whether availment of Cenvat credit on the following services eligible for input service credit (i) Management, Maintenance and Repair service of helicopter; (ii) Rent-a-cab and contract bus service; and (iii) Management Consultant Service?

PJ/Case Law /2016-17/3326

Case:- SANMAR FOUNDRIES LTD. VersusCOMMISSIONER OF C. EX., TRICHY
Citation:-2016 (43) S.T.R. 362 (Tri. - Chennai)

Brief fact:-M/s. Sanmar Foundries Ltd., the appellant herein is the manufacturer of excisable goods and have availed benefit of Cenvat credit scheme. In the case under consideration, Cenvat credit has been availed on the following input services namely; 1. Management, Maintenance and Repair service of helicopter owned by the company, 2. Rent-a-cab service, 3. Management and Consultancy service. The department alleged that since the appellant-company have not proved that these services were used in or in relation to the manufacturing activity and accordingly held that credit was not available on the abovementioned services.

Appellant’s contention:-Ld. Counsel for the appellant-company Shri V.S. Manoj, Advocate, argued that management, maintenance and repair service and management consultancy service are the services specified under Rule 6(5) of the Cenvat Credit Rules. For services specified under the said sub-rule even if part of the service is used in the manufacturing activity of dutiable products, then credit of service tax paid on the entire service has to be allowed.
He further submitted that the person concernedprovided consultancy to the company regarding financial management, taking policy decisions of the company, etc., and the person concerned did not provide any service to any other company and the allegation that the services were in relation to other companies was without any basis, since their company was responsible to the shareholders and they cannot be paying for services rendered to other companies.
Respondent’s contention:- The department was being represented by Shri L.Paneerselvam, AC (AR). He submitted that the Managing Director of the appellant-company was also the Managing Director of other group companies and therefore, the expenses cannot be considered as nexus with the manufacturing activity of the appellant-company.
The ld. AR of the Revenue further submitted that the appellant had failed to produce evidence that the helicopter was used for business purposes only, since it appeared that the helicopter was used for the purpose of other companies also, as the Managing Director of this Company was also the Managing Director of other group companies at Mettur, Cuddalore and trips to such places have been proved.
Regarding management consultancy services, hesubmitted that it was not clear as to when such type of consultancy service was provided to the appellant-company and for what purpose. The ld. AR submitted that the appellant assessee had not produced any contract to prove the nature of service nor specifically confirmed that they were used exclusively for the company purpose. Besides, the nature of consultancy given and how it was related to the business activity of the company and clearance of their final products was also not shown.
Regarding rent-a-cab service, he mentioned that thisservice had no nexus with the manufacturing activity since such service was availed to transport officer and executives of the appellant company from their residences to the factory and back. Further, it was also ascertained that part of the cost of such services have been recovered from the employees. As such, credit of service tax paid on the entire service cannot be disallowed. In counter the ld. Counsel submitted that as regardsrent-a-cab service, only a part of the expenses was recovered from the employees. Such credit of service tax paid on the entire service cannot be held as ineligible. Further, as regards management consultancy service, he vehemently argued that the person concerned provided consultancy to the appellant company regarding financial management, and giving guidance in taking policy decisions of the company. He strongly objected to the allegation that the person concerned provided any service to any other company and the same is without any basis. He argued that since the management of the Company was answerable to the shareholders, they cannot be paying for services rendered to other companies. That the appellant company had paid the service tax for maintenance of the helicopter and the same was used by the Chairman/Directors for their official duties. He had filed copies of the invoices raised by the appellant company on the group companies for their usage of the helicopter which shows that the appellant company was registered with the service tax department under the category of ‘Business Auxiliary Service’ and are charging service tax on the invoices so raised. Management Consultancy Service had been availed from Shri Sankar, Management Consultant, Chennai and he had raised his invoices and had also charged service tax. Copies of this invoices were available on record.
On the availment of input service tax credit onservices viz. Management, Maintenance & Repair service, ld. counsel relied on the following case laws :-
(a)       Force Motors Ltd. v. CCE, Pune - 2009 (13)S.T.R.692 (Tri.-Mumbai)
(b)       CCE, Goa v. V.M. Salgaonkar & Bros. Pvt. Ltd. - 2008 (10)S.T.R.609 (Tri.-Mumbai) [on applicability of Rule 6(5) of CCR, 2004]
(c)       Force Motors Ltd. v. CCE, Pune - 2009 (16)S.T.R.591 (Tri.-Mumbai)
(d)       Final Order No. 793/2012, dated 13-7-2012 in Lakshmi Machine Works Ltd. v. CCE, Coimbatore [2013 (30)S.T.R.98 (Tri.).
The ld. Advocate argues that all the above services are in relation to Business and are covered by the definition of “input services” as defined under Rule 2(l) of CCR, 2004.
Reasoning of judgment:- They had carefully gone through the case records. The issue under dispute was whether the availment of Cenvat credit on the following services are eligible for input service credit (i) Management, Maintenance and Repair service of helicopter; (ii) Rent-a-cab and contract bus service; and (iii) Management Consultant Service.
With regard to the eligibility of credit on themaintenance and repair service of helicopter, the ld. Commissioner (Appeals) has in Para 4.2 not disputed the eligibility of credit, but had sought to deny on the ground that the helicopter was not exclusively used for the appellant’s unit at Viralimalai. The ld. Commissioner (Appeals) has failed to note that the helicopter was used for the transportation of the Directors and Chairman of the company. While not disputing the eligibility for credit based on the Tribunal’s ruling in the case of Force Motors Ltd.v. Commissioner, reported in 2009 (13)S.T.R.692 (Tri.-Mumbai), wherein it was held that in this modern age, use of aircraft is to be considered as a bare requisite for business purposes and held that any service tax paid on the services for the maintenance of aircraft was admissible as credit. The Appellate authority has erred in holding that the dispute is not regarding ownership of the helicopter, but whether the services were utilized by the appellant’s unit. In the course of hearing, the ld. Counsel had filed copy of invoices raised by the appellant company on other companies for the usage of Helicopter and Service Tax had also been collected under the category ‘Business Auxiliary Service’. There was no requirement under Rule 2(l) of the Cenvat Credit Rules, 2004 which defines ‘input service’ that the usage has to be in relation to a particular unit. Input service definition during the period in dispute, i.e., March, 2010 to April, 2010 was very wide and the inclusive definition covered “activities relating to business”, which has not been taken into consideration. The denial of credit is therefore, incorrect and unsustainable.
As regards eligibility to credit on Rent-a-Cab service and contract bus service, which were used exclusively for the transportation of officers, the Commissioner (Appeals) has held that they recover the cost from the employees and there was no denial of the same. A consistent stand taken by various Courts and Tribunals is that when there is a recovery of cost, the proportionate credit should be reversed. The denial of the entire credit is erroneous and the appellants were directed to reverse the proportionate credit to the extent of recovery of cost from the employees.
As regards eligibility for credit on management andconsultancy service, the ld. Commissioner (Appeals) has held that the appellants have not specifically confirmed that they were used exclusively for the appellants unit and what was the nature of consultancy given and how it is related to the manufacture and clearance of their final product; that the services were not exclusively used for the appellants unit. There was no requirement in the input service definition that the eligibility to credit is factory based. The consultancy provided had not been disputed. When there was no dispute on the consultancy provided, denial for the reason that, “there is every reason to believe that his consultancy service is not meant for the exclusive use of the appellants unit alone” in the show cause notice without elaborating as to the reason for the said belief was unsustainable. The show cause notice is the foundation for any proceeding. In this case, the allegation is too vague and therefore, the appellant’s contention to the contrary cannot be doubted. Accordingly, credit was eligible.
With regard to the imposition of penalty, the issue being interpretative in nature, penalty was not warranted and the same was accordingly set aside.
In view of foregoing discussions, the credit waseligible on the management, maintenance and repair service of helicopter. With regard to Rent-a-Cab service, the cost recovered from the employees was liable to be reversed. The credit was otherwise eligible. With regard to the credit on management and consultancy service, the same was held to be eligible. Penalty was set aside. Appeal was accordingly allowed on the above terms with consequential relief, if any.
Decision:- Appeal allowed.
Comment:- The substance of the case was regarding the admissibility of Cenvat credit on Input services i.e. Management maintenance and repair service of helicopter, Rent-a-cab service and contract bus service and Management and consultancy service was rightfully admissible. The credit on helicopter cannot be denied as the Helicopter in the case was used for transportation of Directors and Chairman of the company, which is justly covered under the phrase “activities relating to business” of the definition of Input Service.
Rent-a-cab service and contract bus service were used exclusively for transportation of officers and portion of them was charges from employees therefore placing reliance on stands taken by various Courts and Tribunals it was decided that the proportionate credit to the extent recovered from employees must be reversed. The credit otherwise was eligible.
Input service credit on Management and consultancy service is rightly admissible as there was no dispute regarding the availment of consultancy service therefore the reason that, “there is every reason to believe that his consultancy service is not meant for exclusive use of appellant unit alone” in the show cause notice without elaborating as to the reason for the said belief is unsustainable. Therefore Credit was eligible.
Prepared by:- Monika Tak

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PJ/Case Law /2016-17/3326

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