2016 (8) TMI 985 - AT - Central Excise

Cenvat credit - testing, Handling & Commission, Telephone, Machine maintenance, Insurance relating to depot, Courier, Mobile van, Tax, Hotel rent, Air Travel, Catering, Banking (distributed by ISD) Services used at the depot/C&F agent premises and in relation to the manufacturing activity of the appellant - Held that - credit has been taken as distributed by the ISD and pertains to various activities intimately connected with the manufacture and sale of cement through depots, C&F agents etc. Such services have been allowed as input services and are squarely covered by several decisions. Credit on insurance services has been sought to be disallowed on service tax paid for insuring the plant and machinery, mining equipments, store material and company vehicles. The credit cannot be denied on the ground that these services are not used in or in relation to the manufacture of cement since insuring the plant and machinery, building etc. would form part of the normal business activity to make sure that they get compensation in the unfortunate event of fire, theft etc. These services have also been held to be permissible as input services in the various cases. Cenvat credit - R&D Services - incurred towards development of re-active belaite cement which is not the product of the appellant - Held that - this has been shown to be an R&D activity undertaken by the respondent in pursuance of introduction of new varieties of their final product and hence cannot be denied. Similar issue has been examined by the Tribunal in the case of Cadile Healthcare vs. CCE, Ahmedabad 2009 (8) TMI 172 - CESTAT, AHMEDABAD where technical testing and analyses services were sought to be denied in respect of medicine which never reached the market. However, it was held that the service will be allowable on the ground that all products taken up by the company for R&D may not reach the customer as a commercial product. We see no reason to take a different view in respect of R&D services of the respondent. - Decided against the Revenue

Summary

Issues:
Denial of cenvat credit on various input services under Rule 2 and 3 of the Cenvat Credit Rules based on departmental audit findings.

Analysis:
The case involved the denial of cenvat credit to a manufacturer of cement and clinker on various input services following a departmental audit. The original authority dismissed the credit on certain services, leading to a subsequent appeal to the Commissioner (Appeals) who partially allowed the credit. The Revenue appealed against this decision.

The respondent's advocate argued that the denied services had been deemed eligible in previous case laws and presented a detailed chart with service specifics, credit amounts, and utilization details. The advocate referenced multiple case laws to support the claim for credit retention.

Upon review, the Tribunal examined the admissibility of credit on services such as Testing, Handling & Commission, Telephone, Machine maintenance, Insurance, Courier, Mobile van, Tax, Hotel rent, Air Travel, Catering, Banking, and more. The Tribunal found that these services were integral to the manufacturing and sale process, citing relevant case laws to support their decision.

Regarding Insurance services, the Tribunal noted that insuring plant and machinery is a standard business practice to safeguard against risks like fire or theft. They referenced specific cases where such insurance services were considered permissible as input services.

In the case of R&D services related to developing new varieties of the final product, the Tribunal rejected the denial of credit, drawing parallels to a previous case where technical testing services for a product that did not reach the market were still considered allowable. The Tribunal emphasized that not all R&D activities lead to commercial products, supporting the respondent's claim for credit.

Ultimately, the Tribunal concluded that the denial of credit for the disputed services was not legally sustainable based on the precedents cited. As a result, the Revenue's appeal was rejected, and the original decision allowing the cenvat credit was upheld.