2025 (2) TMI 802 - AT - Service Tax

CENVAT Credit Allowed for Manufacturing-Related Services, Denied for Employee Welfare and Club Memberships

M/s. Tata Hitachi Construction Machinery Company Pvt. Ltd. Versus Commissioner of Central Excise and Customs, Belgaum

CESTAT Bangalore ruled on CENVAT credit eligibility for various input services. The tribunal allowed credit for maintenance/repair services, clearing ... CENVAT Credit - nexus of input services with the manufacture of final products/output services - Management Consultancy Service - Maintenance or Repair Service - Clearing & Forwarding Agent Services - Insurance Auxiliary Services - GTA-Outward Transportation Service - Courier services - Mandatory and Additional Inspection Service - business support services - Casting Error - recovery agent services - warranty handling service - Insurance Services for the plant, machinery and insurance for employees - subscription fees - Works Contract Service. Management Consultancy Service - denial of credit on the ground that these services are related to gratuity valuation, superannuation valuation, leave encashment valuation, post-retirement valuation, etc., which are part of welfare measures for the employees - HELD THAT:- The services which are related to R & D facility, finance accounting and taxation etc., have been subsequently allowed in Order-in-Original No.10/2017-18 dated 29.01.2018. It is also stated that the services related to salary profile in terms of welfare measures was only denied for the later period. In view of the above, the matter is remanded for verification of the documents submitted by the appellant to examine whether the management consultant service is related to R & D, finance, trading, legal services, production management etc. Management Consultancy Services - services on gratuity and superannuation funds - HELD THAT:- The Commissioner has allowed cenvat credit on most of the Management Consultancy Services except for service tax credit relating to services on gratuity and superannuation funds, which are basically related to the salary profile of the employees. The same is rightly denied since these services are not related to the manufacturing activities of the appellant; hence, it is disallowed. Maintenance or Repair Service - HELD THAT:- This service is related to the services rendered by the dealers to the clients of the appellant and the dealers get reimbursement of the cost of these services. The services are of mandatory free services and maintenance services. Since, these services were actually provided by the dealers after the removal of final products at the customer’s premises, the service was an ‘input service’ for the customers of the appellant. Hence, the Commissioner held that it cannot be said to be a service which was used by the appellant and therefore, the service tax paid on such services cannot be availed as cenvat credit - credit allowed. Clearing & Forwarding Agent Services - HELD THAT:- These services are related to packing of spare parts outside the factory premises used for repairs of excavators, which have been already cleared from the factory. Since the transaction value for the machine includes the cost of such repair and maintenance services on which excise duty has already been discharged and since it is within the warranty period, cenvat credit cannot be denied - credit allowed. Insurance Auxiliary Services - HELD THAT:- These are the services which are related to medical insurance of employees, insurance of warehouse/branch office, transit insurance for space and car insurance used for sales promotion. Since, all these services are related to and add value to the manufacturing activities of the appellant and since the above services are also statutory requirement, they are eligible for the cenvat credit, hence allowed. GTA-Outward Transportation Service - HELD THAT:- Transportation of goods from warehouse to customer’s site, the Commissioner has already allowed the credit for transportation of goods from factory to depot and denied only to the extent of transportation of goods from factory to the customers’ premises. The goods transported from warehouse to customer’s site from multiple centres at different places in India for maintenance or repair services have also been denied of cenvat credit since the services are rendered beyond the place of removal - It would be pertinent to place reliance on the decision rendered by the Larger Bench of the Tribunal in M/s. The Ramco Cements Ltd. vs. The Commissioner of Central Excise [2023 (12) TMI 1332 - CESTAT CHENNAI-LB], wherein the Tribunal had discussed in detail with regard to the issue on whether the cenvat credit on GTA services for outward transportation of goods from the factory to the buyer’s premises be denied in cases where the goods are sold on FOR (buyer’s premises or should such matters be remanded to the lower authorities for determining what is the place of removal - In view of the above Larger Bench decision, this issue is remanded to determine the admissibility of CENVAT credit on the GTA Service up to the place of removal. Courier Services - HELD THAT:- The Commissioner has denied the cenvat credit on the ground that the courier service is used for transportation of materials from central warehouse to feeder warehouse and branches for replacement of materials under warranty or for providing maintenance or repair services. It is pertinent to refer to decision rendered in the case of CCE vs. CCL Products (India) Ltd [2009 (3) TMI 136 - CESTAT, BANGALORE], wherein it was held that various services including courtier services were rendered in respect to business activity. Hence, credit is allowed. Mandatory and Additional Inspection Service - HELD THAT:- The appellant submitted that the cost of mandatory service inspection during the warranty period is part of their cost on which excise duty has already been paid. It is also stated that these mandatory services are provided to their customers to ensure that the consumable and critical items like filter and oil are replaced on the machine, the dealer raises a bill with service tax on which credit has been availed, hence submitted that for these mandatory services, cenvat credit cannot be denied. So also, the additional services are provided after the warranty period for which bills are raised along with service tax payment on which credit has been availed. Since, these services are rendered after clearance of the final products, on which Excise duty has been already paid and also, they are registered under “Maintenance and Repair Service”, hence, credit on this is allowed. Business Support Service - HELD THAT:- These are services rendered by the dealers of the appellant after sale of goods and covered under the warranty service. Since the cost of warranty is included in the invoice value, on which tax has been discharged, the credit on this cannot be denied. Hence, it is allowed. Casting Error - HELD THAT:- Since, no documents have been produced as to the services rendered under this category is either before the Commissioner nor heres, the same is denied for want of documents to prove the nature of service. On reimbursement of service tax, an amount of Rs.48705/- has been denied only on the ground that no documentary evidences have been provided having paid the tax. Since, nothing is also placed, the same is upheld. Recovery Agent Service - HELD THAT:- These services have nothing to do with the manufacturing activities but relates to recovery of amounts unpaid by their customers, hence rightly denied. Warranty Handling Service - HELD THAT:- These post-manufacturing services being part of the warrant period hence credit allowed. Club membership fees (Rs.3,240/-) is rightly denied in view of the fact that the membership fees and service tax paid on the club membership has nothing to do with the manufacturing activities of the appellant. The packing services (Rs.39,270/-) are meant for packing of parts locally procured which are used for maintenance and repair, which forms part of sale process and relates to packing of final products manufactured by them, which has nexus with the manufacturing activities, hence allowed. Insurance Services for the plant, machinery and insurance for employees - HELD THAT:- Insurance Services for the plant, machinery and insurance for employees have all been allowed and what is disallowed is only those insurance policies that cover the family members of the employee that is to the extent of Rs.5,42,966/-. Since, the policies are related to the family members, this has been rightly denied. Subscription Fees - HELD THAT:- This is the fees paid on taking membership of Indian Construction Equipment Manufacturer Association in order to participate in their exhibitions, in order to promote their products. The cost of which is included in the manufactured final product; hence, it is allowed. Works Contract Service - HELD THAT:- The service tax credit has been denied only on the imported services related to civil works which are excluded from the definition of ‘input services’, the same is upheld. Conclusion - Services directly or indirectly related to manufacturing activities and statutory requirements were generally eligible for credit. Appeal allowed in aprt. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the various input services on which Cenvat credit has been claimed by the appellant are used in or in relation to the manufacture of final products/output services.The eligibility of specific services for Cenvat credit, including Air Travel Agent services, Car Hiring services, Management Consultancy services, Maintenance or Repair services, Insurance Auxiliary services, GTA-Outward Transportation services, Courier services, and others.Whether the denial of Cenvat credit for certain services was justified based on their relevance to manufacturing activities.The applicability of legal precedents and interpretations regarding the definition of 'input service' under the Cenvat Credit Rules, 2004.2. ISSUE-WISE DETAILED ANALYSISAir Travel Agent and Car Hiring Services:For the period covered by Appeal No. ST/942/2009, the Commissioner denied credit on these services. However, for a subsequent period, the same services were allowed credit in Order-in-Original No. 10/2017-18. The Court set aside the earlier denial and allowed the credit without delving into the merits, as the precedent in the appellant's own case was favorable.Management Consultancy Service:The Commissioner denied credit for services related to gratuity valuation, superannuation valuation, etc., viewing them as welfare measures unrelated to manufacturing. The appellant argued these services were connected to business activities, including R&D and finance. The Court remanded the matter for verification of documents to determine the eligibility of these services for Cenvat credit.Maintenance or Repair Services:These services, provided post-removal of final products, were deemed input services for customers, not the appellant. Consequently, the Commissioner denied credit, which the Court upheld, referencing the decision in Lucas TVS Ltd. vs. CCE.Insurance Auxiliary Services:Services related to medical insurance of employees, insurance of warehouses, and transit insurance were allowed credit as they were deemed related to manufacturing activities and statutory requirements.GTA-Outward Transportation Service:The Commissioner allowed credit for transportation from factory to depot but denied it from factory to customer premises. The Court remanded the matter to determine the place of removal and the applicability of Cenvat credit, referencing the decision in M/s. The Ramco Cements Ltd. vs. The Commissioner of Central Excise.Courier Services:The Commissioner denied credit for courier services used for transporting materials for maintenance or repair. The Court allowed credit, citing the decision in CCE vs. CCL Products (India) Ltd., which recognized such services as related to business activities.Other Services:Various other services were considered, with some credits allowed and others denied based on their connection to manufacturing activities. Notably, insurance services for employees were allowed, but those covering family members were denied. Subscription fees for industry association membership were allowed, while works contract services related to civil works were denied.3. SIGNIFICANT HOLDINGSThe Court established several core principles and final determinations:The definition of 'input service' under the Cenvat Credit Rules, 2004, was central to determining credit eligibility.Services directly or indirectly related to manufacturing activities and statutory requirements were generally eligible for credit.The Court emphasized the need for factual verification of service connections to manufacturing activities, remanding certain issues for further examination.Legal precedents and interpretations, such as those in Lucas TVS Ltd. vs. CCE and M/s. The Ramco Cements Ltd. vs. The Commissioner of Central Excise, guided the Court's decisions.The appeals were partially allowed, with specific issues remanded for further consideration as outlined above.