2024 (8) TMI 151 - AT - Central Excise

CENVAT Credit - service tax paid on Expat Cost - input service or not - reverse charge mechanism - jurisdiction of Learned Additional Commissioner, Chennai - I - responsibility of the jurisdictional officer with whom the ISD has registered to decide the dispute regarding eligibility or otherwise of the service tax credit that the ISD passes on to others (Appellant). Jurisdiction of Learned Additional Commissioner, Chennai - I - responsibility of the jurisdictional officer with whom the ISD has registered to decide the dispute regarding eligibility or otherwise of the service tax credit that the ISD passes on to others (Appellant) - HELD THAT - As regards the issue that it is the responsibility of the jurisdictional officer with whom the ISD has registered to decide the dispute regarding eligibility or otherwise of the service tax credit that the ISD has taken and proposes to pass on to others, it is seen that as per Rule 9 (5) of the Cenvat Credit Rules, 2004, the burden of proof regarding the admissibility of the CENVAT credit shall lie with the manufacturer or provider of output service taking such credit. This would be irrespective of whether the invoice is from an ISD or directly from a manufacturer / service provider. The Hon ble Apex Court too examined a matter pertaining to the availing of credit under Section 70 of the Karnataka VAT Act, 2003, in THE STATE OF KARNATAKA VERSUS M/S ECOM GILL COFFEE TRADING PRIVATE LIMITED 2023 (3) TMI 533 - SUPREME COURT . The Hon ble Court at the cost of repetition, observed and held that unless and until the purchasing dealer discharges the burden cast on him and proves the genuineness of the transaction/ purchase and sale by producing the aforesaid materials, such purchasing dealer shall not be entitled to Input Tax Credit. A Coordinate Bench of this Tribunal in CLARIANT CHEMICALS (I) LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE 2015 (10) TMI 2754 - CESTAT MUMBAI held that it would be seen from the definition that input service distributor is neither a service provider nor a manufacturer but is only an office of the service provider or manufacturer. Since input service distributor neither manufactures the goods nor provides the service, there is no question of input service distributor liable to pay any excise duty or service tax - Since the ISD is responsible to ensure that only eligible credit is distributed as per the conditions mentioned in the Rules, he has not 'availed' of any credit for the same to be reversed or denied. It is the duty of the recipient to take only eligible credit and thereby of the jurisdictional officer of the recipient assessee to verify the credit taken and take suitable action thereon, if necessary. Input service used in or in relation to the manufacture of final products - HELD THAT - The input services received from the ISD should be meant for use in or in relation to the manufacture of final products being not satisfied. It is found that the list of services on which credit based on ISD invoice was taken and as to why it is not found to have been used in or in relation to the manufacture of finished products in the appellants factory where the credit has been availed, has not been dealt with in detail in the impugned order. Merely stating that revenue did not get a reply to their query from the appellant would not suffice. Moreover CBE C, vide Circular No. 33/33/94-CX dated 4-5-1994 has clarified that there is no 1 1 correlation between input and final product under the Cenvat scheme for utilisation of credit. Hence the credit cannot be denied on assumptions and presumptions. The demand in this case pertains to the period 2009 i.e. prior to the changes brought in by Notification No. 3/2011 dated 01/03/2011, w.e.f 01/04/2011 to the definition of Input service' under Rule 2 (l) of the Cenvat Credit Rules, 2004 substituting the earlier definition and omitting the expression activities relating to business'. Prior to the said date the scope of the term input and input service was very broad. On finding that the impugned order does not set out the actual facts for denying the credit, service credit wise or give any cogent reason for the denial and considering the broad scope of the term input service prior to 01/04/2011, without there being a 1 1 corelation with input and output, we are inclined to accept the appellants plea. The appellant was eligible for availing the credit and the demand for duty, interest and imposition of penalty in the impugned order cannot be sustained. The impugned order hence merits to be set aside and is so ordered - Appeal allowed.

Summary

Issues:
1. Eligibility of CENVAT credit on service tax paid on 'Expat cost' under reverse charge mechanism.
2. Responsibility of jurisdictional officer regarding service tax credit eligibility.
3. Requirement of input services for use in or in relation to the manufacture of final products.

Analysis:

Issue 1:
The first issue pertains to the eligibility of CENVAT credit on service tax paid on 'Expat cost' under the reverse charge mechanism. The appellant had availed credit on such service tax, which was challenged by the revenue citing non-compliance with CENVAT provisions. However, the Tribunal noted that service tax paid under Section 66A is available as input credit under CCR, 2004 subject to certain conditions. The Tribunal emphasized that the issue should be settled at the end of the Input Service Distributor (ISD) and upheld the appellant's plea regarding the eligibility of credit in this regard.

Issue 2:
Regarding the responsibility of the jurisdictional officer in determining the eligibility of service tax credit passed on by an ISD, the Tribunal referred to Rule 9(5) of the Cenvat Credit Rules, 2004. The burden of proof lies with the manufacturer or service provider availing the credit, irrespective of whether the invoice is from an ISD or directly from a manufacturer/service provider. Citing relevant case law and precedents, the Tribunal affirmed that the recipient must ensure the legitimacy of the credit taken and that the jurisdictional officer of the recipient should verify and take appropriate action. Consequently, the appellant's argument on jurisdiction was dismissed.

Issue 3:
The final issue concerns the requirement that input services for which credit is availed must be used in or in relation to the manufacture of final products. The Tribunal observed that the impugned order lacked detailed analysis on why the input services were not deemed to be used in or in relation to manufacturing. Referring to relevant circulars and changes in the definition of 'input service,' the Tribunal concluded that the denial of credit without specific reasons and considering the broad scope of 'input service' prior to certain changes was unjustified. Consequently, the Tribunal accepted the appellant's plea, ruling that they were eligible for the credit, and set aside the demand for duty, interest, and penalty in the impugned order.

In conclusion, the Tribunal found in favor of the appellant, setting aside the impugned order and granting them consequential relief if applicable. The decision was pronounced in open court on 01.08.2024.