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TMI Blog2025 (3) TMI 569X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the credit of tax paid on a service, which is not a cost incurred by the manufacturing unit, and is rendered beyond the point of removal of the final product, would be contrary to the scheme of CENVAT Credit Rules - CENVAT credit is not eligible on input services attributable to exempted goods / trading activity and is a principle in built into the very structure of the CENVAT scheme. Goods after manufacture and clearance from the place of removal become traded goods, hence the responsibility is all the more on the appellant to prove the eligibility of the input service as credit for the manufacturing unit. The Ld. Original Authority has therefore rightly held that AMC is not an eligible input service for the manufacturing unit at Puducherry. Denial of credit due to a lack of separate charge/ break up of tax paid on warranty services for manufactured goods and AMC services for traded goods between the manufacturing unit and the HO - HELD THAT:- The grant of tax credit impacts revenue collection, hence an assessee who claims a tax benefit must show not only eligibility but also that he adheres to the provisions of the said scheme. Entitlement means rights of certain benefits an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt involved is very paltry. The credit is hence allowed. Extended period of limitation - HELD THAT:- Although there was no major interpretative issue involved regarding the issue of AMC it forms a part of many input services that were contested and where suppression was alleged in the SCNs. However, these services except the issue of AMC were finally decided in favour of the appellant. There does not appear to be any deliberate attempt to evade duty. Nothing has been shown from which an inference of guilty intention can be discerned and hence the extended period cannot be invoked. The demand for the extended period does not survive and is set aside. Conclusion - i) The input services must be integrally connected to the manufacturing process to qualify for CENVAT credit. ii) The appellant's claim for CENVAT credit on Business Auxiliary Services accepted, due to the finality of the issue in previous orders. iii) CENVAT credit for Import of Services and Blanks allowed, recognizing them as sales promotion activities. iv) The appellant's claim for CENVAT credit on Club and Association Membership Services accepted, despite noting the lack of specific evidence on their use. v) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R] 3,44,71,959 7,47,80,185 5,80,09,152 Penalty [INR] 1,72,36,110 10,00,000 5,00,000 Issue Demand for reversal of Cenvat Credit of service tax paid on input services used by Manufacturing unit The Ld. Advocate stated that the appellant is a unit of Lenovo. The appellant receives certain input services directly and also takes credit of service tax distributed to the appellant on the basis of ISD invoices by its head office. He submitted a summary of the dispute related to the input credit taken, in a tabular form which is reproduced below; Sl. Particulars of Service Period Facts pertaining to the service received i. Management, Maintenance or Repair Services (INR 15,89,96,452/-) May 2011 to June 2017 The Appellant enters into Annual Maintenance Contracts (henceforth: 'AMC') with Authorized service partners (i.e., IBM) for maintenance of products sold to their customers. The authorized service partners raise service invoices on Lenovo (the Appellant's Corporate office) regardless of where the AMC services are rendered. Service Tax is paid by Lenovo on the service invoices raised by authorized service partners. ii. Business Auxiliary Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the averments made by revenue, there does not appear to be unanimity on the 'undisputed issues' as averred by the appellant, as is discussed below. 4.1 The Ld. AR responded as under to the various service-related issues stated in the impugned order. * Warranty and AMC Services: The HO at Bangalore and branch offices purchased repair and maintenance services for both manufactured and traded goods, provided by M/s IBM India. While warranty-related services were eligible for input service credit, AMC obligations beyond the warranty period were not considered eligible for the manufacturing unit at Puducherry as per rule 2(l) of CCR 2004. * Business Auxiliary Service: Input service credit towards sales commission was initially disallowed but later accepted retrospectively for the period prior to 3/2/2016, based on a clarification issued by the board circular. * Club and Association service: It is not related to Manufacturing activity hence not eligible as input service credit as per rule 2(l) of CCR 2004. It is specifically excluded vide amendment to CCR 2004. * Import of Services and Blanks: There is no clarity on the nature of services and classification of services receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible input service for the manufacturing unit at Puducherry. The duty paid by sub-contractors would be eligible as input credit only for the Head office at Bangalore who had engaged the services of the sub-contractors to service the AMC and for which the HO had registered as (output) Service provider. However, due to a lack of separate charge/break up on warranty and AMC between the manufacturing unit and the HO, the appellant has not discharged the burden of having availed only eligible input services and hence the credit becomes ineligible as per Rule 7 of CCR 2004, at the manufacturing unit at Puducherry. To this the appellant has stated that it is a settled principle that input service definition is inclusive and encompasses services used in or in relation to manufacture. They submitted that the definition of input service provided under Section 2(l) of CCR is only illustrative and not exhaustive. Any service that is used by the manufacturer whether directly, indirectly in or in relation to the manufacture of final products constitutes input service. Reliance was placed on the following decisions for the principle that any input services used in or in relation to manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rally connected with the business of the manufacture of the appellants machines, up to the place of removal. Service Tax paid on AMC charges, does not represent tax paid on the input service in relation to its manufacturing unit as no such input service is availed by the manufacturing unit. Hence the cost of the input service does not form a part of the assessable value of the final product cleared from the manufacturing unit, to be eligible for the benefit of CENVAT Credit. Extending the credit of tax paid on a service, which is not a cost incurred by the manufacturing unit, and is rendered beyond the point of removal of the final product, would be contrary to the scheme of CENVAT Credit Rules. Looked at from another angle, CENVAT credit is not eligible on input services attributable to exempted goods / trading activity and is a principle in built into the very structure of the CENVAT scheme. Goods after manufacture and clearance from the place of removal become traded goods, hence the responsibility is all the more on the appellant to prove the eligibility of the input service as credit for the manufacturing unit. The Ld. Original Authority has therefore rightly held that AMC is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pheld the manner of distribution of credit by the ISD. 5.10 We find that as per the CENVAT scheme the eligibility for availing credit arises only if the input or service is related to the final product or service in terms of the definition of input service. Where the appellant is not able to segregate the ineligible credit he forfeits the right to utilise the credit so availed for setting it off against the duty payable. In the case of State of Karnataka Vs M/s. M K Agro Tech Private Limited [(2017) 16 SCC 210] the Hon'ble Supreme Court held that it is the legislature's domain as to how the tax credit is to be given and under what circumstances. 5.11 The principle that the burden of proof regarding the admissibility of CENVAT, falls on the recipient (appellant) is further made clear by Rule 9(5) of CCR, 2004. The appellant has failed to discharge this burden and the manner of distribution of credit alone will not suffice. [See: Astha Enterprises Vs The State of Bihar [CWC No. 10395 of 2023, dated: 18/08/2023 / (MANU/BH/1034/2023)] and State of Karnataka Vs Ecom Gill Coffee Trading (P) Ltd. [2023 SCC OnLine SC 248]. In this case, credit has mindlessly been distributed to a man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e invoice does not separately show the service tax component. There can be no denial of the fact that service is involved while discharging warranty service. The warranty and AMC are provided by common service provider Authorised Sales Provider (ASPs) and would be an eligible input service." While brevity is the ingredient of a good judgment the greatest hallmark is clarity and the citing of legal provisions which led to the decision. The decision above does not discuss the provisions and principles of law applicable in deciding the issue. It has hence to be treated as a decision depending upon the facts and circumstances of the particular case. The Hon'ble Supreme Court in its judgment in Secunderabad Club Vs CIT, [ Civil Appeal Nos. 5195-5201 of 2012, Dated: August 17, 2023] examined the issue of precedent and stated as under; "14. . . . According to the well-settled theory of precedents, every decision contains three basic ingredients: (i) findings of material facts, direct and inferential. An inferential finding of fact is the inference which the Judge draws from the direct or perceptible facts; (ii) statements of the principles of law applicable to the legal problems di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ropped for the subsequent period (i.e., August 2015 to August 2016) and an appeal has not been filed by the Department against that Order. Revenue has not contested this averment. I find that the order referred to is OIO No 02/2018(C)(CEX), dated: 31/01/2018. The issue is squarely covered by assessee's own identical case for the previous period, which has not been appealed against and hence the disputed issue has attained finality Import of Services and Blanks: The services received from the Appellant from dealers situated outside India in the form of market research data and consultancy services has been held to be sales promotion activity and is covered under the inclusive part of the definition of "input service" as defined under Rule 2(l) of CCR 2004. Reliance in this regard is placed on Essar Steel India Ltd. vs Commissioner of C. Ex. & S.T., Surat-I 2016 (42) S.T.R. 869 (Tri. - Ahmd.). The service is hence eligible for input service credit. Club and Association: The appellant has submitted that the issue of availment of CENVAT credit on Service Tax paid on corporate membership with various chambers and associations has been decided in favour of the assessee. Reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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