Appellate Tribunal denies service tax credit claim by TVS Motor Co. Ltd. for post-sale services

The Appellate Tribunal CESTAT, CHENNAI, denied the claim for service tax credit amounting to Rs. 4,39,03,272/- by M/s. TVS Motor Co. Ltd. for services provided by M/s. TVS Finance and Services Ltd. The Tribunal found that the services rendered after the initial sale of two wheelers lacked a nexus to the manufacturing process and were not integrally connected to it. Therefore, the appellants were directed to pre-deposit 50% of the tax demanded within eight weeks from the date of the order pronouncement. Compliance was to be reported four weeks thereafter.

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Issues:
Claim for service tax credit for services rendered by TVSFS for financing sale of two wheelers to ultimate customers.

Analysis:
The appellants, M/s. TVS Motor Co. Ltd., claimed service tax credit for services provided by M/s. TVS Finance and Services Ltd. (TVSFS) in relation to financing the sale of two wheelers to customers. The credit amounting to Rs. 4,39,03,272/- was denied by the adjudicating Commissioner, leading to the appeal before the Appellate Tribunal CESTAT, CHENNAI.

The main reasons for rejecting the claim for credit were identified as follows: Firstly, the service provided by TVSFS was deemed to have no connection to the manufacture of the two wheelers by TVS. Secondly, it was noted that the service was rendered after the initial sale of the two wheelers by TVS to its dealers and only provided at the point of the second sale to the ultimate customers at the dealers' premises.

The arguments put forth by the appellants in support of their claim were considered, particularly the assertion that the services rendered by TVSFS aided in increasing sales, hence justifying the credit. However, the Tribunal found these arguments prima facie unacceptable. It was emphasized that services rendered after the first sale and at the point of the second sale of manufactured goods could not be considered integrally connected to the manufacturing process. Reference was made to a judgment by the Hon'ble Bombay High Court in the case of CCE, Nagpur v. Manikgarh Cement, where tests laid down by the Hon'ble Supreme Court were applied to deny credit of input service tax due to the lack of nexus. The tests required a nexus and integral connection to the manufacturing process, which the services provided at the second sale point did not fulfill.

Consequently, the Tribunal was of the prima facie view that the appellants had not established a case for a complete waiver of the pre-deposit. Therefore, the appellants were directed to pre-deposit 50% of the tax demanded within eight weeks from the date of the order pronouncement and report compliance four weeks thereafter. The judgment was pronounced on 9-11-2010 by the Appellate Tribunal CESTAT, CHENNAI.

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