2021 (1) TMI 138 - AT - Central Excise

Appeal allowed: Services eligible for Cenvat credit under Rule 2(l)

The Tribunal allowed the appeal, determining that services availed by the appellants were eligible for Cenvat credit as input services under Rule 2(l) of ... CENVAT Credit - input services - Advisory services - Activities relating to business - Legal service - whether the services availed by the appellants from M/s. Singhi Advisors Pvt. Ltd. Mumbai would amount to input services to be eligible for credit? - HELD THAT:- Rule 2(l) of Cenvat Credit Rules, 2004 has two parts, one the substantive part and the other the inclusive part. Commissioner finds that the services covered under the inclusive part of the definition of input service or services are which are rendered prior to the commencement of the manufacturing activity (such as, services for modernization, renovation or repairs of the factory) as well as services rendered after the manufacture of final products (such as advertisement, sales promotion, market research etc.) and includes services received such as accounting, auditing, financing etc. In other words, the definition of input services covers not only services, which are directly or indirectly used in or in relation to the manufacture of final products but also includes various services used in relation to the manufacture of final products, be it prior to the manufacture of final products or after manufacture of final products. Having found so, the Commissioner follows his finding by making averment that if the service is not integrally connected with the manufacture of final products, the service would not qualify to be an input service under Rule 2(l) of CCR, 2004. The said service, availed by the appellants from M/s. Singhi Advisors, Mumbai, is in relation to their business (therefore cannot be considered to be provided in or in relation to the manufacture of final products) and therefore, is excluded from substantive definition. The appellants claimed that the service availed was “legal service‟ and therefore, covered by the inclusive part of the definition of input service and hence, credit is admissible - the learned commissioner rejected the appellants‟ claim that the service availed by them from M/s. Singhi Advisors is in the nature of legal services. The learned Commissioner though correctly analysed the provisions of the CCR 2004, comes to a conclusion that the service availed by the appellants is in relation to business activities rather than manufacture of final products. The nomenclature and the classification of services is secondary. Just because the appellants could not classify the service availed under a particular head, it does not take away the substantial right of the appellants to avail the credit if it is otherwise permissible under the rules. As we have seen above that the definition of input service, even after the amendment carried out in 2011, is an allencompassing definition. Input service is defined to be any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal. The intent of the appellant as seen from the correspondence available on record is not to wind up the company. The intent was very clear to sell or transfer the business, obviously the manufacturing activity, to any person or company who would manage the manufacturing activity i.e., to produce and sell the goods. Therefore, in a wider perspective the efforts of the appellants were in the direction of continuation of manufacture of final products and their removal from the factory. Therefore, the services availed by the appellants are covered by the substantive definition of input service as enshrined in Rule 2(l) of CCR, 2004. The inclusive definition gives certain illustrations and explains and expands the scope of the definition given in the substantive portion of the definition. It is incorrect and legally not tenable to say that if the service is not covered in the inclusive definition, credit of the same is not admissible. The scheme of Central Excise or Service Tax is indirect in nature. The admissibility of credit, the dutiability of final products is not altered depending on the owner of the activity of manufacture or service as the case may be - In the instant case, the services availed by the appellants were in relation to continuation of the manufacturing activity and thus, cannot be held to be for an independent business of the appellants which has no connection with the impugned manufacturing activity - the services availed by the appellants, from M/s. Singhi Advisors, Mumbai are squarely covered by the definition of input service. The definition of input service is wide and that the appellants are in their right to avail the impugned credit. We also find that the appellants have submitted that the said credit was not allowed to be transferred to the new unit in terms of Rule 10 of CCR 2004; they have not utilised the credit and even then, the department has issued demand notice for payment back of credit which is not legally sustainable - imposition of penalty was also not tenable. Appeal allowed - decided in favor of appellant. Issues Involved:1. Admissibility of Cenvat credit claimed by the appellants.2. Classification of services availed by the appellants as 'input services' under Rule 2(l) of the CENVAT Credit Rules, 2004.3. Legality of the denial of Cenvat credit by the department.4. Imposition of penalty and demand for repayment of credit.Detailed Analysis:1. Admissibility of Cenvat Credit:The appellants, M/s Bhoruka Aluminium Limited (BAL) and M/s Bhoruka Extrusions Private Limited (BEPL), availed services from M/s Singhi Advisors for the sale of their Aluminium extrusion business. The services included transaction strategy, negotiation, and completion of the transaction. The appellants claimed Cenvat credit on these services, arguing that they were in the nature of legal and financial services related to the running of the factory and manufacturing of the final excisable product.2. Classification of Services as Input Services:The appellants contended that the services availed fell within the 'including' portion of the definition of 'input services' under Rule 2(l) of the CENVAT Credit Rules, 2004. They argued that the definition of 'input service' does not necessitate a direct nexus with the output service or excisable manufactured goods. The Tribunal referred to the case of Tamilnadu Petroproducts Ltd Vs CCE, LTU, Chennai, where it was held that financial consultancy/advice services are eligible 'input services' under Rule 2(l).3. Legality of Denial of Cenvat Credit:The department denied the credit, arguing that the services availed were related to the sale of the business and not directly or indirectly connected to the manufacture of final products. The department also noted that 'activities relating to business' were excluded from the definition of eligible input services effective from 01/04/2011. However, the Tribunal found that the definition of input service is inclusive and encompasses services used in relation to financing and financial management, which are not disbarred by the exclusions in Rule 2(l).4. Imposition of Penalty and Demand for Repayment:The department imposed a penalty and demanded repayment of the credit, asserting that the advisory services did not qualify as input services. The appellants argued that the credit was not utilized and hence, the question of interest and penalty did not arise. The Tribunal held that the services availed were indeed input services as per the substantive definition in Rule 2(l) and that the appellants were rightfully entitled to the credit. Consequently, the Tribunal found the imposition of penalty and the demand for repayment to be unsustainable.Conclusion:The Tribunal concluded that the services availed by the appellants from M/s Singhi Advisors were eligible for Cenvat credit as they fell within the definition of input services under Rule 2(l) of the CENVAT Credit Rules, 2004. The appeal was allowed with consequential relief, and the penalties and demands imposed by the department were set aside. The order was pronounced in open court on 04/01/2021.