If the department has accepted tax on the services provided by sister concerns to appellant, then can they deny credit of the same?

PJ/Case Law/2016-17/3345

Case - AMARA RAJA POWER SYSTEMS LTD. Versus COMMR. OF CUS. & C. EX., TIRUPATHI

Citation- 2016 (43) S.T.R. 313 (Tri. - Hyd.)

Brief Facts- The appellant Amara Raja Power Systems Ltd. is engaged in the manufacture of invertors and convertors. M/s. Amara Raja Electronics Ltd. is engaged in the manufacture of Home UPS/Trickle Charge/modules. During verification of records, it was noticed that appellants have availed Cenvat credit of Service Tax paid as per invoices issued to them by their sister concerns M/s. Amara Raja Batteries Ltd. (ARBL) and M/s. Mangal Precision Products Ltd. (MPPL). The Service Tax was paid by appellants on the services of “Branches Sharing Expenses” and “Service Tax Group Resource Sharing Expenses” under the category “Business Auxiliary Service”. The appellants claimed credit on such services being input services. A show cause notice was issued proposing to deny the credit and recovery of the same along with interest and penalty. After adjudication the primary authority confirmed the disallowance of credit and ordered recovery of the same along with interest and penalty. In appeal, the Commissioner (Appeals) upheld the demand, interest and penalty. Being aggrieved the appellants have filed these appeals.

Appellant’s Contention- The department has not disputed the payments of Service Tax made by ARBL and MPPL. This would only mean that they are service providers. After accepting the tax, the department is now attempting to deny credit alleging that there is actually no service provided, but only sharing of common expenses. The learned counsel argued adverting to the documents like purchase order, invoices, etc. The appellants are manufacturers and undertakes the help of sister concerns for providing them facilities like IT Support services, marketing and logistics support service, procurement of inputs, dispatch of final products and similar services. The sister concerns are registered with Service Tax department and raises invoices and collects the charges for services from the appellants including the Service Tax. The sister concerns are thus integrally connected with the appellant factory as they provide the required marketing support in connection with the manufacturing operations. It is therefore clear that the services have a nexus with the appellants manufacturing activities and thus qualify as input services.

Respondent’s Contention- The appellants were having an understanding for sharing common expenses with their two sister concerns and that the invoices appeared to be raised by the sister concerns merely to collect expenses shared by them. That there was no service rendered by ARBL and MPPL to appellants and that there was no service provider and service recipient relationship between appellants and the two sister concerns ARBL and MPPL. That these were mere commercial transactions sharing common expenditure and that credit is not admissible on the invoices issued by sister concerns ARBL and MPPL to appellants, as there was no service qualifying as input service.

Reasoning of Judgment- The credit is sought to be denied alleging that the arrangement is merely sharing of common expenses and not rendering of service. The department cannot blow both hot and cold. When the department has accepted tax on the services provided by sister concerns to appellant, then they cannot deny credit saying that no services were rendered.

Decision :-Appeal Allowed.

Comment – The gist of the case is that the appellant was availing credit on the invoices issued by its sister concerns but the department denied the credit on the ground that the credit is sought to be denied because the arrangement is merely sharing of common expenses and not rendering of service and also there was no service provider and service recipient relationship between appellants and the two sister concerns. But the appellant contended that when the department has accepted tax on the services provided by sister concerns to appellant, they cannot deny credit saying that no services were rendered.

Prepared by- Alakh Bhandari

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PJ/Case Law/2016-17/3345

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