2008 (12) TMI 170 - AT - Service Tax

Tribunal Upholds Demand for Irregular Input Credit & Clarifies Usage Rules

The tribunal upheld the demand under Section 11A of the Finance Act for irregularly taken and utilized credit on input services. It ruled that the ... Demand and Recovery of service tax credit irregularly taken – demand can be raised under 73 of the Finance Act, 1994 and section 11A of Central Excise Act, 1944 – regarding certain input services like Mobile Phone, Rent-a-cab service, appellant failed to show the breakup of use for personal purpose and business purpose – stay not granted. Issues:- Applicability of Sections 11A and 73 of the Finance Act, 1994 for recovery of credit irregularly taken and utilized.- Time-barred demand due to submission of ER-1 returns.- Admissibility of credit on input services like mobile services, Rent-a-cab service, Association service, and Security Service.- Invocation of extended period for demand.- Breakdown of charges for private and business purposes in mobile and Rent-a-cab services.- Eligibility of security services as input service.- Admissibility of credit on association charges.Analysis:1. Applicability of Sections 11A and 73: The advocate argued that demand should have been made under Section 73 of the Finance Act instead of Section 11A for credit related to input services. However, the tribunal found that Rule 14 of the Cenvat Credit Rules makes both Sections 11A and 73 applicable for recovery of credit irregularly taken and utilized. Thus, the demand under Section 11A was deemed maintainable.2. Time-barred Demand: The advocate claimed that the demand was time-barred due to the submission of ER-1 returns. Citing precedents, it was argued that extended period cannot be invoked if there was no suppression of facts required by law. However, the tribunal noted that post-2001, no declaration is needed under self-assessment, and appellants should seek clarification if in doubt. Hence, the invocation of the extended period was upheld.3. Admissibility of Credit on Input Services: The advocate contended that credit on input services like mobile services, Rent-a-cab service, Association service, and Security Service should be allowed. The tribunal agreed that credit on mobile services used for business purposes is admissible but required a breakdown of charges for private and business use. Similarly, for Rent-a-cab service, the purpose of usage needed clarification. Security services at the railway side were deemed ineligible for credit due to lack of clarity on usage.4. Breakdown of Charges: The tribunal emphasized the importance of providing a clear breakdown of charges for private and business purposes in mobile and Rent-a-cab services. Without this breakdown, the demand could not be validated.5. Admissibility of Association Charges: The tribunal questioned the admissibility of credit on association charges, as no data was presented to demonstrate how these charges related to the manufacturing process or product costing. Prima facie, the tribunal found this credit inadmissible.6. Final Decision: The tribunal directed the appellants to make a pre-deposit of specified amounts within a set timeframe. Failure to comply would result in the dismissal of appeals. Compliance would lead to a waiver of the pre-deposit balance and stay on recovery until the appeals' disposal.