Appeal partially allowed on input service credit eligibility for catering services, penalties set aside.

Sundaram Fasteners Ltd. Versus Commissioner of Service Tax, Chennai-I

Sundaram Fasteners Ltd. Versus Commissioner of Service Tax, Chennai-I - TMI Issues:
1. Alleged ineligible input credit on rental charges for cycle stand.
2. Alleged ineligible credit on outdoor catering services.
3. Non-payment of service tax liability under reverse charge for expenses incurred for procuring design and drawings from abroad.
4. Imposition of penalties under Section 78 of the Finance Act, 1994.

Analysis:

Issue 1: Alleged ineligible input credit on rental charges for cycle stand
The appellant was alleged to have taken an ineligible input credit of &8377; 3,99,300 on rental charges for a cycle stand. The Commissioner (Appeals) confirmed this demand along with interest and penalties under Section 78 of the Finance Act, 1994. The appellant did not dispute the denial of service tax credit on rental charges for the cycle stand. The Tribunal, following its previous decision in a similar case, upheld the denial of input service credit on renting the cycle stand, stating that there was no nexus between the output manufactured or the service provided by the appellant. However, the Tribunal ruled that the penalty for availing credit in this regard was not imposable.

Issue 2: Alleged ineligible credit on outdoor catering services
The appellant was alleged to have taken an ineligible credit of &8377; 29,667 on outdoor catering services. The appellant argued that a previous decision by the CESTAT Chennai allowed the credit for catering services for the factory, subject to deducting the amount recovered from employees as the cost of catering. The Tribunal agreed with the appellant's argument and allowed the input service credit on outdoor catering services, provided the amount recovered from employees was deducted.

Issue 3: Non-payment of service tax liability under reverse charge
The appellant was alleged to have not discharged a service tax liability of &8377; 46,603 under reverse charge for expenses incurred for procuring design and drawings from abroad. The appellant did not dispute the disallowance of the tax liability but contested the imposition of a penalty. The Tribunal acknowledged the lack of clarity on the issue during the relevant period until a judgment by the Hon'ble Supreme Court clarified the matter. Consequently, the penalty imposed under Section 78 of the Finance Act, 1994, equal to the tax liability under reverse charge, was set aside.

Conclusion:
The Tribunal partially allowed the appeal, ruling in favor of the appellant on the eligibility of input service credit for outdoor catering services, subject to deductions, while dismissing the appeal regarding the rental charges for the cycle stand. The penalties imposed under Section 78 of the Finance Act, 1994, were set aside for both the rental charges and the service tax liability under reverse charge issues.