2025 (12) TMI 708 - AT - Central Excise

CENVAT credit allowed on receivables collection services as input u/r 2(l); no extended period, appeal dismissed

The Tribunal held that the assessee was entitled to CENVAT credit on input services relating to collection of receivables, treating such services as ... CENVAT Credit - input services or not - non-utilization by the appellants directly or indirectly, in or relation to the manufacturing of the final products or clearance of final products up to the place of removal - levy of service tax on the service providers of the respondent treating the “collection of receivables” as a financial service - invocation of extended period of limitation - HELD THAT:- It is found that the respondents are no doubt incurring some expenditure in collecting the receivables. Any prudent manufacture or a businessman would take into account all the expenditure incurred by him for the purposes of arriving at the price of product he is manufacturing or trading. No businessman would leave the expenses unaccounted. It is fallacy of the Appellant-Revenue that the expenses are not included in the costing of the final product as these are incurred after the clearance of the goods manufactured. It is not the one to one linkage of each transaction but the overall expenditure incurred by an appellant over a period of time that requires to be considered. Moreover, revenue has not conducted any analysis how the costing of the appellant under such circumstances it should be naïve to presume that the expenses incurred on this count are not included in the assessable value of the goods cleared by the respondent. To that extent, the impugned order is reasoned and acceptable. Kolkata Bench of the Tribunal in the case of M/s Vodafone India Ltd. [2023 (3) TMI 575 - CESTAT KOLKATA] held that 'I do not agree with the findings of the lower authorities that the said services are posterior in nature. I agree with the submission of the appellant that without engaging such recovery agents for timely collection of such dues from customers, they would not be able to run their business and provide output services. I find that the collection agent services are imperative input services directly used in relation to provision of their output service namely, telecommunication services.' There is no merit in the appeal filed by the revenue - appeal is dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether services relating to collection of receivables / 'cash management services' used by a manufacturer qualify as 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004, entitling availment of CENVAT credit. 1.2 Whether the Revenue's appeal challenging the admissibility of such CENVAT credit, on the ground that the services are availed post-clearance and do not form part of the cost of final products, is sustainable. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Eligibility of CENVAT credit on collection of receivables / cash management services and sustainability of Revenue appeal Legal framework (as discussed) 2.1 The dispute turns on the scope of the expression 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004, and whether financial / cash management / collection services used for realization of sale proceeds can be regarded as used, directly or indirectly, in or in relation to manufacture of final products or clearance of final products, or as services used in relation to the business of manufacture. Interpretation and reasoning 2.2 The Tribunal notes that the department itself treats 'collection of receivables' / 'cash management services' as taxable financial services for levying service tax on the service providers, but simultaneously contends that the same do not qualify as financial/input services when credit is claimed by the recipient. This inconsistency was correctly addressed by the adjudicating authority. 2.3 The Tribunal accepts the finding that the assessee incurs cost for obtaining financial services, namely 'collection of receivables' through a private company offering 'cash management services', and that this cost is part of the overall cost structure of the manufacturing business. 2.4 It is held that a prudent manufacturer necessarily factors in all expenditure incurred in the course of business, including expenditure for collection of receivables, while arriving at the price of the product. The contention that such expenses, being incurred after clearance of goods, are not included in costing of final products is characterized as a fallacy. 2.5 The Tribunal emphasizes that determination of nexus for 'input service' credit is not to be based on a one-to-one correlation between each service and each clearance, but on the overall expenditure incurred in the course of business over a period of time. In absence of any costing analysis by the Revenue, it is held naïve to presume exclusion of such expenses from the assessable value of goods. 2.6 Reliance is placed on a prior Tribunal decision which held that services of recovery / collection agents engaged for timely collection of dues from customers are imperative input services directly used in relation to provision of output services, and that such services are not merely 'posterior in nature'. By analogy, the Tribunal treats collection of receivables / cash management services for a manufacturer as having a direct and integral nexus with the business of manufacture and clearance. Conclusions 2.7 Services relating to collection of receivables / 'cash management services', being financial services whose cost forms part of the overall cost of manufacturing and is factored into pricing, qualify as 'input services' within the meaning of Rule 2(l) of the CENVAT Credit Rules, 2004. 2.8 CENVAT credit availed on service tax paid on such services is admissible to the manufacturer, and the adjudicating authority's decision allowing credit is upheld. 2.9 The Revenue's appeal, premised on the arguments that (a) the services are availed post-clearance, (b) they do not impact the predetermined sale price of goods, and (c) pre-1.7.2012 jurisprudence is inapplicable, is rejected as devoid of merit. The appeal is dismissed.