2024 (3) TMI 404 - AT - Service Tax

Levy of Service tax - Business Auxiliary Service or not - consideration received by the Appellant from M/s. Flender Limited for non-compete agreement for a period of 3 years - onus of prove on department regarding taxability of service (shifting burden) - restriction of utilization of CENVAT Credit availed on common input services over and above 20% - interest and penalty. Levy of Service tax - Business Auxiliary Service or not - consideration received by the Appellant from M/s. Flender Limited for non-compete agreement for a period of 3 years - HELD THAT - There is no room for any assumption or presumption in a taxing statute. In order to bring any service within the scope of 'Business Auxiliary Service' the promotion of client's business must be direct - there is no clause in the agreement which promotes the business of Flender. In this regard, the Appellant cited the decision of the Tribunal, in the case of M/S JETLITE (INDIA) LIMITED VERSUS CCE, NEW DELHI 2010 (12) TMI 40 - CESTAT, NEW DELHI , wherein it has been held that the onus is on the Department to establish the taxability of the service. It is found that the Revenue has not discharged this responsibility - In the instant case, it has not been spelt out in the Notice under which sub-clause of the Business Auxiliary Service the activity of the Appellant can be classified - As the Notice has not specified the specific sub-clause in the definition of 'Business Auxiliary Service' where the services rendered by the Appellant can be classified, it is held that that the demand confirmed in the impugned order under the category of 'Business Auxiliary Service' is not sustainable. Restriction of utilization of CENVAT Credit availed on common input services over and above 20% - HELD THAT - The restriction of utilization of CENVAT Credit availed on common input services over and above 20% has been prescribed in Rule 6(3) of the CENVAT Credit Rules, 2004. However, in respect of the services specified in Rule 6(5) of the CENVAT Credit Rules, 2004, there is no such restriction - Rule 6(5) is an exception to the other provisions of Rule 6. Full credit can be availed and utilized in respect of the common input services specified in Rule 6(5) of the CENVAT Credit Rules, 2004. The only condition is that the said input services should not be exclusively used in the manufacture of exempted goods or providing exempted services. In the present case, the Appellant has been providing output services such as 'Business Auxiliary service', Storage and Warehousing Service', and 'Maintenance and Repair Service' and paying service tax on them. Thus, it is evident that the credit availed on the input services have not been used exclusively for providing any exempted output service - Since the Appellant has utilised full credit only in respect of those input services specified in Rule 6(5) of CCR 2004, it is held that the Appellant has rightly availed and utilized the CENVAT Credit as provided under Rule 6(3)(c) and Rule 6(5) of the CENVAT Credit Rules, 2004. Accordingly, the demand confirmed in the impugned order on this count is not sustainable. Interest and penalty - HELD THAT - Since the demand of service tax confirmed in the impugned order is not sustainable, the question of demanding interest and imposing penalty does not arise. The impugned order set aside - appeal allowed.

Summary

Issues involved:
The judgment involves the confirmation of service tax demand on two issues: (i) taxation of non-compete agreement under 'Business Auxiliary Service', and (ii) utilization of CENVAT Credit exceeding 20%.

Issue 1: Taxation of non-compete agreement under 'Business Auxiliary Service'
The Appellant received a consideration for a non-compete agreement, which the Revenue considered taxable under 'Business Auxiliary Service'. The Appellant contested this, stating that the agreement did not promote the client's business directly. The Tribunal noted that the Revenue failed to specify the sub-clause of 'Business Auxiliary Service' applicable and did not establish the taxability of the service. Citing precedents, the Tribunal held that the demand was not sustainable due to lack of clarity in the Notice.

Issue 2: Utilization of CENVAT Credit exceeding 20%
The Appellant availed CENVAT Credit on input services and used 100% of it for output services. The Revenue contended that only 20% of common input services credit could be used for service tax payment. However, Rule 6(5) of the CENVAT Credit Rules allows full credit for specified services unless used exclusively for exempted goods or services. The Tribunal found that the Appellant used credit in compliance with Rule 6(5) and Rule 6(3), contrary to the Revenue's claim. Consequently, the demand on this count was deemed unsustainable.

The Tribunal set aside the impugned order and allowed the appeal, as the demands were found to be not sustainable, leading to the dismissal of interest and penalty imposition.