Cenvat credit of service tax is also eligible oninput services which will be used indirectly in relation to the output service.

PJ/Case law/2012-13-1549

Case:- M/s Doshion Ltd. Vs. C.C.E., Ahmedabad

Citation:- 2013 (30) S.T.R. 240 (Tri.- Ahmd.)

Issue:-Cenvat credit of service tax is also eligible oninput services which will be used indirectly in relation to the output service.

Brief Facts:- The appellants were engaged in manufacturing of water treatment plant, water treatment chemicals as well as providing taxable services under the category of maintenance or repair services; erection, commissioning and installation and were registered with the Central Excise and Service Tax respectively. During the course of audit it was observed that the appellant has availed service tax credit during 1-9-2003 to 10-9-2004, on input services of travel agent, custom house agent, tour operation, telephone, insurance, courier, testing services etc. and paid the service tax from the Cenvat credit towards the payment of service tax liability for providing output services of repair, operation & maintenance, erection and commissioning. Whereas it was noticed that as per provision of Rule 2(c) of CCR, 2002 "Input service" means any taxable service received and consumed by a service provider in relation to rendering of output services and as per Rule 4(1) ibid the service tax credit availed on input services may be utilised for payment of service tax on the output services. Thus it appeared that the services, for which service tax credit availed and utilised, have not been utilised in relation to rendering the output services. Thereafter show cause notice was issued to initiate proceedings for recovery of wrongly availed Cenvat credit which has culminated in confirmation of the demand for the same and with interest and penalty under Sections 76 & 78 of Finance Act, 1994.

Reasoning of Judgment:- The Tribunal heard both the sides and finds that the dispute is about the cenvat credit of service tax paid on travel agent service, custom house agent, tour operation, telephone, insurance, courier, testing services etc. during the period from 1-9-2003 to 10-9-2004.

The Tribunal also finds that Rule 3 of Service Tax Rules, provides that an output service provider shall be entitled to credit of service tax payable on the input services which fall under the same category of taxable service as that of output service, for which invoice/bill is issued on or after 16-8-2002. Subsequently by Notification No. 5/2003-S.T., dated 14-5-2003, benefit of credit of service tax was allowed in respect of any service used as input service provided the invoice/challan/bill was issued on or after 14-5-2003. According to the definitions during the relevant period output service means any taxable service rendered by the service provider to a customer, client, subscriber, policy holder or any other person as the case may be. Input service means any service received and consumed by a service provider in relation to rendering of output service. The Tribunal also finds from the provisions of law as existed during the relevant period it can be seen that there are two requirements to be fulfilled by the service provider. The first one is that the invoice /bill/challan should have been issued after 14-5-2003 and the second requirement is that input services should have been received and consumed in relation to rendering of output service.

The Tribunal Further finds that the appellant is engaged in manufacturing of water treatment plant, water treatment chemicals as well as providing taxable services under the category of maintenance or repair services, erection, commissioning and installation service. The services are mainly in relation to water treatment plants manufactured by them. Custom house agent service was obtained in relation to importation of components/equipments for manufacture of water treatment plants. Since the appellants are engaged in manufacture of water treatment plants and installation, erection thereof, the service obtained in relation to parts and equipments can be said to be in relation to output service also. After all without importing parts and equipments neither manufacture nor erection or installation would be possible. Similarly in telephone service and surface area, sample testing area services, advertisement charges also can be definitely considered as utilised in relation to providing the output service. The lower authorities seem to have gone on the assumption that the use has to be direct. The words used are "in relation to rendering of output service". Therefore what is required to be seen is whether the services have been used directly or indirectly in relation to the output service. Under these circumstances, Tribunal finds that credit has been used correctly and appeal has to be allowed.

Decision:-Appeal is allowed with consequential relief to the appellant

Comment:- The analogy of this case is that as per provision of Rule 2(c) of CCR, 2002 "Input service" means any taxable service received and consumed by a service provider in relation to rendering of output services. But the words used are "in relation to rendering of output service". Therefore what is required to be seen is whether the services have been used directly or indirectly in relation to the output service.

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PJ/Case law/2012-13-1549

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