2015 (10) TMI 2286 - AT - Service Tax

Appellant wins tax credit on ECBs under reverse charge for business activities

Micro Inks Pvt Ltd Versus Commissioners of Central Excise, Customs And Service Tax - Daman

The appellant successfully distributed service tax credit on external commercial borrowings (ECBs) paid under the reverse charge mechanism. The court held ... Denial of CENVAT Credit - Banking and Financial services - whether service tax paid by the appellant on external commercial borrowings (ECB), on which service tax was paid under “Banking and Other financial services” by the appellant under reverse charge, is admissible under the Cenvat Credit Rules or not - Held that:- It is observed from para 5 of the Show Cause Notice Dated 15.10.2010 that that Shri Prakash Mehta, Senior Manager (Accountants) and authorized person of the appellant has, interalia, mentioned that ECBs are obtained by the appellant for the purpose of capital expenditure to increase their existing facility and to create new production capacity of the company in India and abroad. The ‘ECB’ services availed by the appellant are therefore, clearly in relation to the business activities and for promoting the inks manufacture by the appellant. It is the case of appellant that during the relevant period the activities relating to business was covered with the definition of inputs services under Rule 2 (l) of Cenvat Credit Rules, 2004. No contrary arguments are available in the orders passed by the lower authorities that such activities relating to business were not existing in the definition of Rule 2 (l) of the Cenvat Credit Rules, 2004. Hence, it is held that the services availed by the appellant were “Banking and other financial services” on which service tax was paid under reverse charge. The factual matrix of this case is thus stand covered by the case law of this Bench in the case of Commissioner of Central Excise, Customs & Service Tax, Visakhapatnam-I vs. GMR Industries Ltd. (2015 (10) TMI 2231 - CESTAT BANGALORE). The Cenvat Credit taken by the appellant with respect to the ECB, for which tax was paid under “Banking and other financial services”, is therefore covered with in the definition of Rule 2(l) of the Cenvat Credit Rules, 2004 prevalent during the relevant period. - Decided in favour of assessee. Issues: Whether appellant can distribute service tax credit of service tax paid on external commercial borrowings (ECB) under reverse charge mechanism.Analysis:The appeal was filed concerning the issue of distributing service tax credit on ECBs paid under reverse charge mechanism. The appellant argued that the services availed were related to their business activities and fell under the definition of Rule 2(l) of the Cenvat Credit Rules, 2004. The appellant cited relevant case laws to support their argument. On the other hand, the Revenue contended that the ECB activities had no relation to the manufacturing activities in India. After hearing both sides and examining the case records, it was found that the ECB services were in relation to the business activities of the appellant, as they were obtained for capital expenditure to increase production capacity. The services fell under Banking and other financial services, on which service tax was paid under reverse charge. The appellant's Cenvat Credit claim for ECB services was held admissible under the Cenvat Credit Rules. The judgment was based on the interpretation of Rule 2(l) and relevant case law, leading to the allowance of the appeal on merits.