2010 (12) TMI 297 - AT - Central Excise

Establishing Nexus for CENVAT Credit: Legal Precedents Guide Appellate Decision

The court remanded the case to the original authority, emphasizing the requirement of establishing a nexus between input and output services to claim ... Cenvat credit – Assessee provides exempted as well as taxable services but did not make separate account and take Cenvat Credit to the extent 20% - In a show-cause notice, the department proposed to recover the credit so utilized, on the ground that any of the input services were not shown to have been used in, or in relation to, the output services - Held that: the view taken by the lower appellate authority that no nexus requires to be established between the input service and output service cannot be sustained. - matter remanded back with a direction to the original authority to take fresh decision on the issue in accordance with law after considering the Honrable High Court’s judgment in Ultratech Cement Ltd. case (2010 -TMI - 78203 - BOMBAY HIGH COURT ) Issues Involved:Whether CENVAT credit of service tax paid on input services can be allowed without establishing a nexus with output services.Analysis:The appeal concerns the allowance of CENVAT credit of service tax paid on various input services used by a hotel for rendering output services. The main issue is whether the lower appellate authority was correct in permitting the credit without requiring a nexus between the input and output services. The hotel availed CENVAT credit without maintaining separate accounts for common input services, utilizing only 20% of the credit on output services. The department sought to recover the credit, alleging lack of proof of input services' use in relation to output services. The original authority upheld the demand and imposed penalties, but the Commissioner (Appeals) allowed the credit, stating that no nexus was necessary under the Cenvat Credit Rules 2004.The appellant argued that the definition of input services necessitates establishing a nexus between input and output services to claim CENVAT credit. They cited legal precedents, including a Supreme Court judgment, to support their position. The respondent's consultant, however, relied on a Tribunal decision emphasizing the broad interpretation of the term 'business' in the definition of input services. The Tribunal's decision was based on a High Court judgment, indicating that activities used for business purposes should be recognized as input services.Upon review, the presiding judge found the case suitable for remand to the original authority due to the interpretation of the term 'activities relating to business' in the definition of input service. Referring to a High Court judgment, it was clarified that an integral connection between output services and the activity/service for claiming CENVAT credit is required. The judge disagreed with the lower appellate authority's stance that no nexus needed to be established between input and output services. Consequently, the judge set aside the lower authorities' orders, directing a fresh decision considering the High Court's judgment and granting the assessee a fair opportunity to present their case.In conclusion, the judgment highlights the significance of establishing a nexus between input and output services to claim CENVAT credit. The decision emphasizes the need for a clear connection between the services utilized for business purposes and those for which credit is sought, as per the prevailing legal interpretations and precedents.