2016 (10) TMI 578 - AT - Service Tax

CENVAT credit - trading activity - input services - restriction of the Cenvat credit to the extent of about 80% in the ratio of value of material supplied by the appellant to the value of services provided by the appellant under the supply and services agreements - denial of a part of the Cenvat credit taken on input services - Input Service as defined in Rule 2 (I) of the Cenvat Credit Rules - whether the credit on such input services were properly taken? - Held that - The commission agent services have been used by the appellant for procurement of Turnkey orders from DISCOMS. Since part of such orders are for supply of goods manufactured by the appellant and the other part is for supply of services, such services quality as input service. Similarly insurance services availed for the goods and services would also be eligible as input service. reliance placed in the decision of the case of COMMISSIONER OF CENTRAL EXCISE, LUDHIANA Versus AMBIKA OVERSEAS 2011 (7) TMI 980 - PUNJAB & HARYANA HIGH COURT where it was held that overseas commission agents used for procuring orders would be covered under input service. Utilization of CENVAT credit - Rule 3 (4) of the Cenvat Credit Rules, 2004 - whether the credits taken have been properly used for making payment of excise duty/service tax on output service? - Held that - Cenvat credits properly taken may be utilized for payment of either excise duty on final products manufactured or service tax on output service rendered. The scheme of Cenvat credit does not require segregation of the credits availed in terms of whether such input/input services or utilized for the manufacture of final products are used for rendering output service. This specific issue has been clarified time and again by CBEC. The issue has been clarified by DGST in a FAQ raised and also by CBEC in Circular No. 381/23/2010/862 dated 30/03/2010 - similar views have been taken in the case of M/s Pipavav Shipyard Ltd. Versus Commissioner, Central Excise & Service Tax, Bhaavnagar 2015 (8) TMI 58 - CESTAT AHMEDABAD . The credits have been properly availed on input services - restriction of the CENVAT credit to the service portion of the contract withheld - entire quantum of the service tax paid by the commission agent entitled as credit to the appellant - appeal allowed - decided in favor of appellant.

Summary

Issues involved:
- Availment of Cenvat credit on commission agent services and insurance services
- Proper utilization of Cenvat credits for excise duty and service tax payment

Analysis:

Issue 1: Availment of Cenvat credit on commission agent services and insurance services
The appellant challenged the order seeking recovery of Cenvat credit on commission agent and insurance services. They argued that these services qualify as input services under Rule 2(l) of the Cenvat Credit Rules. The appellant maintained a common Cenvat account for both manufacturing goods and providing services, taking credit on inputs, capital goods, and services. The appellant contended that the services were used in relation to their business activities and were covered by the definition of input service. They cited legal clarifications and decisions to support their claim. The Tribunal agreed with the appellant, stating that commission agent and insurance services were eligible as input services based on previous judicial pronouncements and upheld the proper availment of Cenvat credits on these services.

Issue 2: Proper utilization of Cenvat credits for excise duty and service tax payment
The Tribunal examined the utilization of Cenvat credits availed by the appellant. Rule 3(4) of the Cenvat Credit Rules governs the utilization of such credits, allowing payment of excise duty on final products or service tax on output services. The Tribunal clarified that the scheme does not require segregation of credits based on their use for manufacturing goods or providing services. Legal clarifications and judicial decisions supported the common pool utilization of Cenvat credits for excise duty and service tax payment. The Tribunal emphasized that as long as the input credit was properly availed, there was no legal basis to restrict the Cenvat credit based on the service portion of the contract. Therefore, the Tribunal set aside the impugned order and allowed the appeal, affirming the appellant's entitlement to the full quantum of service tax credit.

In conclusion, the Tribunal ruled in favor of the appellant, emphasizing the correct availment of Cenvat credits on input services and the permissible common pool utilization for excise duty and service tax payment. The judgment highlighted legal clarifications, precedents, and the absence of a requirement to segregate credits based on manufacturing goods or providing services.