2016 (8) TMI 719 - AT - Service Tax

Cenvat Credit - eligible input services - recovery of common shared expenses from the group company - A show cause notice was served on appellants raising the allegation that the transactions in the invoices were mere commercial transactions to share common expenditure between the group companies and proposing to deny credit availed on the input services and demanding recovery of the same along with interest and proposing to impose penalty. Held that - When ARBL and MPPL have paid service tax under the category of BAS/BSS, the strong inference that can be drawn is that they have provided services as per the invoices raised by them. Revenue has not been able to adduce any evidence that there is no service rendered. The said issue, whether the transactions are services or not, should be agitated by the department against service providers viz. ARBL and MPPL, from whom the service tax has been collected. Credit cannot be denied at the service recipients end, alleging that no service has been provided. - Decided in favor of assessee.

Summary

Issues:
Denial of Cenvat credit on service tax paid for shared expenses between group companies.

Analysis:

Issue 1: Denial of Cenvat credit
The main issue in this case revolved around the denial of Cenvat credit on service tax paid for shared expenses between group companies. The Department alleged that there was no actual service provided by the group companies ARBL and MPPL to the appellants, and the transactions were merely commercial in nature for sharing common expenses. The Department raised a show cause notice claiming that the invoices issued by ARBL were not valid and meant only to collect shared expenses. The original authority confirmed the demand, interest, and penalty, which was upheld by the Commissioner (Appeals), leading to the present appeal by the appellants.

Issue 2: Arguments by Appellant and Respondent
The appellant argued that services were indeed received from ARBL and MPPL at their branch offices, including office space on a rental basis, IT-related services, and manpower services. The appellant contended that these services were essential for the functioning of the branches and were integrally connected with the factory operations. The appellant relied on various judgments to support their claim. On the other hand, the respondent vehemently argued that the credit was not admissible as there was no actual service provided by ARBL and MPPL. The respondent claimed that the transactions were merely sharing of common expenses and did not qualify as input services under the Cenvat Credit Rules.

Issue 3: Tribunal's Analysis and Decision
The Tribunal carefully considered the arguments presented by both parties. It noted that the Department had been collecting service tax from ARBL and MPPL for their services over the years without raising any objections. The Tribunal highlighted that the services provided by ARBL and MPPL had a nexus with the appellant's activities and should be considered as input services. The Tribunal referred to its previous orders and relevant legal principles to support its decision. It emphasized that if the services were utilized directly or indirectly in relation to the manufacture of final products or business activities, they fell within the definition of input services eligible for Cenvat credit. Ultimately, the Tribunal found the denial of credit unjustified and set aside the impugned orders, allowing the appeals with consequential reliefs.

In conclusion, the Tribunal ruled in favor of the appellants, emphasizing the importance of establishing a nexus between the services availed and the business activities. The decision highlighted the need for a thorough examination of the nature of services provided and the eligibility criteria for claiming Cenvat credit, ultimately ensuring a fair and just outcome in the matter.