity of the adjudicating authority's decision to drop the demand for service tax credit amounting to Rs. 36 crores.

Detailed Analysis:

Issue 1: Eligibility for Cenvat credit on service tax paid for consulting engineer's services

The appellant, M/s Tata Motors Ltd., contended that the consulting engineer's services received for the development of prototypes qualify as input services under Rule 2(l) of the Cenvat Credit Rules, 2004. They argued that these services are used in relation to the manufacture of commercial vehicles, on which they discharge excise duty liability. The Tribunal agreed, noting that the definition of "input service" includes any service used directly or indirectly in the manufacture of final products. The Tribunal referenced the Bombay High Court's decision in Deepak Fertilizers and Petrochemicals Corporation Ltd., which emphasized the broad scope of "input service," covering services used directly or indirectly in manufacturing.

Issue 2: Applicability of Rule 6(5) of the Cenvat Credit Rules, 2004

The appellant argued that since the prototypes are not fully exempt from excise duty, Rule 6(5) should apply, allowing them to avail Cenvat credit. The Tribunal accepted this argument, stating that the consulting engineer's services are used in the manufacture of both dutiable and exempted goods. Therefore, under Rule 6(5), the appellant is entitled to the credit.

Issue 3: Exemption status of prototypes under Notification No. 167/71-CE

The Revenue contended that the prototypes are unconditionally exempt under Notification No. 167/71-CE and that the appellant cannot opt to pay duty on these goods. The Tribunal rejected this argument, referencing a 1973 CBEC order that stated the exemption applies only when prototypes are destroyed during testing. Since the appellant has been clearing prototypes on payment of duty, they are not unconditionally exempt. This supports the appellant's eligibility for Cenvat credit under Rule 6(5).

Issue 4: Validity of the adjudicating authority's decision to drop the demand for service tax credit amounting to Rs. 36 crores

The Revenue appealed against the adjudicating authority's decision to drop the demand for service tax credit amounting to Rs. 36 crores, arguing that the authority accepted the appellant's claim without proper verification. The Tribunal agreed with the Revenue, noting that the adjudicating authority failed to examine whether the services in question were used in the manufacture of vehicles. The Tribunal remanded this issue back to the adjudicating authority for fresh consideration, allowing the appellant to submit additional evidence.

Conclusion:

The Tribunal allowed the appeal filed by M/s Tata Motors Ltd., recognizing their eligibility for Cenvat credit on consulting engineer's services. The Tribunal also allowed the Revenue's appeal by way of remand, directing the adjudicating authority to re-examine the eligibility for service tax credit amounting to Rs. 36 crores.

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