2026 (2) TMI 670 - AT - Service Tax

Cenvat credit on input services allowed for head office use across locations; deemed-sale VAT treatment excludes service tax.

Cenvat credit is available where input services are ordered, invoiced and paid by the registered head office and are received and used for providing ... Cenvat Credit eligibility for input services paid by head office for use across units - Input services used for providing taxable output service - Integral nature of sale of scrap to maintenance and repair contracts - Service Tax not leviable where VAT discharged on deemed sale / transfer of right to use - Input Service Distribution (ISD) requirement where head office invoices and pays - HELD THAT:- Cenvat Credit availed by the appellant (head office) in respect of the input service ordered and used by it at different locations where invoices have been issued on and payment on Service Tax have been made by the appellant (head office). - We find that the said issue has been decided by this Tribunal in appllant’s own case [2023 (9) TMI 1092 - CESTAT KOLKATA] - As issue is squarely covered by in appellant’s own case for the earlier period we hold that the impugned demand is not sustainable against the appellant for demand of Cenvat Credit on account of input service used by different location of the appellant and for which appellant has made the payment. Therefore, demand raised on account of Cenvat Credit is not sustainable. Denial of Cenvat Credit - HELD THAT:- Cenvat Credit cannot be denied to the appellant as appellant has is required to clear the scrap for maintenance and repair services. - We further take note of the fact that as the sale of the scrap is the integral part of the maintenance and repair service therefore, same do qualify as input service and which has been used for providing output taxable service. Therefore, Cenvat Credit cannot be denied to the appellant. Therefore, demand on account of denial of Cenvat Credit is not sustainable. VAT on providing equipments on hire and paying VAT - HELD THAT:- Admittedly in this case also the appellant has paid VAT on the transaction of providing equipments on higher. In that circumstances no Service Tax is payable by the appellant as they have discharged VAT thereon. Therefore, the demand of Service Tax confirmed against the appellant is set aside. Thus, it is concluded that Cenvat Credit cannot be denied to the appellant as per impugned orders and demand of Service Tax is also not sustainable against the appellant as per impugned orders. Issues: (i) Whether Cenvat credit can be availed by the head office in respect of input services ordered and paid for by it but used at different locations/units; (ii) Whether Cenvat credit is admissible on cargo and courier services used to effect sale of scrap that is integral to the maintenance and repair service; (iii) Whether service tax is payable on providing equipment on hire as supply of tangible goods where VAT has been discharged treating the transaction as a deemed sale.Issue (i): Whether Cenvat credit can be availed by the head office in respect of input services ordered and paid for by it but used at different locations/units.Analysis: The Tribunal examined prior decision in the appellant's own case and found that invoices were raised on and payments (including service tax) were made by the head office; the services were used for providing taxable repair and maintenance services across locations; receipt and use of the services was undisputed. The Tribunal applied the relevant rule under the Cenvat Credit Rules, 2004 to determine eligibility where input services are received and paid for by the registered head office and used in relation to taxable output services.Conclusion: Cenvat credit is admissible to the head office for input services ordered and paid for by it even if used at different locations; the demand denying such credit is not sustainable (decision in favour of the assessee).Issue (ii): Whether Cenvat credit is admissible on cargo and courier services used to effect sale of scrap that is integral to the maintenance and repair service.Analysis: The Tribunal found that sale of scrap formed part of the maintenance and repair contracts and that cargo/courier services were used to affect those sales in the course of providing the taxable output service. Treating sale of scrap as integral to the taxable service, the Tribunal concluded that the input service (cargo/courier) was used for providing the taxable output service and therefore falls within the scope of admissible Cenvat credit.Conclusion: Cenvat credit on cargo and courier services used for sale of scrap integral to the maintenance and repair service is admissible; the denial of credit is not sustainable (decision in favour of the assessee).Issue (iii): Whether service tax is payable on providing equipment on hire as supply of tangible goods where VAT has been discharged treating the transaction as a deemed sale.Analysis: The Tribunal relied on its earlier decisions holding that where VAT has been paid by treating the transaction as a deemed sale (transfer/right to use treated as sale under state VAT law), service tax is not additionally leviable on the same transaction. The appellant established that VAT was discharged on hire transactions by treating them as deemed sales.Conclusion: No service tax is payable on the hiring of equipment where VAT has been discharged treating the transaction as a deemed sale; the demand for service tax is set aside (decision in favour of the assessee).Final Conclusion: The impugned orders denying Cenvat credit and confirming service tax demands are set aside and the appeals are allowed with consequential reliefs; the appellant succeeds on all decided issues.Ratio Decidendi: Cenvat credit is available where input services are received and paid for by the registered person and are used for providing taxable output services (Rule 2(I) of the Cenvat Credit Rules, 2004); input services integral to a taxable service (including services used to effect sale of scrap that is part of the service) qualify as inputs; where a transaction is treated as a deemed sale and VAT is discharged, service tax is not leviable on the same transaction (deemed sale doctrine under Article 366(29A) of the Constitution of India as applied with state VAT law).