2019 (8) TMI 525 - AT - Central Excise

CENVAT Credit - input services - nexus of input services with the output services - HELD THAT - The denial of cenvat credit on input services availed at the depot viz. accounting services, audit services, renting of immovable property and telecommunication services amounting to ₹ 96,464/- is not sustainable in law. Depot and branches play a crucial role for the manufacturers as orders have to be collected from customers and manufactured goods are stored prior to their sale. This facilitates higher volume for manufacturing at factory. The cenvat credit on input services availed at depot amounting to ₹ 96,464/- is allowed being input service. Similarly, denial of cenvat credit on GTA services from factory to depot and transit insurance from factory to depot are also allowed being input service. These services are used for removal of goods from the factory to depot for sale at depot. Therefore, the place of removal of goods is depot and transportation services up to the place of removal are covered under the inclusive part of the definition. CENVAT Credit - Clearing and Forwarding Services - HELD THAT - These services are availed for the purpose of procuring inputs, exporting finished goods outside India, therefore these services are relating to procurement of inputs and transportation of goods up to the place of removal and are covered under the inclusive part of the definition of input service and therefore the same is qualify as input service - Credit allowed. Intellectual Property Right Services - HELD THAT - The appellant pays royalty to the parent companies Ardex UK, Ardex-Anlagen and Ardex-Australia and the same is directly related to the manufacturing process of final products. Hence the credit relating to the Intellectual Property Right Service is eligible - credit allowed. Penalty - HELD THAT - The appellants are not liable to penalty on wrong availment of GTA services up to the customer s premises because it was an interpretation issue - also there is no intent to evade - penalty set aside. Appeal allowed in part.

Issues Involved:
1. Denial of Cenvat Credit on certain input services.
2. Interpretation of input services related to depots and branches.
3. Denial of Cenvat Credit on GTA services and transit insurance.
4. Denial of Cenvat Credit on Clearing and Forwarding Services.
5. Denial of Cenvat Credit on Intellectual Property Rights Services.
6. Imposition of penalty under Section 11AC of the Central Excise Act.

Detailed Analysis:

1. Denial of Cenvat Credit on Certain Input Services:
The Commissioner (Appeals) disallowed Cenvat credit of ?8,92,587/- and demanded interest and imposed an equal penalty. The services in question included rent for branches, courier services, legal services, auditing services, telephone charges, export clearing charges, pest control charges, accounting software, exhibition charges, advertisement, and air travel agent services. The Department argued these services were not directly or indirectly used in relation to the manufacture of final products. The appellant contended that the denial was unjustified and that the services were essential for their business operations.

2. Interpretation of Input Services Related to Depots and Branches:
The appellant argued that services related to depots, such as accounting, auditing, renting of immovable property, and telecommunication services, were crucial for their operations. The Commissioner (Appeals) denied credit on these services, stating the appellant did not have centralized registration and failed to provide evidence that branches exclusively marketed their products. The appellant cited several decisions, including DSCL Sugar and Tata Steel Ltd., to support their claim that services related to depots qualify as input services.

3. Denial of Cenvat Credit on GTA Services and Transit Insurance:
The appellant conceded they were not entitled to credit on GTA services up to the customer’s premises, aligning with the Supreme Court’s decision in Ultratech Cement Ltd. However, they argued that GTA services from factory to depot and transit insurance should qualify as input services since these services are used for the removal of goods from the factory to the depot, making the depot the place of removal.

4. Denial of Cenvat Credit on Clearing and Forwarding Services:
The appellant contended that clearing and forwarding services were used for procuring inputs and exporting finished goods, thus falling under the inclusive definition of input services. The Tribunal agreed, noting these services are essential for the procurement and transportation of goods up to the place of removal.

5. Denial of Cenvat Credit on Intellectual Property Rights Services:
The appellant argued that royalty payments to parent companies were directly related to the manufacturing process, making them eligible for credit. The Tribunal supported this view, referencing the Century Plyboards case, which held that royalty payments in relation to the manufacture of final products qualify for Cenvat credit.

6. Imposition of Penalty Under Section 11AC of the Central Excise Act:
The Tribunal found that the appellant should not be penalized for the wrong availment of GTA services up to the customer’s premises, as the issue was one of interpretation and was settled by the Supreme Court in 2018. Thus, no intent to evade service tax could be attributed to the appellant.

Conclusion:
The Tribunal allowed the appeal in part, granting Cenvat credit on input services related to depots, GTA services from factory to depot, transit insurance, clearing and forwarding services, and intellectual property rights services. The denial of credit on GTA services up to the customer’s premises was upheld, but no penalty was imposed due to the interpretative nature of the issue. The appeal was disposed of on these terms.

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