2015 (1) TMI 505 - AT - Service Tax

Tribunal allows Cenvat credit for service tax under reverse charge mechanism

The Tribunal upheld the Commissioner (Appeals) decision, allowing the respondent's appeal regarding the eligibility of Cenvat credit for service tax paid ... Input service - cenvat credit - reverse charge - inclusive definition - quality control - place of removal - post-removal activity - used in or in relation to the manufacture of final products and clearance of final productsInput service - cenvat credit - reverse charge - quality control - post-removal activity - used in or in relation to the manufacture of final products and clearance of final products - Service tax paid under reverse charge on quality control and cleaning services rendered abroad at the buyer's premises is eligible as cenvat credit under the inclusive definition of 'input service' in Rule 2(l) of CCR 2004 for the period in dispute. - HELD THAT: - The Tribunal considered whether services of removal of rust, deburring and dimensional checks carried out by an overseas service provider at the buyer's warehouse relate to manufacture or clearance so as to qualify as 'input service'. The definition in Rule 2(l) contains an inclusive illustration which must be read in totality and not dissected artificially into isolated categories. The activities in question were required to meet the buyer's specification and ISO standards and were integral to ensuring acceptability of the exported Rear Axle Housings; failure to meet those standards would cause commercial loss to the manufacturer. Distinguishing authorities relied upon by Revenue as dealing with commissions, welfare or residential services, the Tribunal held those cases inapplicable as they do not concern post clearance quality control essential to the business of manufacture and export. Following the reasoning in Coca Cola India (as applied in Nilkamal), services that relate to the business and to ensuring conformity with contractual and technical specifications fall within the inclusive definition of 'input service' and are therefore eligible for cenvat credit even if rendered outside India or after removal, provided they are in relation to manufacture/clearance as illustrated in the definition. [Paras 7, 8, 9, 11]The adjudication order denying cenvat credit on the service tax paid under reverse charge was set aside; the respondents are eligible for input credit in respect of the overseas quality control services.Final Conclusion: Revenue's appeal is rejected; the impugned order allowing cenvat credit of service tax paid under reverse charge for the overseas quality control services is upheld and the respondents' cross objection is disposed of. Issues Involved:1. Eligibility of Cenvat credit for service tax paid under reverse charge mechanism.2. Interpretation of 'input services' under Rule 2(l) of CCR 2004.3. Applicability of case laws cited by both parties.Detailed Analysis:1. Eligibility of Cenvat Credit for Service Tax Paid Under Reverse Charge Mechanism:The core issue in the appeal is whether the service tax paid by the respondent as a recipient of service under Section 66A of the Finance Act is eligible for Cenvat credit under CCR 2004 for the period from March 2007 to July 2007. The adjudicating authority initially demanded the reversal of the service tax credit availed by the respondent on the grounds that the services were rendered outside the place of removal and were considered post-removal activities. The Commissioner (Appeals) set aside this order, allowing the respondent's appeal. The Tribunal upheld this decision, stating that the payment of service tax by the respondent as a recipient of service is not disputed, and the services availed were related to quality control activities essential for the business.2. Interpretation of 'Input Services' Under Rule 2(l) of CCR 2004:The dispute revolves around the interpretation of the inclusive definition of 'input service' under Rule 2(l) of CCR 2004. The Revenue argued that the activities carried out by the overseas service provider do not qualify as 'input services' since they were rendered outside the place of removal and were post-manufacturing activities. However, the respondent contended that the definition of 'input service' should be read in totality and not in isolation. The Tribunal agreed with the respondent, noting that the activities such as removing rust, deburring, and quality control checks are directly related to the business and fall within the inclusive definition of 'input services.' The Tribunal emphasized that the inclusive part of the definition must be read together, supporting the respondent's interpretation.3. Applicability of Case Laws Cited by Both Parties:The Revenue cited several case laws to support their contention, including CCE Ahmedabad Vs Cadila Healthcare Ltd., CCE Nagpur Vs Manikgarh Cement, and CCE Vs Gujarat Heavy Chemicals Ltd. However, the Tribunal found these cases inapplicable to the present case. For instance, the Cadila Healthcare case related to commission paid to foreign agents, which is different from the quality control activities in question. Similarly, the Manikgarh Cement case involved welfare activities unrelated to manufacturing. On the other hand, the Tribunal found the respondent's reliance on the case of CCE Vs Nilkamal Crates & Bins and the Bombay High Court's decision in Coca Cola India Pvt. Ltd. Vs Commissioner more relevant. These cases supported the view that services related to business activities, including quality control, are eligible for Cenvat credit.Conclusion:The Tribunal concluded that the services availed by the respondent from the overseas service provider for quality control activities at the buyer's premises are rightly covered under the inclusive definition of 'input services' as per Rule 2(l) of CCR 2004. The Tribunal upheld the order of the Commissioner (Appeals) and rejected the Revenue's appeal, affirming the respondent's eligibility for Cenvat credit on the service tax paid under reverse charge. The cross-objection filed by the respondent was also disposed of.(Pronounced in open court on 9.1.2015)