2013 (9) TMI 629 - AT - Service Tax

Tribunal Ruling on CENVAT Credit for Market Research and Foreign Services

The Tribunal allowed CENVAT credit for market research related to dealer performance and employee training expenses but restricted credit for costs ... CENVAT credit - Payment made to universities abroad for various training courses of employees - Held that:- In the matter of service availed for conducting market research regarding the performance of the dealers in sale of product and in the matter of after sales service, we are of the prima facie view that it will form part of input service under Rule 2(l) of the CENVAT Credit Rules, 2004. However, in the case, that portion of the service for which the cost has been recovered from the dealers, we are prima facie of the view that applicant cannot take CENVAT credit since the applicant did not incur the cost but only routed payments from the dealers to the service provider abroad - services received from the Universities will not form part of the input service - prima facie case is against the assessee - stay granted partly. Issues:1. Whether CENVAT credit can be claimed on market research services and training expenses.2. Whether the services provided by foreign entities qualify as input services for CENVAT credit.3. Whether the recovery of costs from dealers affects the eligibility for CENVAT credit.4. Whether pre-deposit is required for admission of the appeal.Analysis:Issue 1: CENVAT credit on market research services and training expensesThe appellant, a two-wheeler manufacturer, claimed CENVAT credit on payments made to entities for market research and employee training expenses. The Revenue objected, stating these services were not eligible as input services. The appellant argued that market research is an input service as per Rule 2(l) of the CENVAT Credit Rules, essential for marketing products. They contended that understanding dealer performance and after-sales service quality is crucial for marketing and claimed credit for these expenses. The Tribunal found that market research related to dealer performance qualifies as an input service, but credit cannot be claimed for costs recovered from dealers.Issue 2: Eligibility of foreign services as input servicesThe Revenue contended that the foreign services did not directly relate to product manufacture or sales, thus not qualifying as input services. The appellant argued that the skills acquired by employees through training were necessary input services. The Tribunal disagreed with the Revenue, holding that services received from foreign universities do qualify as input services eligible for CENVAT credit.Issue 3: Impact of cost recovery on CENVAT creditThe Revenue argued that since the appellant recovered costs from dealers for market research, CENVAT credit should be denied. The Tribunal agreed partially, stating that credit cannot be claimed for costs recovered from dealers, as the appellant did not incur those expenses directly.Issue 4: Requirement of pre-deposit for appeal admissionThe Revenue requested a pre-deposit based on a previous Tribunal decision. The appellant cited a stay order from the High Court regarding the same issue. The Tribunal directed the appellant to pre-deposit a specific amount within a set period for appeal admission, with the balance dues pre-deposit waived and collection stayed during the appeal process.In conclusion, the Tribunal allowed CENVAT credit for market research related to dealer performance and employee training expenses but restricted credit for costs recovered from dealers. It deemed foreign services as eligible input services and required a specific pre-deposit amount for appeal admission, with further collection stayed during the appeal.