2021 (4) TMI 137 - HC - Central Excise

Tribunal Decision Upheld: Assessee Allowed CENVAT Credit for Services

The High Court upheld the Tribunal's decision to allow the assessee's claim for CENVAT Credit on services provided by TVS Finance and Services Limited. ... CENVAT Credit - input services - nexus with the output goods - expenses incurred in relation to after sales service - Has not the Hon'ble Tribunal committed an error in including within the ambit of Input Services, the services rendered by a third party, contrary to the confined meaning assigned to input services defined in Rule 2(I) of CENVAT Credit Rules, 2004? - HELD THAT:- The facts clearly show that there is direct nexus between the activity of TVSFS with that of the activity of the assessee. It is clear from the exclusive arrangement between the assessee and TVSFS. The expansive definition requires to be applied in this case and as noted, the Memorandum of Understanding provides for exclusive retail financing of two wheelers manufactured by the assessee, which results in promotion and expansion of sale of two wheelers manufactured by the assessee and payments are received by TVSFS from the assessee and as the services are taxable under Business Auxiliary Services, TVSFS has obtained registration under the Act, as provided under Rule 4 of the Service Tax Rules, 1994. Thus, as long as services of TVSFS in relation to financing of the vehicles manufactured by the assessee promotes the sale of vehicles manufactured by the assessee, such service is taxable under Business Auxiliary Services. The Tribunal had rightly allowed the assessee's appeal - Revenue has not made out any grounds to interfere with the impugned order - Appeal dismissed. Issues Involved:1. Eligibility of CENVAT Credit on impugned services as input services.2. Classification of after-sales service expenses as input services under Rule 2(I) of the CENVAT Credit Rules, 2004.3. Qualification of impugned services as 'Input Services' for CENVAT Credit.4. Inclusion of third-party services within the ambit of Input Services under Rule 2(I) of CENVAT Credit Rules, 2004.Issue-wise Detailed Analysis:1. Eligibility of CENVAT Credit on Impugned Services as Input Services:The Revenue questioned whether the Tribunal erred in allowing CENVAT Credit on services provided by TVS Finance and Services Limited (TVSFS) to the respondent/assessee. The Tribunal concluded that since the definition of input services during the relevant period included 'all activities relating to the business,' the services provided by TVSFS were related to the business of the assessee and thus qualified as input services. The High Court approved this finding, emphasizing the direct nexus between TVSFS's activities and the assessee's manufacturing business.2. Classification of After-Sales Service Expenses as Input Services:The Revenue challenged whether expenses related to after-sales service qualify as input services under Rule 2(I) of the CENVAT Credit Rules, 2004. The assessee argued that financing services provided by TVSFS were crucial for increasing sales and production, thereby qualifying as input services. The Tribunal and subsequently the High Court agreed with the assessee's contention, noting that the inclusive definition of input services covered activities related to business promotion and marketing, which are essential for the sale and production of the final product.3. Qualification of Impugned Services as 'Input Services' for CENVAT Credit:The Tribunal held that the services provided by TVSFS were input services as they were directly related to the business activities of the assessee. The High Court supported this view, stating that the expansive definition of input services should be applied. The court noted that the exclusive arrangement between the assessee and TVSFS, including the provision of space and facilities in dealership outlets, demonstrated a clear connection between the services and the assessee's business operations.4. Inclusion of Third-Party Services within the Ambit of Input Services:The Revenue contended that the Tribunal erred in including third-party services within the definition of input services. The High Court, however, found that the services provided by TVSFS were integral to the assessee's business, as they facilitated the financing and sale of two-wheelers, thereby promoting the assessee's products. The court highlighted that the services were taxable under Business Auxiliary Services and that TVSFS had obtained the necessary registration and paid service tax, further supporting the classification of these services as input services.Conclusion:The High Court dismissed the Revenue's appeal, affirming the Tribunal's decision to allow the assessee's claim for CENVAT Credit on the services provided by TVSFS. The court held that the services in question were indeed input services as they were directly related to the business activities of the assessee, promoting the sale and production of the final product. The substantial questions of law were answered against the Revenue, and the appeal was dismissed with no costs.