2008 (8) TMI 70 - AT - Service Tax

Tribunal denies tax credit for social functions, emphasizes intent in notice to invoke demands

TOYOTA KIRLOSKAR MOTOR P. LTD. Versus CCE. (L. TU.), BANGALORE

The tribunal rejected the appellants' claim for input service tax credit for expenses related to social functions, stating they did not qualify as ... Social functions to entertain the employees for Rajyostava Function and inauguration of police station cannot be brought within the ambit of activities relating to business – hence expenses for holding Kannada Rajyostava function and for inaugural function of Kengeri Police Station cannot be considered as input service – credit not admissible – bona fide belief of appellant of admissibility of credit on input services – no allegation of willful suppression in SCN – demand is time barred Issues:1. Eligibility of input service tax credit for expenses related to business activities.2. Invocation of larger period for demand confirmation.3. Application of ejusdem generis principle in interpreting activities relating to business.4. Obligation to pay service tax without establishing grounds.5. Consideration of intention to evade duty and wilful suppression in show cause notice.Issue 1: Eligibility of input service tax credit:The appeal involved a dispute over the eligibility of input service tax credit for expenses related to business activities. The appellants claimed credit for expenses incurred for the Kannada Rajyostava Day and the inaugural function of Kengeri Police Station. The Commissioner accepted some credits but rejected others. The appellants argued that any input service used indirectly or in relation to manufacturing activity should qualify for credit. They contended that the expenses in question fell within the activities relating to business and thus should be eligible for credit. The tribunal, after considering the submissions, disagreed with the appellants, stating that the social functions held were not activities relating to business as defined in the rules. However, the tribunal noted that specific allegations regarding intention to evade duty or wilful suppression were not explicitly made in the show cause notice, emphasizing the importance of such allegations in invoking demands.Issue 2: Invocation of larger period for demand confirmation:The Revenue invoked a larger period for confirming the demand, citing non-declaration of items for utilizing input service tax credit as grounds. The tribunal agreed with the Revenue's stance on invoking the larger period due to the non-declaration of inputs in the ER-I. The tribunal referenced Rules 14 and 15 of Cenvat Rules in justifying the demands confirmed by invoking the larger period.Issue 3: Application of ejusdem generis principle:The tribunal discussed the principle of ejusdem generis in interpreting the term 'activities relating to business.' It was noted that the term had been amplified with examples such as accounting, auditing, and financing. The tribunal rejected the appellants' arguments that the expenses in question should be considered activities relating to business, emphasizing that social functions did not align with the terms used in the definition.Issue 4: Obligation to pay service tax without establishing grounds:The tribunal addressed the Revenue's submission that when there is an obligation to pay service tax, grounds need not be established for confirming the duty. The tribunal differentiated between the purpose of levying penalties and confirming duties, citing relevant judgments to support their stance.Issue 5: Consideration of intention to evade duty and wilful suppression:The tribunal highlighted the absence of explicit mention of 'intention to evade duty' and 'wilful suppression' in the show cause notice. It emphasized the necessity of explicitly stating such allegations in the notice, citing a relevant case law to support this requirement. The tribunal considered the appellants' bona fide belief in claiming the expenses as a valid ground, noting the difference in definitions between 'input service' in the Cenvat Credit Rules and the Income-tax Act.In conclusion, the tribunal set aside the demands on grounds of time-bar due to the absence of explicit allegations of intention to evade duty and wilful suppression in the show cause notice.