2016 (3) TMI 229 - AT - Central Excise

Cenvat Credit denied of service tax paid on club membership of Association - membership of the club does not fall within the definition of input service, and the same is not related to manufacturing activities - Held that - The membership of the business club like the Entrepreneur organisations is indirectly related to the promotion of the business of the appellant. The expenses incurred on membership of the club are forming part of the assessable value and as per the judgment in the case of Coca Cola P. Ltd. (2009 (8) TMI 50 - BOMBAY HIGH COURT) wherein observed that Once the cost incurred by the service has to be added to the cost, and is so assessed, it is a recognition by Revenue of the advertisement services having a connection with the manufacture of the final product. This test will also apply in the case of sales promotion. Therefore keeping in view the judgments cited (supra) the expenses incurred on the membership of the business club is an input service and appellant can legally take Cenvat Credit of the expenses incurred on the membership of the club. - Decided in favour of assessee

Summary

Issues:
Denial of Cenvat Credit on service tax paid for club membership.

Analysis:
The appeal was against the Order-in-Appeal upholding the denial of Cenvat Credit by the Commissioner of Central Excise. The appellant, engaged in manufacturing pharmaceutical machinery, faced objections regarding Cenvat Credit on service tax paid for club membership. The department argued that the club membership did not qualify as an input service for manufacturing activities. The appellant contended that the club membership was directly related to their business, essential for promoting their final product and gaining knowledge about inputs globally. The appellant cited legal precedents supporting their claim, including the decision of the Hon'ble High Court of Bombay in Coca Cola P. Ltd. 2009 (15) STR 657.

The main issue revolved around whether the club membership expenses could be considered an "input service" under Rule 2(l) of CENVAT Credit Rules, 2004. The appellant argued that the club membership facilitated business activities and exchange of vital information, thus falling within the definition of input service. The appellant referenced judgments like CCE vs. Ultratech Cement Ltd. 2010 (20) STR 577 (Bom) to support their stance. The department, represented by the ld. AR, maintained the position of the lower authorities.

The Tribunal analyzed the definition of input service and previous judgments cited by both parties. It acknowledged the indirect relation of business club membership, like Entrepreneur organisations, to business promotion. Citing the judgment in Coca Cola P. Ltd., the Tribunal noted that expenses incurred on club membership formed part of the assessable value, indicating a connection to manufacturing activities. Relying on precedents where Cenvat Credit for business club memberships was allowed, such as in the cases of Finolex Cables Ltd. and Racold Tharmo Ltd., the Tribunal concluded that the expenses on business club membership qualified as an "input service." Consequently, the Tribunal set aside the impugned order, allowing the appeal with any consequential relief.

The judgment, pronounced on 04-02-2016, highlighted the importance of club membership expenses in promoting business activities and recognized them as eligible for Cenvat Credit, aligning with the appellant's arguments and legal precedents supporting the claim.