2025 (3) TMI 569 - AT - Central Excise

CESTAT allows CENVAT credit for business services but denies AMC warranty charges lacking manufacturing connection

CESTAT Chennai-AT partially allowed appellant's appeal regarding CENVAT credit on various input services. Court denied credit on AMC warranty charges as ... CENVAT Credit - input services - Business Auxiliary Services, Clubs and Association, Storing and Warehousing, Maintenance and Repair etc. - period from May 2011 to September 2013, August 2015 to August 2016 and January 2017 to June 2017. AMC & Warranty Charges - HELD THAT:- The AMC may have a nexus to the sale of Office Machines (traded goods) but it is not integrally connected with the business of the manufacture of the appellants machines, up to the place of removal. Service Tax paid on AMC charges, does not represent tax paid on the input service in relation to its manufacturing unit as no such input service is availed by the manufacturing unit. Hence the cost of the input service does not form a part of the assessable value of the final product cleared from the manufacturing unit, to be eligible for the benefit of CENVAT Credit. Extending the credit of tax paid on a service, which is not a cost incurred by the manufacturing unit, and is rendered beyond the point of removal of the final product, would be contrary to the scheme of CENVAT Credit Rules - CENVAT credit is not eligible on input services attributable to exempted goods / trading activity and is a principle in built into the very structure of the CENVAT scheme. Goods after manufacture and clearance from the place of removal become traded goods, hence the responsibility is all the more on the appellant to prove the eligibility of the input service as credit for the manufacturing unit. The Ld. Original Authority has therefore rightly held that AMC is not an eligible input service for the manufacturing unit at Puducherry. Denial of credit due to a lack of separate charge/ break up of tax paid on warranty services for manufactured goods and AMC services for traded goods between the manufacturing unit and the HO - HELD THAT:- The grant of tax credit impacts revenue collection, hence an assessee who claims a tax benefit must show not only eligibility but also that he adheres to the provisions of the said scheme. Entitlement means rights of certain benefits and privileges. This entitlement to credit follows from complying with the conditions and is subject to the restrictions contained in the Act and Rules. In the case of Competent Authority Vs Barangore Jute Factory [2005 (11) TMI 490 - SUPREME COURT], it has been held by the Hon'ble Apex Court that where statute requires an act to be done in a particular manner, the act has to be done in that manner alone. The onus of proof while claiming the benefit of a scheme provision is on the assessee. It is for him to show that he is compliant to the same. The appellant has failed to establish its case on this issue and hence its appeals in this regard fails and the confirmation of demand relating to AMC and warranty charges [Management, Maintenance or Repair Services] with respect to the manufacture unit is sustained. Business Auxillary Service - HELD THAT:- The issue is squarely covered by assessee's own identical case for the previous period, which has not been appealed against and hence the disputed issue has attained finality. Import of Services and Blanks - HELD THAT:- The services received from the Appellant from dealers situated outside India in the form of market research data and consultancy services has been held to be sales promotion activity and is covered under the inclusive part of the definition of “input service” as defined under Rule 2(l) of CCR 2004. Reliance in this regard is placed on Essar Steel India Ltd. vs Commissioner of C. Ex. & S.T., Surat-I [2016 (4) TMI 232 - CESTAT AHMEDABAD]. The service is hence eligible for input service credit. Club and Association Service - HELD THAT:- The appellant has submitted that the issue of availment of CENVAT credit on Service Tax paid on corporate membership with various chambers and associations has been decided in favour of the assessee. Reliance is placed on decisions wherein CENVAT credit on membership obtained in chambers and association has been allowed. Reference can be made to M/S RELIANCE INDUSTRIES LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, LTU, MUMBAI [2016 (8) TMI 123 - CESTAT MUMBAI] and ITC LTD. VERSUS COMMISSIONER OF CENTRAL TAX, BANGALORE NORTH, COMMISSIONER OF CENTRAL EXCISE, SERVICE TAX AND CUSTOMS, BANGALORE-IV [2022 (3) TMI 501 - CESTAT BANGALORE]. Storing and warehousing - HELD THAT:- The demand has been raised in the first SCN and not subsequently and the amount involved is very paltry. The credit is hence allowed. Extended period of limitation - HELD THAT:- Although there was no major interpretative issue involved regarding the issue of AMC it forms a part of many input services that were contested and where suppression was alleged in the SCNs. However, these services except the issue of AMC were finally decided in favour of the appellant. There does not appear to be any deliberate attempt to evade duty. Nothing has been shown from which an inference of guilty intention can be discerned and hence the extended period cannot be invoked. The demand for the extended period does not survive and is set aside. Conclusion - i) The input services must be integrally connected to the manufacturing process to qualify for CENVAT credit. ii) The appellant's claim for CENVAT credit on Business Auxiliary Services accepted, due to the finality of the issue in previous orders. iii) CENVAT credit for Import of Services and Blanks allowed, recognizing them as sales promotion activities. iv) The appellant's claim for CENVAT credit on Club and Association Membership Services accepted, despite noting the lack of specific evidence on their use. v) The credit for Storing and Warehousing Charges allowed, due to the minor amount involved. vi) The demand for the extended period set aside, finding no deliberate attempt to evade duty. Appeal allowed in part. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:Whether the appellant is eligible to avail CENVAT credit on input services such as Management, Maintenance or Repair Services, Business Auxiliary Services, Import of Services, Club and Association Membership services, and Storing and Warehousing Charges.The eligibility of input service credit for services rendered beyond the warranty period, specifically regarding AMC and warranty charges.Whether the appellant can claim input service credit for Business Auxiliary Services given the retrospective acceptance of sales commission credit.The applicability of extended time limits for demanding reversal of CENVAT credit.ISSUE-WISE DETAILED ANALYSISAMC & Warranty Charges:Relevant legal framework and precedents: The definition of 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004, was central to the dispute. The appellant cited several precedents, including Carrier Airconditioning & Refrigeration Ltd and Acer India Private Limited, to support their claim of eligibility for CENVAT credit.Court's interpretation and reasoning: The Tribunal concluded that AMC services for traded goods beyond the warranty period did not qualify as input services for the manufacturing unit at Puducherry. The Tribunal emphasized the need for a direct nexus between the input service and the manufacturing activity.Key evidence and findings: The absence of a distinct separation of charges for warranty and AMC services between the manufacturing unit and the head office rendered the credit ineligible.Application of law to facts: The Tribunal upheld the principle that input services must be integrally connected to the manufacturing process to qualify for CENVAT credit.Treatment of competing arguments: The appellant's argument that the definition of input service is inclusive was acknowledged, but the Tribunal maintained that eligibility requires compliance with the statutory scheme.Conclusions: The Tribunal sustained the demand for reversal of CENVAT credit related to AMC and warranty charges.Business Auxiliary Service:Relevant legal framework and precedents: The Tribunal considered the retrospective acceptance of sales commission credit based on a board circular.Court's interpretation and reasoning: The Tribunal noted that the demand for the period August 2015 to August 2016 had been dropped, and the department had not appealed against this order.Key evidence and findings: The Tribunal found that the issue had attained finality due to the absence of an appeal by the department.Conclusions: The Tribunal accepted the appellant's claim for CENVAT credit on Business Auxiliary Services.Import of Services and Blanks:Relevant legal framework and precedents: The Tribunal referred to Essar Steel India Ltd. to support the classification of market research and consultancy services as input services.Court's interpretation and reasoning: The Tribunal recognized these services as sales promotion activities, qualifying them as input services under Rule 2(l) of CCR 2004.Conclusions: The Tribunal allowed CENVAT credit for these services.Club and Association Membership Services:Relevant legal framework and precedents: The Tribunal referred to Reliance Industries Ltd. and ITC Ltd to support the appellant's claim.Court's interpretation and reasoning: The Tribunal acknowledged the legal precedent but noted the lack of specific evidence on the actual use of these services in the appellant's case.Conclusions: The Tribunal accepted the appellant's claim for CENVAT credit on these services.Storing and Warehousing Charges:Conclusions: Given the paltry amount involved and the absence of subsequent demands, the Tribunal allowed the credit.Extended Time Limit:Court's interpretation and reasoning: The Tribunal found no deliberate attempt to evade duty and noted that the appellant had disclosed the credit availed in their returns.Conclusions: The Tribunal set aside the demand for the extended period.SIGNIFICANT HOLDINGSThe Tribunal upheld the principle that input services must be integrally connected to the manufacturing process to qualify for CENVAT credit.The Tribunal accepted the appellant's claim for CENVAT credit on Business Auxiliary Services due to the finality of the issue in previous orders.The Tribunal allowed CENVAT credit for Import of Services and Blanks, recognizing them as sales promotion activities.The Tribunal accepted the appellant's claim for CENVAT credit on Club and Association Membership Services, despite noting the lack of specific evidence on their use.The Tribunal allowed the credit for Storing and Warehousing Charges due to the minor amount involved.The Tribunal set aside the demand for the extended period, finding no deliberate attempt to evade duty.