2012 (10) TMI 878 - AT - Service Tax

Export incentives deemed integral to manufacturing activities for CENVAT Credit eligibility

The Tribunal upheld the respondent's claim, ruling that services related to obtaining export incentives are integral to manufacturing activities and ... Input service - input services used for obtaining export incentives - Professional and Liaison fees – Held that:- Obtaining export incentives is directly relatable to manufacture. Manufacturer while manufacturing goods for export and for working out the cost takes into account the export incentives - service tax incurred in respect of services for obtaining export incentives can be definitely related to manufacturing activity - respondent is eligible for cenvat credit - in favor of assessee. Issues:1. Availment of CENVAT Credit for professional and liaison fees under the EXIM Policy.2. Interpretation of 'input service' under Rule 2(1) of the CENVAT Credit Rules, 2004.3. Adjudication on the eligibility of CENVAT Credit for services related to export incentives.4. Appeal regarding reliance on a judgment of the Bombay High Court in a similar case.5. Consideration of export incentives in relation to manufacturing activity for claiming CENVAT Credit.Issue 1: Availment of CENVAT Credit for professional and liaison fees under the EXIM PolicyThe appellant, M/s Ahmedabad Strips Private Ltd., availed CENVAT Credit for professional and liaison fees paid to Shri Ajay Kumar Gupta for claiming export incentives under the EXIM Policy. The service was deemed not directly or indirectly used in or in relation to the manufacture of final products, leading to a demand for recovery of the wrongly availed credit along with interest and penalty under Rule 15 of the CENVAT Credit Rules, 2004.Issue 2: Interpretation of 'input service' under Rule 2(1) of the CENVAT Credit Rules, 2004The adjudicating authority held that the liaison service did not qualify as an 'input service' under Rule 2(1) of the CENVAT Credit Rules, 2004 due to being post-exportation and not directly related to manufacturing activities. The services were considered post-manufacture and post-clearance, availed solely for obtaining export incentives, leading to the imposition of penalties.Issue 3: Adjudication on the eligibility of CENVAT Credit for services related to export incentivesThe Commissioner (Appeals) overturned the Order-in-Original, citing the judgment of the Bombay High Court in a similar case, where export incentives were deemed essential for completing the sales process. The Commissioner held that services related to export incentives are integral to business activities and allowed the appeal, setting aside the demand for recovery of CENVAT Credit.Issue 4: Appeal regarding reliance on a judgment of the Bombay High Court in a similar caseThe Revenue appealed, arguing that the reliance on the Bombay High Court's judgment was premature as the department had already filed an appeal against it before the apex court. The appeal questioned the validity of the Commissioner's decision based on the earlier judgment.Issue 5: Consideration of export incentives in relation to manufacturing activity for claiming CENVAT CreditThe Tribunal rejected the Revenue's appeal, emphasizing that obtaining export incentives directly impacts manufacturing activities. Export incentives are crucial for manufacturers in determining costs and play a significant role in the manufacturing and export process. Therefore, services related to obtaining export incentives can be considered part of manufacturing activity, justifying the eligibility for CENVAT Credit. The Tribunal upheld the Commissioner's decision, ruling in favor of the respondent.This judgment highlights the intricate interpretation of 'input service' under the CENVAT Credit Rules, particularly concerning services related to export incentives and their connection to manufacturing activities. The Tribunal's analysis underscores the importance of export incentives in the manufacturing process and their eligibility for CENVAT Credit, ultimately upholding the respondent's claim in this case.