2017 (12) TMI 1080 - AT - Central Excise

Tribunal grants CENVAT credit on various services, remands freight charges issue for further review.

The Tribunal allowed the appellant to avail CENVAT credit on service tax paid for intellectual property services, repair and maintenance services, ... CENVAT credit of input services - integral or direct/indirect nexus between input service and manufacture - admissibility of service tax credit on intellectual property services - admissibility of credit for repairs and maintenance (civil) - admissibility of credit for membership and subscription - admissibility of credit for telephone and insurance services - admissibility of credit for development/testing charges - freight to destination - delivery at destination and right of property passing - relevance of Board Circular No.97/6/2007 dated 23.08.2007 for freight liabilityCENVAT credit of input services - admissibility of service tax credit on intellectual property services - integral or direct/indirect nexus between input service and manufacture - Service tax paid on intellectual property services availed by the appellant is admissible as CENVAT credit. - HELD THAT: - The Tribunal examined Rule 2(l) of the Cenvat Credit Rules, 2004 and accepted the appellant's contention that where an integral connection exists between the input service (intellectual property services) and the manufacture of final products, the service-tax paid is eligible as CENVAT credit. The appellate authority below rejected the claim without assigning reasons or demonstrating absence of nexus. In the absence of any contrary material and without reasoning to displace the claimed nexus, the appellant cannot be denied credit. [Paras 2, 11]Credit for service tax paid on intellectual property services allowed; denial by lower authority set aside for want of reasoning.CENVAT credit of input services - admissibility of credit for repairs and maintenance (civil) - integral or direct/indirect nexus between input service and manufacture - Service tax paid on repairs and maintenance (civil work) is admissible as CENVAT credit subject to record verification. - HELD THAT: - The Tribunal found that the Commissioner (Appeals) denied credit for lack of evidence but failed to rule out that the repair and maintenance were within factory premises and related to manufacture (including structural repairs and allied jobs). In absence of contrary evidence on record and without adequate reasoning, the denial could not be sustained and credit must be allowed unless adverse material is shown on verification. [Paras 3, 11]Credit for repairs and maintenance (civil) allowed; lower order set aside for lack of verification and reasoning.CENVAT credit of input services - admissibility of credit for membership and subscription - Service tax paid on membership and subscription charges is admissible as CENVAT credit. - HELD THAT: - The Tribunal observed that membership and subscription charges were incurred for business purposes. The Commissioner (Appeals) dismissed the claim without appreciating their relevance to business/manufacture. In absence of material disallowing nexus, the claim cannot be denied. [Paras 4, 11]Credit for membership and subscription charges allowed; impugned rejection annulled.CENVAT credit of input services - admissibility of credit for telephone and insurance services - Service tax paid on telephone and insurance services is admissible as CENVAT credit subject to verification of documentary evidence. - HELD THAT: - The Tribunal noted the lower authority barred the claims for lack of documentary evidence. It found that insurance policies were taken to safeguard the company's interest and telephone services were business-related; the appellant should not be denied credit without the adjudicating authority having examined or produced contrary evidence. Therefore the claims stand unless contrary material is shown on verification. [Paras 5, 11]Credit for telephone and insurance services allowed; denial set aside for lack of documentary basis.CENVAT credit of input services - admissibility of credit for development/testing charges - Service tax paid on development charges (testing of newly developed products) is admissible as CENVAT credit. - HELD THAT: - The Tribunal accepted the appellant's contention that development charges were necessary for testing newly developed products and there was no material on record to show the service was irrelevant to manufacture. Absent such material, the service-tax paid on development/testing services qualifies for input credit. [Paras 6, 11]Credit for development/testing charges allowed; impugned rejection set aside.Freight to destination - delivery at destination and right of property passing - relevance of Board Circular No.97/6/2007 dated 23.08.2007 for freight liability - CENVAT credit of input services - Whether service tax paid on freight up to destination is admissible as CENVAT credit is remanded for fresh consideration and factual verification in light of contract terms and Board Circular No.97/6/2007. - HELD THAT: - The Tribunal found the adjudicating authority denied freight credit on the ground that clearance of goods was limited to factory, but did not consider where the property in goods passed under contract or apply Board Circular No.97/6/2007 regarding delivery at destination. Given the factual nature of where delivery and transfer of property occurred, the Tribunal remanded the issue to the adjudicating authority to re-examine and determine entitlement to credit following the Board Circular and due process. [Paras 7, 11, 13]Freight-to-destination issue remanded to adjudicating authority for re-determination in accordance with law and Board Circular No.97/6/2007.Final Conclusion: All three appeals are allowed in part: CENVAT credit claims in respect of intellectual property services, repairs and maintenance (civil), membership and subscription, telephone and insurance services, and development/testing charges are held admissible and the impugned rejections are set aside for lack of reasoning or contrary material; the claim in respect of freight to destination is remanded to the adjudicating authority for fresh factual and legal determination in accordance with Board Circular No.97/6/2007 and due process. Issues involved:1. Denial of CENVAT credit on input services availed.2. Disallowance of service tax credit on intellectual property services.3. Rejection of CENVAT credit on repair and maintenance services.4. Denial of CENVAT credit on membership and subscription charges.5. Rejection of CENVAT credit on telephone and insurance services.6. Disallowance of CENVAT credit on development charges.7. Denial of input service credit on freight charges.Analysis:1. The appellant argued that once an integral connection is established between the input service availed and the output manufactured, CENVAT credit should not be denied. The appellant specifically addressed various amounts related to different input services availed during specific periods. The Tribunal noted that Rule 2(l) of the Cenvat Credit Rules, 2004, provides for the eligibility of service tax credit based on a direct or indirect nexus between the input service and the final product's manufacture. The Tribunal found that the Revenue did not provide a valid reason for denying credit on intellectual property services. Therefore, the Tribunal allowed the appellant to avail CENVAT credit on the service tax paid for intellectual property services.2. Regarding repair and maintenance (civil work), the Tribunal disagreed with the Commissioner (Appeals) who claimed that there was no evidence to support the claim. The Tribunal highlighted that without contrary evidence, the denial of credit is unwarranted. Therefore, the appellant was permitted to claim CENVAT credit on repair and maintenance services.3. The Tribunal addressed the membership and subscription charges, emphasizing their relevance to the business. The Tribunal disagreed with the Commissioner (Appeals) and allowed the appellant to claim CENVAT credit on these charges due to their business necessity.4. Concerning telephone and insurance services, the Tribunal found that the denial of the claim based on the unavailability of documentary evidence was unjustified. The Tribunal noted that insurance policies were essential for safeguarding the company's interests, and without relevant evidence, the dismissal of the appellant's plea was unwarranted.5. The Tribunal discussed development charges, highlighting their necessity for testing newly developed products. The Tribunal emphasized that without evidence showing the irrelevance of the service, the appellant was entitled to claim input credit on the service tax paid for development charges.6. Addressing the freight charges, the Tribunal noted that the denial of credit by the Commissioner (Appeals) was based on limited grounds. The Tribunal highlighted that the Commissioner did not consider relevant factors such as the delivery of goods at the destination and a specific Board Circular. Consequently, the Tribunal allowed the appellant to claim input service credit on freight charges and remanded the issue to the adjudicating authority for re-examination.7. Ultimately, the Tribunal allowed all three appeals, remanding the issue of freight charges to the adjudicating authority for further assessment in accordance with the law and due process of justice.