2016 (3) TMI 197 - AT - Central Excise

Eligibility of CENVAT credit - credit of service tax paid on various services viz., Clearing and forwarding, repair contract, labour contract and professional charges etc., during the period August, 2010 to December, 2011 - whether the services do not qualify as input services as defined under Rule 2 (l) of, 2004 - demand along with interest and penalty - Held that - Without the machineries the manufacturing activity cannot take place and for proper and efficient running of the machineries it is necessary to repair the machineries whenever needed. Replacement of worn out parts also required for the machineries to run effectively. If it is factually proven that the services were used for repair of the machineries, without doubt, the appellants are eligible for credit. The matter is remitted to the original authority on the above terms. With regard to Clearing and Forwarding service, the contention of the appellant is that, they send the manufactured lamps to their JV partner M/s. Koito Mfg. Co. Ltd., Japan, for testing purpose. Only on obtaining the approval/satisfaction as to the quality, specifications etc. of the product, the lamps are manufactured by the appellant. The appellants cannot proceed to manufacture goods unless they get the approval from the JV located abroad. In anticipation of the correctness of the goods without carrying out the testing abroad, no manufacturer would waste his capital and produce the goods and store the same in his factory. The appellants have stated this with evidences which according to the Ld.AR were not furnished to the lower authorities. This being the circumstance, the original authority is directed to verify the documents and pass appropriate orders on merits. With regard to Professional charges service, that the subject service has been incurred for engaging the services of specialists, technocrats and other professional agencies which is in relation to the business activity of the appellants - fit case to remand to the adjudicating authority to re-examine the claim of the appellant - Decided in favour of assessee by way of remand

Summary

Issues:
1. Availment of cenvat credit on various services under Central Excise Tariff Act, 1985.
2. Disallowance of credit for repair contract, clearing and forwarding service, and professional charges.
3. Appeal against the order of the Commissioner (Appeals) regarding credit eligibility.

Analysis:
1. The appellant, a manufacturer of automotive lighting equipment, availed cenvat credit on services like clearing and forwarding, repair contract, and professional charges. A show cause notice was issued for allegedly wrongly availed credit, leading to the imposition of a demand, interest, and penalty by the Dy. Commissioner. The Commissioner (Appeals) upheld the decision, prompting the appellant to appeal before the Tribunal.

2. The appellant's counsel argued that expenses on repair and replacement services were essential for smooth manufacturing operations. Clearing and forwarding services were used for exporting products after testing by a joint venture partner, while professional charges were incurred for engaging specialists. The AR contended that the appellant failed to prove their claims, especially regarding the nature of services and their relation to manufacturing activities.

3. The Tribunal found the key issue to be whether the services qualified as input services for cenvat credit. Regarding repair services, if proven to be for machinery repair essential to manufacturing, credit was allowed. For clearing and forwarding, the Tribunal directed verification of documents to determine if the services were indeed related to export activities. Similarly, for professional charges, the Tribunal emphasized the need to establish the services' connection to business activities. The case was remanded to the adjudicating authority for a fresh decision based on evidence and legal precedents, ensuring principles of natural justice were followed.