2023 (1) TMI 876 - AT - Central Excise

Wrongly availed Cenvat credit - service related to manufacturing activity of the appellant in terms of defects of import services contained under Rue 2(l) of Cenvat Credit Rules, 2004 or not - HELD THAT - The place of providing services is not relevant for availment of Cenvat credit. Place, no doubt can be the place of manufacture or it can be any other place including the place of buyer. No doubt the after sale service can also be eligible for Cenvat credit as was held by this Tribunal in the case of M/S CASE NEW HOLLAND CONSTRUCTION EQUIPMENT (I) PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, UJJAIN 2021 (8) TMI 963 - CESTAT NEW DELHI but the basic requirement is that the service should have been provided by the manufacturer or by any other person on his behalf to the consumer. Thus, even post removal service can be eligible to Cenvat credit, however, if and only if, those are provided in relation to the manufacture either directly or indirectly. From the facts of the present case, the activity in question is not provided by the appellant nor by anybody else on his behalf. It is rather the buyer of the appellant who himself has undertaken the responsibility of segregating such defective pieces where defect was not arising out of mis-handling and has charged the compensation in form of penalty from the appellant for undertaking such an activity. This particular fact is sufficient to hold that the activity was performed by the buyer for himself, as such cannot be called as eligible input service in terms of section 2(l) of Cenvat Credit Rules. The activity in question also do not qualify Rule 3 of Cenvat Credit Rules 2004. Any service to be eligible for Cenvat credit under this Rule is to be the one which has been received by the manufacturer for manufacturing final product. But the activity in question is the activity undertaken by the buyer of the manufacturer that too to ensure his right as he got reserved between the contracting parties for not receiving the damaged goods. From no stretch of imagination, said activity performed by the buyer can be called as the service which is eligible for Cenvat credit in terms of either Rule 2(l) of Cenvat Credit Rules or Rule 3 of Cenvat Credit Rules, 2004. There are no infirmity in the findings given by the adjudicating authority below - appeal dismissed.

Summary

Issues: Denial of Cenvat credit on service tax paid for segregation of defective components by the buyer, eligibility of the service for Cenvat credit under Rule 2(l) of Cenvat Credit Rules, 2004, and applicability of Rule 3 of Cenvat Credit Rules, 2004.

Analysis:

Issue 1: Denial of Cenvat credit on service tax paid for segregation of defective components by the buyer

The appellant, engaged in manufacturing parts and accessories, availed Cenvat credit for service tax paid on segregation of defective components by the buyer, M/s. Hero Moto Corp. The audit team observed this and issued a Show Cause Notice for recovery of the amount. The appellant contended that the segregation was an after-sale service provided by the buyer, making it eligible for Cenvat credit. However, the department argued that the activity was not a service provided by or on behalf of the appellant, but a penalty imposed for quality issues. The appellate authority upheld the denial, leading to the appeal before the Tribunal.

Issue 2: Eligibility of the service for Cenvat credit under Rule 2(l) of Cenvat Credit Rules, 2004

The Tribunal analyzed Rule 2(l) of Cenvat Credit Rules, 2004, defining "input service" as any service used directly or indirectly in relation to the manufacture of final products. It emphasized that the place of service provision is not crucial for Cenvat credit eligibility. While post-removal services can qualify, they must be provided by the manufacturer or on their behalf. In this case, the activity was performed by the buyer, not the appellant or their representative, making it ineligible for Cenvat credit under Rule 2(l).

Issue 3: Applicability of Rule 3 of Cenvat Credit Rules, 2004

The Tribunal also examined Rule 3 of Cenvat Credit Rules, 2004, which allows credit for services received by the manufacturer for manufacturing final products. The activity of segregating defective components by the buyer did not meet the criteria of being a service received by the manufacturer for manufacturing final products. As the buyer undertook this activity to protect their rights, it did not qualify for Cenvat credit under Rule 3. Therefore, the Tribunal upheld the appellate authority's decision, dismissing the appeal.

In conclusion, the Tribunal found that the segregation activity by the buyer was not an eligible service for Cenvat credit under Rule 2(l) or Rule 3 of Cenvat Credit Rules, 2004. The order of the appellate authority denying the credit was upheld, and the appeal was dismissed.