2019 (8) TMI 525 - AT - Central Excise

Tribunal grants Cenvat credit on input services, denies GTA credit to customer premises, no penalty imposed

The Tribunal partially allowed the appeal, granting Cenvat credit on input services related to depots, GTA services from factory to depot, transit ... Cenvat credit on input services - eligibility of services received at depots/branches as input service - inclusive part of the definition of input service (transportation up to place of removal) - cenvat credit for clearing and forwarding and transit insurance used for procurement/export - credit for Intellectual Property/Royalty payments as in relation to manufacture - penalty not leviable where wrongful availment arises from bona fide/uncertain interpretation later settled by higher authorityCenvat credit on input services - eligibility of services received at depots/branches as input service - Whether cenvat credit on accounting, auditing, renting of immovable property and telecommunication services pertaining to depots is admissible as input service - HELD THAT: - The Tribunal held that denial of credit in respect of services availed at depots (accounting, audit, rent and telecommunication) was not sustainable. Depots and branches perform functions integral to the manufacturer's business - receiving orders and storing goods prior to sale - and therefore facilitate manufacturing activity. The view is supported by earlier Tribunal decisions cited in the order; accordingly such services qualify as input service and credit is allowable. [Paras 5]Credit on the depot/branch services amounting to Rs. 96,464/- allowed as input service.Inclusive part of the definition of input service (transportation up to place of removal) - cenvat credit on GTA and transit insurance for movement to depot - Whether GTA services from factory to depot and transit insurance from factory to depot qualify as input service - HELD THAT: - The Tribunal concluded these services are used for removal of goods from factory to depot for sale at the depot; hence the depot is the place of removal. Transportation and insurance up to that place fall within the inclusive part of the definition of input service and therefore qualify for cenvat credit. [Paras 5]Credit on GTA (factory to depot) and transit insurance (factory to depot) allowed as input service.Cenvat credit for clearing and forwarding and transit insurance used for procurement/export - cenvat credit on services relating to procurement of inputs and export of finished goods - Whether clearing and forwarding services availed for procurement of inputs and export of finished goods qualify as input service - HELD THAT: - The Tribunal observed that the clearing and forwarding services were availed for procuring inputs and for export of finished goods; such services relate to procurement and transportation up to the place of removal and therefore fall within the inclusive part of the definition of input service. Consequently these services qualify for cenvat credit. [Paras 5]Credit on Clearing & Forwarding services allowed as input service.Credit for Intellectual Property/Royalty payments as in relation to manufacture - Whether royalty/IPR payments made to parent companies are eligible for cenvat credit as input service - HELD THAT: - The Tribunal found that the royalty paid to parent companies was directly related to the manufacturing process of final products. Reliance was placed on precedent recognising that payments towards royalty/IPR that are in or in relation to manufacture qualify for credit. Thus the IPR services were held to be input services eligible for credit. [Paras 5]Credit on Intellectual Property/Royalty services allowed as input service.Penalty not leviable where wrongful availment arises from bona fide/uncertain interpretation later settled by higher authority - Whether penalty can be imposed for wrongful availment of credit on GTA services up to customer's premises - HELD THAT: - The appellant had conceded disallowance of credit on GTA to customer's premises and reversed the same, and had paid interest in view of the Apex Court decision in Ultratech. The Tribunal held that imputing intention to evade tax was not sustainable because the question involved an interpretative controversy that was later settled by the Apex Court. In those circumstances penalty under the penal provision could not be imposed. [Paras 5]No penalty is leviable on the appellant in respect of the disputed GTA services up to customer's premises.Final Conclusion: The appeal is allowed in part: cenvat credit is permitted for services availed at depots (accounting, audit, rent, telecom), GTA and transit insurance for movement to depots, clearing & forwarding services used for procurement/export, and Intellectual Property/Royalty services; the appellants had already conceded and reversed credit for GTA up to customer's premises and paid interest, and no penalty is imposed because the dispute was an interpretation issue later settled by the Apex Court. Issues Involved:1. Denial of Cenvat Credit on certain input services.2. Interpretation of input services related to depots and branches.3. Denial of Cenvat Credit on GTA services and transit insurance.4. Denial of Cenvat Credit on Clearing and Forwarding Services.5. Denial of Cenvat Credit on Intellectual Property Rights Services.6. Imposition of penalty under Section 11AC of the Central Excise Act.Detailed Analysis:1. Denial of Cenvat Credit on Certain Input Services:The Commissioner (Appeals) disallowed Cenvat credit of Rs. 8,92,587/- and demanded interest and imposed an equal penalty. The services in question included rent for branches, courier services, legal services, auditing services, telephone charges, export clearing charges, pest control charges, accounting software, exhibition charges, advertisement, and air travel agent services. The Department argued these services were not directly or indirectly used in relation to the manufacture of final products. The appellant contended that the denial was unjustified and that the services were essential for their business operations.2. Interpretation of Input Services Related to Depots and Branches:The appellant argued that services related to depots, such as accounting, auditing, renting of immovable property, and telecommunication services, were crucial for their operations. The Commissioner (Appeals) denied credit on these services, stating the appellant did not have centralized registration and failed to provide evidence that branches exclusively marketed their products. The appellant cited several decisions, including DSCL Sugar and Tata Steel Ltd., to support their claim that services related to depots qualify as input services.3. Denial of Cenvat Credit on GTA Services and Transit Insurance:The appellant conceded they were not entitled to credit on GTA services up to the customer’s premises, aligning with the Supreme Court’s decision in Ultratech Cement Ltd. However, they argued that GTA services from factory to depot and transit insurance should qualify as input services since these services are used for the removal of goods from the factory to the depot, making the depot the place of removal.4. Denial of Cenvat Credit on Clearing and Forwarding Services:The appellant contended that clearing and forwarding services were used for procuring inputs and exporting finished goods, thus falling under the inclusive definition of input services. The Tribunal agreed, noting these services are essential for the procurement and transportation of goods up to the place of removal.5. Denial of Cenvat Credit on Intellectual Property Rights Services:The appellant argued that royalty payments to parent companies were directly related to the manufacturing process, making them eligible for credit. The Tribunal supported this view, referencing the Century Plyboards case, which held that royalty payments in relation to the manufacture of final products qualify for Cenvat credit.6. Imposition of Penalty Under Section 11AC of the Central Excise Act:The Tribunal found that the appellant should not be penalized for the wrong availment of GTA services up to the customer’s premises, as the issue was one of interpretation and was settled by the Supreme Court in 2018. Thus, no intent to evade service tax could be attributed to the appellant.Conclusion:The Tribunal allowed the appeal in part, granting Cenvat credit on input services related to depots, GTA services from factory to depot, transit insurance, clearing and forwarding services, and intellectual property rights services. The denial of credit on GTA services up to the customer’s premises was upheld, but no penalty was imposed due to the interpretative nature of the issue. The appeal was disposed of on these terms.