Whether credit earned as manufacturer can be utilised towards payment of service tax under BAS?

PJ/CASE LAW/2014-15/2528

Case:- COMMISSIONER OF C. EX., SALEM VERSUS V. THANGAVEL & SONS (P) LTD.

Citation:- 2015 (37) S.T.R.-144 (Tri.- CHENNAI)

Issue:- Whether credit earned as manufacturer can be utilised towards payment of service tax under BAS?

Brief facts:-The brief facts of the case are that the respondent is a manufacturer of Synthetic Filament Yarn which attracts duty of excise and is also exempted from payment of duty under Notification No. 30/2004, subject to non-availment of Cenvat credit. The respondent also is registered with Service Tax authorities for rendering commission agent’s service which is taxable under the category of “Business Auxiliary Service” (BAS). They were availing the benefit of Cenvat credit on inputs, capital goods, input services and discharging appropriate duty of excise on the final products manufactured by them. From 1-6-2006, they had opted to avail the benefit of exemption under the above notification and they are liable to reverse Cenvat credit of duty paid on the inputs. They have reversed the credit attributable to the inputs lying in stock, contained in work in progress and finished goods as on 31-3-2006. Even after the reversal of credit, they had the balance of credit in their Cenvat credit account. The respondents have utilized the Cenvat credit for payment of Service Tax liability on their output services rendered by them from the same premises. A show cause notice dated 2-1-2008 was issued for disallowing Cenvat credit alleged to have been lapsed and wrongly availed by respondent.

On adjudication, the adjudicating authority confirmed the demand of Rs. 20,44,436 + Rs. 58,789/- along with interest and also imposed penalty. Aggrieved by this order, the respondent filed appeal before Commissioner (Appeals) and he allowed the appeal and set aside the adjudicating authority’s order. Hence, Revenue filed the present appeal against the impugned order only on the limited grounds that the lower appellate authority erred in allowing credit availed on inputs received for the manufacture of excisable goods, for payment of Service Tax on the services rendered towards BAS as the said inputs were not used for providing the output service.

Appellant contentions:- Ld. AR reiterates the grounds of appeal and submits that the manufacture of excisable goods and providing of Business Auxiliary Service are entirely different even though both activities are carried out in the same premises. The service rendered by the respondents as a commission agent under BAS has nothing to do with the manufacturing activity carried out by them. He relies on the definition of “inputs” defined in CCR 2004 and stated that definition of “input credit” availed on the manufacture of excisable goods are not for providing output service and the said inputs credit cannot be utilized for payment of Service Tax towards output service. He relies on Rule 2(k) and Rule 3(3), which prohibits utilization of Cenvat credit availed on goods for payment of Service Tax for output services.
Respondent contentions:-The learned advocate for the respondent reiterates the findings of the Commissioner (Appeals) in the impugned order and submits that the appellate authority has rightly allowed the appeal. He submits that there is no allegation by the department on the admissibility of Cenvat credit and once the admissibility of credit is not under dispute, there is no bar on utilization of credit for payment of Service Tax on output services. He also submits that as per Rule 3(4) of CCR, Cenvat credit can be utilized for payment of duty of excise on any final product or payment of Service Tax on output services.
He relies on the following case law : -
(i) CCE, Coimbatore v. Lakshmi Technology & Engineering Indus. Ltd.- 2011 (23)S.T.R.265 (Tri.-Chennai)
(ii) S.S. Engineers v. CCE, Pune - 2013-TIOL-1512-CESTAT-MUM.

He submits that they are eligible to utilize the credit availed on the inputs for manufacture of excisable goods towards payment of Service Tax on output service as there is no one to one correlation.

Reasoning of judgement:- Tribunal has carefully considered the submissions from both sides and gone through the records. The main contention of the Revenue is only on the utilization of Cenvat credit by the respondents earned on the inputs received for manufacture of excisable goods towards payment of Service Tax for “Business Auxiliary Service”, prima facie there is no dispute on the admissibility of Cenvat credit availed on the inputs.

There is no dispute on the fact that the respondent is a manufacturer of excisable goods Synthetic Filament Yarn and duly registered with the Central Excise Department. The respondents also registered with the Service Tax authorities as “commission agent”, which is classifiable under “Business Auxiliary Services” and discharging Service Tax on the output service. Therefore, the respondents are not only a manufacturer of excisable goods but also the provider of output services and both the activities are carried out in the same premises

Apparently there is no dispute on admissibility of the Cenvat credit availed by the respondents as the Commissioner (Appeals) in the impugned order has decided in favour of respondents, which is not contested in the appeal by Revenue. Once it is held that the respondents are eligible for availment of input credit, they can utilize the Cenvat credit available with them either for payment of excise duty on the final products or for payment of Service Tax on the output services as stipulated in the sub-rule (4) of Rule 3 of CCR 2004. The restrictions on utilization of Cenvat credit stipulated in the CCR relates only for specific type of duties i.e. education cess on excisable goods or payment of educational cess on output services. There is no restriction for utilization of common input credit availed on the inputs and also on input services for payment of excise duty or Service Tax.

The identical issue has been dealt with by the Tribunal in the case of Lakshmi Technology & Engineering Indus Ltd. (supra) and in the case of S.S. Engineers (supra).Considering the afore cited decisions of the Tribunal on the identical issue, it was found that there is no infirmity in the order of Commissioner (Appeals) in holding that utilization of input Cenvat credit availed by the respondents for payment of Service Tax on the output service of Business Auxiliary Services rendered by them. The impugned order is upheld. Accordingly, the appeal filed by Revenue is dismissed.

Decision:- Appeal disallowed.

Comment:- The essence of the case is that if the assessee are eligible for availment of input credit, they can utilize the Cenvat credit available with them either for payment of excise duty on the final products or for payment of Service Tax on the output services as stipulated in the sub-rule (4) of Rule 3 of CCR 2004. The restrictions on utilization of Cenvat credit stipulated in the CCR relates only for specific type of duties i.e education cess on excisable goods or payment of educational cess on output services. There is no restriction for utilization of common input credit availed on the inputs and also on input services for payment of excise duty or Service Tax.

Prepared by:- Neelam Jain

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PJ/CASE LAW/2014-15/2528

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