2009 (12) TMI 76 - AT - Service Tax

Consignment and selling-agent services deemed post-manufacture, prima facie not input services under CENVAT Credit Rules; credit disallowed

CESTAT (CHENNAI - AT) held that consignment-agent and selling-agent services are post-manufacturing activities and prima facie do not qualify as input ... Disallowance of service tax credit based on ineligible documents - manufacture of caustic soda and chloromethane - claiming service tax credit in respect of consignment agent's services and selling agent's services - admissibility of debit notes as valid documents - HELD THAT:- Prima facie, it appears that the consignment agents' services and the selling agents' services are not in the nature of input services which are used in or in relation to the manufacture of excisable goods. Hence, the definition of input service under the CENVAT Credit Rules which includes 'activities relating to business' cannot be interpreted to include an activity which is a post- manufacturing activity. It is also settled law that rules framed by the Central Govt. have to conform to the rule making powers contained in the statute, in this case under Section 37(2) of the Central Excise Act, 1944. The enabling provision under the Act only allows for providing credit of service tax paid or payable on taxable services 'used in, or in relation to, manufacture of excisable goods'. The services which are used by the manufacturer subsequent to completion of the manufacturing and for sale of the goods cannot, therefore, be considered as input service in or in relation to manufacture. Keeping in view the foregoing, I set aside impugned orders. Since the appellants were not put on notice in regard to the second aspect i.e. whether the impugned services are eligible input services or not, the original authority shall put the appellants on notice in this regard and give them adequate opportunity of hearing before passing fresh orders on the issue. Issues:- Disallowance of service tax credit based on ineligible documents- Admissibility of debit notes as valid documents for availing service tax credit- Whether consignment agents' and selling agents' services qualify as input services under CENVAT Credit RulesIssue 1: Disallowance of service tax credit based on ineligible documents:The appellants, engaged in manufacturing caustic soda and chloromethane, were denied service tax credit for impugned services due to availing credit based on ineligible debit notes issued by service providers. The learned counsel argued that as per Section 67 of the Finance Act, 1994, the gross amount charged includes payment by debit notes, making the credit of tax valid. Referring to a Tribunal decision, it was highlighted that debit notes containing necessary details must be considered for service tax credit. The matter was remanded for verification of document details to allow the credit.Issue 2: Admissibility of debit notes as valid documents for availing service tax credit:The Tribunal examined whether the impugned services for which credit was sought could be considered as input services under CENVAT Credit Rules. It was noted that the authorities had focused on the admissibility of debit notes but failed to assess if the services qualified as input services. Reference was made to the power of the Central Government to make rules for credit of service tax paid on services used in manufacturing excisable goods. Prima facie, consignment and selling agents' services were deemed post-manufacturing activities, not qualifying as input services, as per the rules.Issue 3: Whether consignment agents' and selling agents' services qualify as input services under CENVAT Credit Rules:The Tribunal emphasized that activities post-manufacturing cannot be considered input services under the CENVAT Credit Rules, which include 'activities relating to business.' Citing precedents, it was established that rules must align with statutory powers granted, and the definition of input services cannot extend to services used after manufacturing. The cases were remanded for a fresh examination to determine if the impugned services qualified as eligible input services, providing the appellants with an opportunity for a fair hearing on this aspect.In conclusion, the Tribunal set aside the impugned orders, remanding the cases to the original authority for a comprehensive reevaluation. The original authority was instructed to assess the validity of debit notes and determine if the impugned services qualified as eligible input services under the CENVAT Credit Rules. The appellants were to be given a fair opportunity for hearing on this crucial issue before fresh orders were passed. All three appeals were allowed by way of remand for further examination and decision.