2020 (3) TMI 743 - AT - Service Tax

Appellate Tribunal clarifies admissibility of CENVAT credit on professional charges & travel expenses for taxable services providers

M/s Microtrol Sterilisation Services Pvt. Ltd Versus Commissioner of CGST, Mumbai East

The Appellate Tribunal CESTAT Mumbai, in a judgment by Hon'ble Dr. D.M. Misra, Member (Judicial), clarified the admissibility of CENVAT credit on ... CENVAT Credit - input services - professional charges - travelling expenses - allegation that the input services on which credit availed by them do not satisfy the definition of “input Services” prescribed under Rule 2(l) of Cenvat Credit Rules,2004 - period 2008-09 to 2012-13 - HELD THAT:- The appellants have provided ‘output services’ i.e., Sterlisation of Pharma and Food products for which they charged consultancy fees on process development and other aspects relating to the management of company, namely labour law, legal opinion etc. The issue of admissibility of credit on these services is covered by the judgement of Hon’ble High Court of Allahabad in the case of COMMISSIONER OF CENTRAL EXCISE VERSUS M/S. HCL TECHNOLOGIES [2014 (11) TMI 663 - ALLAHABAD HIGH COURT]. Hence the said service is an input services within the scope of definition prescribed under Rule 2(l) of CCR ,2004 and credit availed on such Input Services is admissible. Travelling expenses - HELD THAT:- The same are in relation to sales promotion and post sales related activities undertaken by the Appellant and also covered by the judgement of DR. REDDY’S LAB LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, HYDERABAD [2009 (9) TMI 287 - CESTAT, BANGALORE] - Hence, credit on such input services is also admissible. Penalty - HELD THAT:- The credit in relation to several other input services availed post 1.4.2011 on a bonafide belief but later the appellant had reversed the credit with interest, hence penalty is not warranted - Penalty set aside. Appeal allowed in part. Issues involved:Determining admissibility of CENVAT credit on input services, specifically 'professional charges' and 'traveling expenses'. Assessing the applicability of the definition of 'input services' under Rule 2(l) of Cenvat Credit Rules, 2004. Evaluating whether credit availed on certain input services is admissible, and analyzing the justification for penalty imposition.Analysis:Issue 1: Determining admissibility of CENVAT credit on 'professional charges' and 'traveling expenses' as input servicesThe appeal pertains to challenging the Order in Appeal passed by the Commissioner of Central Excise, Mumbai, regarding the admissibility of CENVAT credit on input services availed by the appellants during the period 2008-09 to 2012-13. The appellants, engaged in providing taxable services, contested the admissibility of credit on various input services. The appellant's representative argued that professional charges and traveling expenses, disputed for credit availed, are directly related to providing output services and fall within the definition of 'input services' under Rule 2(l) of Cenvat Credit Rules, 2004. The advocate cited relevant invoices to support the claim. The Authorized Representative for the Revenue reiterated the findings of the Commissioner (Appeals).Issue 2: Application of legal precedents in determining admissibility of creditIn the judgment, the Member (Judicial) referred to the Hon'ble High Court of Allahabad's decision in the case of Commissioner of Central Excise v. HCL Technologies to establish that professional charges incurred by the appellants are covered under the definition of 'input services' and hence, credit availed on such services is admissible. Similarly, the traveling expenses incurred by the appellants for sales promotion and post-sales activities were deemed admissible based on the precedent set by the Dr. Reddy's Laboratory case. The judgment emphasized the direct relation of these expenses to the output services provided by the appellants.Issue 3: Justification for penalty imposition and its reconsiderationThe appellant had availed credit on several input services post 1.4.2011 based on a genuine belief but later reversed the credit with interest. The advocate argued that penalty imposition is unwarranted due to the appellant's bonafide actions. The Member (Judicial) agreed with the appellant's contention, modified the impugned order, set aside the penalty imposed, and allowed the appeal to the extent mentioned above. The judgment highlighted the importance of considering the circumstances under which credit availed on certain services was later reversed, leading to the reconsideration of penalty imposition.In conclusion, the judgment by the Appellate Tribunal CESTAT Mumbai, delivered by Hon'ble Dr. D.M. Misra, Member (Judicial), clarified the admissibility of CENVAT credit on specific input services, emphasizing the relevance of legal precedents in determining the eligibility of credit availed by the appellants. The decision also underscored the significance of assessing the circumstances under which credit was reversed post-availing, leading to the reconsideration of penalty imposition.