2014 (10) TMI 206 - AT - Service Tax

Denial of CENVAT Credit - cross utlisation of credit for the payment of service tax whereas availed in relation to manufacturing activity - input services - Renting of Immovable Property Service - Held that - It is a basic principle of Cenvat credit that there has to be a nexus between the input and input service and the output and output service. Only in respect of input and input service which go into the manufacture of output or which are used in or in relation to rendering of output service, credit can be taken. This is what Rule 3 of the CENVAT Credit Rules, 2004 stipulates. If there is no nexus between the input and input service and the output or output service, credit cannot be taken or utilised. In the present case, it is not in dispute that the credit was earned in respect of input/input service which were used in or in relation to the manufacturing activity of the appellant. The same has no nexus with the rendering of the output service of renting of immovable property in Mumbai. Therefore, the utilisation of the Cenvat credit for payment of service tax on renting of immovable property at Mumbai is not clearly permissible in law. Therefore, the appellant has not made out a prima facie case for waiver of dues - Partial stay granted.

Summary

Issues:
1. Utilization of Cenvat credit for service tax liability on renting of immovable property.
2. Nexus between input services and output services for Cenvat credit.

Analysis:
1. The appeal challenged an Order-in-Original confirming a demand of &8377; 54,44,777 by denying the utilization of Cenvat credit for service tax liability on renting of immovable property. The appellant, a chemical manufacturer, used input services in Pune for manufacturing activities but utilized the credit for service tax in Mumbai. The impugned order demanded recovery based on the lack of nexus between the input services and the output service of renting property in Mumbai.

2. The appellant argued that they had paid &8377; 2 lakhs in cash while discharging the service tax liability in Mumbai, but the revenue contended that there was no connection between the input services and the credit utilized for renting property in Mumbai. The Tribunal emphasized the fundamental principle that Cenvat credit requires a nexus between input services and output services. Rule 3 of the CENVAT Credit Rules, 2004 mandates a connection between inputs used in manufacturing or rendering services and the credit taken. In this case, the credit earned for manufacturing activities in Pune did not relate to renting property in Mumbai, rendering the utilization of Cenvat credit impermissible in law.

3. The Tribunal found that the appellant failed to establish a prima facie case for waiving the dues. Consequently, the appellant was directed to make a pre-deposit of the entire wrongly taken and utilized Cenvat credit amount within eight weeks. Upon compliance, the pre-deposit of balance dues, including interest and penalties, would be waived, and recovery stayed during the appeal's pendency. The judgment underscored the necessity of a direct nexus between input services and output services for the legitimate utilization of Cenvat credit, emphasizing compliance with legal provisions in credit utilization.