2016 (11) TMI 827 - AT - Central Excise

Denial of service tax credit - input services under Rule 2 (l) of CCR, 2004 - services relating to medical treatment for employees in private hospital, construction, painting and cleaning and supply of purified water to employees quarters - Held that - Since the appellants are not contesting the demand for the period post 1.4.2011 and, accordingly, the demand of ₹ 32,322/- and appropriate interest is confirmed. As regards penalty, I find that appellants have acted in a bonafide manner and there is no malafide intention to evade payment of tax, and therefore penalty is not imposable in the facts and circumstances of this case. Accordingly, penalty is set aside in respect of the which is not disputed, subject to payment of interest by the appellants. As regards the demand for the period prior to 1.4.2011 - Held that - I hold that the appellants are entitled to service tax credit availed on the services relating to the business of the appellants. Demand is accordingly set aside to the extent of ₹ 56,832/-. Since the demand itself is set aside to the extent indicated above, there is no question of levying interest and imposing penalty. Appeal allowed - decided partly in favor of appellant.

Summary

Issues:
Challenge to denial of service tax credit on input services availed, applicability of Rule 2(l) of CCR 2004, demand for the period post-1.4.2011, demand for the period prior to 1.4.2011, imposition of penalty, relevance of judicial decisions.

Analysis:
In this appeal, the appellants contested the denial of service tax credit on various input services availed by them between December 2010 and June 2011. The original authority upheld the demand for delayed duty payment and imposed a penalty under Rule 15 of CCR 2004. Both lower authorities denied the credit, stating the disputed services did not qualify as "input services" under Rule 2(l) of CCR 2004. The services in question included medical treatment for employees, construction, painting, cleaning, and water supply to employees' quarters.

The consultant for the appellants highlighted that they had already reversed the disallowed credit amounts under protest and were willing to pay the demand post-1.4.2011 with interest, contesting only the demands for the period up to 31.3.2011. The AR argued that even pre-1.4.2011, the services did not align with the definition of input services. Referring to a Bombay High Court decision, the AR emphasized that the services were not integrally related to the appellant's business activities.

After hearing both sides and reviewing the records, the judge confirmed the demand for the period post-1.4.2011 but waived the penalty due to the appellants' bona fide conduct. Regarding the demand pre-1.4.2011, the judge noted that the reliance on the Bombay High Court decision was misplaced as it was based on a Supreme Court judgment no longer valid. Citing consistent tribunal decisions, the judge ruled in favor of the appellants, allowing the service tax credit related to their business activities and setting aside the demand for that period. Consequently, no interest or penalty was levied due to the demand being annulled.

The impugned order was modified accordingly, partially allowing the appeal. The judgment emphasized adherence to judicial discipline and the evolving legal interpretations in the field of tax credits.