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PJ/Case Laws/2011-12/1236

Credit on advisory service provided for acquisition of company
Case: M/s Life Long India Ltd versus CCE, Delhi-III

Citation: 2011-TIOL-832-CESTAT-DEL

Issue:-  Whether credit on advisory services provided for acquisition of company can be denied? 
Whether credit is allowed on the basis of invoices issued in the name of registered office?

Brief Facts: The Appellant filed before the Tribunal because of denial of Cenvat credit on services availed by the appellant company on account of "professional fees towards providing advisory services for acquisition of company".

Appellant’s Contention: The Appellant submits that the definition of input service as it stood at the relevant time, was wide enough to cover the impugned services because it covered activities relating to business such as advertising, accounting, auditing, financing, credit relating, share registry and security.
Appellant relied upon the following cases:
-      Coca Cola India Ltd Vs CCE reported in 2009 (242) ELT 116 Bombay.
-      CCE Nagpur Vs Ultratech Cement Ltd reported in 2010 (20) STR 577 (Bom).
The appellant relies on the said judgment to emphasis the point that the list of services mentioned after the words 'such as' does not have an effect of restricting the definition of services eligible for credit. The list is only illustrative and not exhaustive.
Therefore, appellant says the activity of 'management consultancy' to acquire a new factory, which could be put to use by the appellants, is connected with the business activity of the appellant.
Appellantalso argues that raising of capital for the company is covered because 'financing' is covered specifically in the definition.

Respondent’s Contention: The adjudicating authority reproduced the definition of "input service" in Cenvat Credit Rules and gave a finding that this service is not covered by the said definition without giving any detailed reasons why he considers so.
Respondent argues that acquisition of a factory for use in future has no nexus with the goods being manufactured and cleared.
It is further argued that raising of capital for a new company has no nexus with the existing company and for that reason, the services cannot be considered as input service.
Respondent relies upon the following cases:
-      Maruti Suzuki Ltd 2009 (242) ELT 641
-      Manik Chand Vs CCE Nagpur 2010 (20) STR 456
Respondent also submits that credit was taken based on an invoice addressed to their registered office and therefore, the Appellant should have taken registration as 'input service distributor' as defined at Rule 2(m) of the Cenvat Credit Rules, 2004.
Respondent argues that the decision in Ultratech Cement relates to 'catering services' and it is not relevant to the services in dispute in the present case.
Respondent submits that the impugned service in the case of Coca-cola (supra) was that of advertising agency which is specifically mentioned in the definition of input service.
Respondent states that catering provided in the factory and advertising may have indirect nexus with the goods manufactured, but 'management consultancy' and service in relation to 'raising of capital' have no direct or indirect nexus.

Reasoning of the Judgment: The Tribunal notices a factual error in the finding of the Commissioner (Appeals) where it is mentioned that the proposed activity was raising of capital for a new company. The matter under consideration was acquisition of a new company. The capital of the existing company had to be raised to pay the share holders of the target company. Therefore, the bill raised by the consultant is in relation to providing advisory service for raising the equity capital of the appellant company. To that extent, the facts are recorded inaccurately.
In the case of Ultratech Cement, the Hon'ble High Court has clearly ruled that the service mentioned in definition of “input services” is illustrative and not exhaustive. The definition given under Rule 2(1) for input services includes activities like setting up of a factory which precedes manufacturing activity. It is also to be noted that once the assessee is eligible to take credit, there is no restriction in the Rules that the credit should be used on the product manufactured using the input service. Once credit is taken, it can be utilized on any of the output services or final products of the company. It is not necessary that credit is to be used for paying the duty on the final product that is coming out of new plant proposed to be set up. Therefore, the Tribunal does not see any merit in the argument that the cenvat credit taken relates to services of future business of the company.
Regarding the issue that credit was taken in the factory based on an invoice issued in the name of the registered office, the Tribunal observes that this is a matter which has been decided in many cases by the Tribunal and credit cannot be denied for that reason. The provision relating to input service distributor is not applicable here because credit is not getting distributed to many locations. If at all applicable, it is only a procedural requirement and credit cannot be denied so long as there is no case of misuse of credit.
The Tribunal also does not see any merit in the argument that the impugned services are different from the services considered in the decision given in the case of Coca Cola India Pvt Ltd and Ultratech Cement Ltd (supra). The services are different but the issues are the same.

Decision: Appeal is allowed.

Comments:- In this decision also, it is ruled that credit on all the services relating to business will be allowed. But the definition of “input service” has been changed from this budget. This will have impact on future decisions.
The second main issue is that when the invoice is issued in the name of head office then the department insists on taking of registration of “input service distributor” even though there is only one factory of the manufacturer. It is clearly held that there is no need of “input service distributor”. This is landmark judgement for assessee having one factory and audit raising this point again and again.

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