Credit admissibility of service tax paid on External Commercial Borrowings under RCM.

PJ/CASE LAW/2016-17/3190

Case:-MICRO INKS PRIVATE LTD. VERSUS COMMISSIONER OF C. EX., CUS & S.T., DAMAN

Citation:- 2016 (41) S.T.R. 501 (Tri. - Ahmd.)

Brief Facts:-This appeal has been filed by the appellant with respect to OIA No. CS/182/DMN/VAPI-I/2011-12, dated 2-2-2012.

Appellant’s Contention:-Shri S. Suriyanarayanan, Advocate appearing on behalf of the appellant argued that the issue involved in this appeal is whether appellant can distribute service tax credit of service tax paid on external commercial borrowings (ECB) paid under reverse charge mechanism. It was his case that service tax under reverse charge was paid by the appellant under “Banking and other financial services” as per Section 65(12)(a)(ix) of the Finance Act, 1994. It was his case that these Services are availed by the appellant in relation to their business activities which is squarely covered by the judgment of this Bench in the case of Commissioner of Central Excise, Customs & Service Tax, Visakhapatnam-Iv. GMR Industries Ltd. [2015 (38) S.T.R. 509 (Tri.-Bang.)]. Learned Advocate also relied upon the judgment of ABB Ltd. v.Commissioner of Central Excise, & Service Tax, Bangalore [2009 (15) S.T.R. 23 (Tri.-LB)] to argue that at the relevant time the words ‘activities in relation to business’ was mentioned in the definition of Rule 2(l) of the Cenvat Credit Rules, 2004 and, therefore, Cenvat Credit on such services was correctly taken by the appellant and distributed to its manufacturing units in India.

Respondent’s Contention:-Shri L. Patra (AR) appearing on behalf of the Revenue made the Bench go through para 17.7 of OIO No. 04/OA/Adj/SNP-AddI/2011-12 and para 5.3.2 of OIA dated 2-2-2012 to argue that the activities of external commercial borrowings have no relation with the manufacturing activities of the appellant in India, therefore, Cenvat credit has been correctly denied by the first appellate authority.

Reasoning Of Judgement:-Heard both sides and perused the case records. The issue involved in this appeal is whether service tax paid by the appellant on external commercial borrowings (ECB), on which service tax was paid under “Banking and other financial services” by the appellant under reverse charge, is admissible under the Cenvat Credit Rules or not. It is observed from para 5 of the show cause notice, dated 15-10-2010 that Shri Prakash Mehta, Senior Manager (Accountants) and authorized person of the appellant has, inter alia, mentioned that ECBs are obtained by the appellant for the purpose of capital expenditure to increase their existing facility and to create new production capacity of the company in India and abroad. The ‘ECB’ services availed by the appellant are therefore, clearly in relation to the business activities and for promoting the inks manufactured by the appellant. It is the case of appellant that during the relevant period the activities relating to business was covered with the definition of inputs services under Rule 2(l) of Cenvat Credit Rules, 2004. No contrary arguments are available in the orders passed by the lower authorities that such activities relating to business were not existing in the definition of Rule 2(l) of the Cenvat Credit Rules, 2004. Hence, it is held that the services availed by the appellant were “Banking and other financial services” on which service tax was paid under reverse charge. The factual matrix of this case is thus stand covered by the case law of this Bench in the case ofCommissioner of Central Excise, Customs & Service Tax, Visakhapatnam-I v. GMR Industries Ltd. (supra). The Cenvat credit taken by the appellant with respect to the ECB for which tax was paid under “Banking and other financial services”, is therefore covered within the definition of Rule 2(l) of the Cenvat Credit Rules, 2004 prevalent during the relevant period. In view of the above observations, appeal filed by the appellant is allowed on merits with consequential relief.

Decision:-Appeal allowed.

Comment:- The crux of the case is that since the ECBs are obtained by the appellant for the purpose of capital expenditure, to increase their existing facility and to create new production capacity of the company in India and abroad. Thus the ‘ECB’ services availed by the appellant have clear nexus with the business activities. And, therefore according to Rule 2(l) of Cenvat Credit Rules, 2004, the Cenvat credit is admissible to the assessee on ECB for which tax was paid by them under “Banking and other financial services”.

Prepared By:- Neelam Jain

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PJ/CASE LAW/2016-17/3190

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