2013 (12) TMI 853 - AT - Service Tax

Tribunal denies Cenvat credit for abandoned plan but overturns penalty under Rule 15

LYKA LABS LTD. Versus COMMISSIONER OF CENTRAL EXCISE, SURAT

LYKA LABS LTD. Versus COMMISSIONER OF CENTRAL EXCISE, SURAT - 2013 (32) S.T.R. 79 (Tri. - Ahmd.) Issues:- Availment of Cenvat credit on services for herbal products- Eligibility of Cenvat credit under Cenvat Credit Rules, 2004- Liability for interest on Cenvat credit- Imposition of penalty under Rule 15 of Cenvat Credit Rules, 2004Analysis:Issue 1: Availment of Cenvat credit on services for herbal productsThe appellant availed Cenvat Credit for services received regarding research, standardization, and preclinical studies for herbal products not manufactured by them. The department contended that these services did not qualify as input services. The appellant argued that the services were used for business diversification into herbal products, citing the definition of input services under Rule 2(l) of the Cenvat Credit Rules, 2004. However, the tribunal found that since the plan to manufacture herbal products was abandoned, the credit for service tax paid on these services was not available to the appellant.Issue 2: Eligibility of Cenvat credit under Cenvat Credit Rules, 2004The tribunal analyzed the definitions of input service and final products under the Cenvat Credit Rules, 2004. It concluded that the appellant, having abandoned the plan to manufacture herbal products, was not entitled to avail Cenvat credit for the services received. The tribunal emphasized the requirement for a nexus between the services utilized and the manufacturing of final products, which was lacking in this case due to the change in business plans.Issue 3: Liability for interest on Cenvat creditConsidering the appellant's ineligibility for Cenvat credit, the tribunal held that interest liability arose, citing the decision in a previous case by the Hon'ble Supreme Court. The tribunal reasoned that once credit was wrongly availed, interest liability would apply, which was applicable in this scenario due to the appellant's incorrect availment of Cenvat credit.Issue 4: Imposition of penalty under Rule 15 of Cenvat Credit Rules, 2004The tribunal addressed the penalty imposed by the lower authorities under Rule 15 of the Cenvat Credit Rules, 2004. It found the penalty unwarranted as the appellant had a genuine intention to diversify into manufacturing herbal products when availing the Cenvat credit. The tribunal concluded that the penalty was inconsistent with the rules as it was based on the intention to avail wrong credit, which was not the case here. Therefore, the penalty was set aside based on the appellant's genuine belief in availing the credit for the intended business activity.In conclusion, the tribunal disposed of the appeal, ruling against the appellant's availment of Cenvat credit for services related to herbal products due to the abandonment of the manufacturing plan, leading to interest liability but overturning the penalty imposed based on the appellant's genuine intentions.