2016 (11) TMI 1126 - AT - Central Excise

CENVAT credit - renting of motor vehicle - input service - transport of its employees - Held that - A person who is receiving the input services of renting of immovable property, can never avail cenvat credit of duty paid on the motor vehicles and as such motor vehicle can never be a capital good to the recipient of the said services. The motor vehicle will always be a capital good or otherwise for the person who is providing the services. For service provider falling under the category of renting of motor vehicle the motor vehicle would always be a capital good. As such the expression- which is not a capital good appearing in the said exclusion clause would require examination vis-a-vis the service provider and not vis-a-vis the services recipient. As such the interpretation of the lower authorities that motor vehicle are not capital goods for the services recipient cannot be appreciated in as much as motor vehicles are admittedly capital goods in terms of the Rule 2 (A) of Cenvat Credit Rules - the appellant would be entitled to the Cenvat Credit on service tax paid on the said services - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Interpretation of the definition of input service under Cenvat Credit Rules 2004.
- Exclusion clause related to services provided by way of renting of a motor vehicle.
- Eligibility of motor vehicle as a capital good for availing Cenvat Credit.
- Applicability of Cenvat Credit on service tax paid for renting of motor vehicles.

Analysis:
The judgment by Ms. Archana Wadhwa of the Appellate Tribunal CESTAT NEW DELHI dealt with the issue of Cenvat Credit availed on service tax for renting motor vehicles by a manufacturer engaged in PVC shipping. The Revenue contended that renting of motor vehicle services were excluded from the definition of input service from April 2011, leading to a demand raised against the manufacturer. The original adjudicating authority denied the credit, imposing penalties upheld by the Commissioner (A), resulting in the appeal.

The key contention revolved around the interpretation of the Exclusion Clause B introduced in Rule 2(l) of the Cenvat Credit Rules 2004. The clause excluded services provided by renting a motor vehicle that is not a capital good. The manufacturer argued that motor vehicles qualified as capital goods under Rule 2(a) of the Rules, making them eligible for Cenvat Credit. The appellate authority, however, denied the benefit, claiming the motor vehicles were not capital goods for the manufacturer, hence disallowing the credit for renting services.

Ms. Archana Wadhwa found a flaw in the appellate authority's interpretation, emphasizing that the status of a motor vehicle as a capital good should be assessed based on the service provider, not the recipient. She highlighted that for a service provider in the renting of motor vehicles category, the motor vehicle would always be a capital good. Therefore, she concluded that the manufacturer was entitled to Cenvat Credit on service tax paid for renting motor vehicles, setting aside the impugned order and allowing the appeal with consequential relief to the manufacturer.

In conclusion, the judgment clarified the applicability of Cenvat Credit on service tax paid for renting motor vehicles, emphasizing the importance of considering the status of motor vehicles as capital goods based on the service provider rather than the recipient, ultimately ruling in favor of the manufacturer.