2019 (3) TMI 1510 - AT - Service Tax

CENVAT Credit - input services - services availed for sale of shares - period March 2010 and April 2010 to September 2010 - Held that - Undisputedly, the appellant is engaged in manufacturing activity as well as providing output service - One of the allegations of the department is that credit cannot be availed on the service tax paid as the services availed for sale of shares since the products manufactured by the appellant are exempted. The second allegation is that the input services used for raising capital has no nexus with the output service and therefore is not eligible for credit - Though the appellant is engaged in manufacturing activity as well as providing output service, it can be seen that services of sale of shares was consumed by the appellant for raising the capital. The definition of input services includes the services of financing . Thus, the services consumed for financing or availment of loan will be input service for an assessee who is providing output service or engaged in manufacture of dutiable final product. The period of dispute is prior to 1.4.2011. During the said period, the definition of input services had a wide ambit as it included the words activities relating to business - The Tribunal in the case of Hinduja Global Solutions Ltd. Vs. Commissioner of Central Excise, Bangalore 2016 (3) TMI 401 - CESTAT BANGALORE has categorically held that the activity of raising capital by the disinvestment is directly connected with output service and has correlation with the business activity of the appellant. The allegation raised by the department for disallowing the credit to be unsustainable in law - Appeal allowed - decided in favor of appellant.

Summary

Issues:
Whether appellants are eligible for credit on the service tax paid on services availed for the sale of shares.

Analysis:

Issue 1: Eligibility for credit on services availed for the sale of shares
The appellants, engaged in various taxable services and manufacturing exempted fertilizers, availed input service credit for services related to the sale of shares of joint venture companies. The department contended that these services had no nexus with the manufacturing activity or output services. The appellants argued that the services qualify as input services under the Cenvat Credit Rules 2004. They emphasized that activities related to business, including financing, encompass the sale of shares for raising capital. The appellants also challenged the invocation of the extended period of limitation, asserting that all details were disclosed. The adjudicating authority's view that the disposal of shares was not a business activity but for wealth generation was disputed by the appellants, citing relevant case law supporting their position.

Issue 2: Nexus between input services and output services
The department argued that since the appellants were engaged in manufacturing exempted goods, they were not eligible for CENVAT credit on input services used for raising capital through the sale of shares. It was contended that the capital obtained was utilized for clearing debts, indirectly benefiting the manufacturing activity. However, the appellants maintained that the capital raised through the sale of shares facilitated business operations, including securing a supply arrangement for raw materials. They asserted that the input services were integral to their business activities, contrary to the department's assertion that no nexus existed between the services and output services provided.

Judgment:
The Tribunal analyzed the eligibility of credit on services availed for the sale of shares, considering the appellant's dual engagement in manufacturing and providing output services. It was established that the services for raising capital through the sale of shares fell within the definition of input services, including activities related to business and financing. The Tribunal referenced relevant case law to support the direct connection between disinvestment activities and business operations. Consequently, the department's allegations of ineligibility for credit were deemed unsustainable in law. The impugned order disallowing the credit was set aside, and the appeals were allowed with any consequential relief as per law.