Cenvat Credit on Air Travel Agent;s Service & Online Auction Service

PJ/Case Laws/2011-12/1319

Case: M/s ADC INDIA COMMUNICATION LTD v/s CCE, BANGALORE

Citation: 2011-TIOL-1158-CESTAT-BANG

Issue:- Whether appellant is eligible for CENVAT Credit of service tax paid on Air Travel Agent's service and online auction service (BAS)?

Brief Facts:- Appellant availed Air travel agent's services for business-related air travel by employees of appellant and the Online auction services for sale of scrap generated during manufacture of final products through online auction.

Department raised demand under head ‘Business Auxiliary Service’ and under head ‘Travel Agents Service’ for the period from May, 2007 to November, 2008. The demand was confirmed and penalty imposed.

Appellant is in appeal before the Tribunal. An application is for waiver of pre-deposit and for stay of recovery of demand service tax and equal amount of penalty.

Appellant’s Contention:- Appellant submits that air travel agent's service was availed for business-related air travel by employees of the company and, therefore, the appellant was entitled to take CENVAT Credit of the service tax paid on the amounts paid to the air travel agent. It was further submitted that the scrap arising out of the manufacture of final products was disposed or through online auction. Hence the service received by the appellant from the auctioning agent also qualified 'Input service' for the appellant, in the category of 'Business Auxiliary Service'. It was submitted that appellant had a prima facie case.

Respondent’s Contention:- Revenue submitted that any nexus is yet to be established between the air travel by the employees of the company and the manufacture/clearance of their final products. In respect of auction of scrap also, the appellant has failed to make out a coherent case against the proposal to recover CENVAT Credit.

Reasoning of Judgment:- The Tribunal noted that in the show cause notice air travel agent’s service was not accepted as an input service as the nexus between service and manufacture & clearance of final product was held to be absent. With regard to online auction, the show cause notice did not recognize the same as a taxable service at all. It was noted that nowhere in the show cause notice any specific classification of the services under Section 65 (105) was given. The auction of scrap is mentioned as “Business Auxiliary Service’. It was noted that the issue to be decided was that whether the appellant has succeeded in establishing any nexus between the activities in question and the manufacture/clearance of their final products. The Air travel was undertaken by the employees for business purposes of the company. From the particulars of Air travel, it was noted by the Tribunal that no copy of any bill nor any other document has been produced to disclose the purpose of travel. Thus, it cannot be said that the appellant has successfully established nexus between air travel and manufacture/clearance of final products. No documentary evidence produced to coherently support the claim that scrap generated during manufacture of final products was disposed of by online auction.

No prima facie case made out. Pre-deposit ordered.

Decision:- Pre-deposit ordered.

Comment:- There is another angle in this issue. The earlier High Court in case of Ultratech Cement as well as in case of Cococola, it was held that the credit will be allowed if it is business expenditure but this decision has again brought the nexus theory in picture. However, the definition of “input services” is changed from this budget and it is held that the credit will not be allowed on expenses “primarily used as personal expenditure” of employee. Hence it has to be proved now that the employee has gone on business purpose. But here also, the word “primarily” gets the weightage.

The earlier definition of “input service” was settling in view of High Court decisions but the department has once again amended the same. Let us see another round of litigation. But by the time, it will be settled, we hope to see the GST. So, it is true, “litigation never ends.”

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PJ/Case Laws/2011-12/1319

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