Input services must be received within the factory premises for availment of Cenvat credit ?

We are sharing with you some important judgment of Service Tax on the following issue:

1. No Condition that Input services must be received within the factory premises for availment of Cenvat credit

Commissioner of Central Excise and Customs, Aurangabad Vs. Endurance Technology Pvt. Ltd. [2015 (6) TMI 82 - BOMBAY HIGH COURT] 

Issue:

Whether it is necessary that input services must be received in factory premises to avail Cenvat credit?

Facts:

In the instant case, Endurance Technology Pvt. Ltd. (“the Respondent”) was availing Cenvat credit on Management, Maintenance or Repair Services (“Impugned Input services”) received on windmills installed outside the factory premises for generation of electricity for being used in factory premises to manufacture the final product. The Department denied Cenvat credit on the ground of Impugned input services being received outside the factory premises.

Held:

The Hon’ble High Court of Bombay held that Rule 3 and 4 of the Credit Rules provide that any Input or Capital goods received in the factory or any Input service received by manufacturer of final product would be susceptible to Cenvat credit. The Credit Rules do not say that Input service received by a manufacturer must be received at the factory premises. Thus, the Impugned Input services received on windmills installed by the Respondents outside factory is Input service as defined by Rule 2(l) of the Credit Rules and Cenvat credit would be available on impugned Input services.

2. Method of computation of value U/R 6(3A) of the Credit Rules in respect of Input services used for trading cannot be applied for period prior to April 1, 2011 – Value to be calculated on proportionate turnover basis

Synise Technologies Ltd. Vs. Commissioner of Central Excise, Pune [2015-TIOL-1036-CESTAT-MUM]

Issue:

Whether method of computation of value U/R 6(3A) of the Credit Rules can be applied, in respect of input services used for trading, for the period prior to April 1, 2011?

Facts:

Synise Technologies Ltd. (“the Assessee”) was engaged in the provision of "Business Auxiliary Services” (BAS), IT Software Services as well as trading of scrap and availed Cenvat credit of Service tax paid on common services received for providing output services as well as in trading activities. The Department disallowed the benefit of wrongly availed Cenvat credit amounting to Rs. 21,05,690/-on Input services used in trading activity during the period April 2006 to March2011, computed in proportion of trading turnover to the total turnover.

On appeal being filed, the Ld. Commissioner (Appeals) held that since w.e.f. April1, 2011 the definition of exempted services was amended to include trading, the method of computation of value of Input services used for trading as prescribed under Rule 6(3A) of the Credit Rules can be adopted retrospectively and accordingly reduced the amount of Cenvat Credit demanded to Rs. 6,97,822 /-along with interest and penalty.

Held:

The Hon’ble CESTAT, Mumbai relying upon the decision in the case of Mercedes Benz India Pvt. Ltd. Vs. CCE, Pune I [2014-TIOL-476-CESTAT-MUM] held that the method of computation of value under Rule 6(3A) of the Credit Rules in respect of Input services used for trading cannot be applied for period prior to April 1, 2011. Thus, the Cenvat credit disallowed in proportion of trading turnover to the total turnover is correct.

3. Service tax burden can be transferred by contractual arrangement to the other party but, the assessee cannot ask the Revenue to wait for discharge of the liability till it has recovered the amount from its contractors

Delhi Transport Corporation Vs. Commissioner Service Tax [2015-TIOL-961-HC-DEL-ST] 

Issue:

Whether Service Tax can be deferred till the receipt of payment from contractors when Service Tax burden is transferred to other party by contractual arrangement? 

Facts:

In the instant case, Delhi Transport Corporation (“the Appellant”) had entered into contracts with seven agencies (“the Advertisers”) to provide taxable service by providing space to such parties for display of advertisements on its buses, bus queue shelters, time keeping booths and other properties and in the contract it was provided that the responsibility to pay Service tax and other advertisement tax will be of the Advertisers.

However, due to dispute, two Advertisers had not reimbursed the appellant for the Service tax component. Consequently, the Appellant failed to pay Service tax on the services rendered by them and the Department issued SCN to the Appellant to pay balance amount of Service tax along with interest and penalties thereon.

Held:

The Hon’ble High Court of Delhi held that when there is no dispute that the services provided are taxable, the ruling of the Hon’ble Supreme Court in the case of Rashtriya Ispat Nigam Limited Vs. Dewan Chand Ram Saran [(2012) 5 SCC 306], cannot detract from the fact that in terms of the statutory provisions it is the Appellant liable to discharge the Service tax liability. Undoubtedly, the Service tax burden can be transferred by contractual arrangement to the other party. But, on account of such contractual arrangement, the assessee cannot ask the Revenue to recover the tax dues from a third party or wait for discharge of the liability by the assessee till it has recovered the amount from its contractors. However, in terms of erstwhile Section 80 of the Finance Act, penalty amount was set aside.

4. Import freight/charges etc., which are incurred prior to import or which are included in Customs valuation, cannot be charged to Service tax under Cargo Handling or any other service

United Shippers Ltd Vs. Commissioner of Central Excise, Thane-II [2015 (57) Taxman 429 – Mumbai-CESTAT] 

Issue:

Whether Service Tax can be charged on Import freight /Charges under cargo handling when such charges are included in Customs valuation?

Facts:

In the instant case, United Shippers Ltd. (“the Appellant”) entered into contracts with various customers and agreed to provide various services in relation to stevedoring including on-board stevedoring, barging, loading, unloading, transportation of cargo by barges from Mother Vessels to Jetty, handling, weighment, deployment of security services, storage and all other services necessary for successful discharge of cargo.

The Appellant was splitting up the gross consideration received by raising separate invoices - one for 'stevedoring, loading, unloading, internal haulage, deployment of security and storage charges' under the description - 'Port Services (Minor Ports)’ and another for 'Shipping Charges' & 'Reimbursement of Expenses incurred at the Port for wharfage, transshipment and Jetty usage charges'.

Accordingly, the Appellant was discharging Service tax only on Port Services (Minor Ports) and not on the Shipping Charges. The Department alleged that entire contract was a composite contract and therefore, it was entirely taxable under Cargo Handling services.

Held:

The Hon’ble CESTAT, Mumbai held that since the transaction involves a Customs transaction and a service transaction, it is necessary to decide where the Customs transaction ends and the service transaction begins. Thus, when the goods are being transported by the barges from the mother vessel to the jetty onshore, that activity is part of the import transaction of bringing the goods into India from a place outside India. The question of rendering any service in respect of such goods by way of Cargo Handling or otherwise can take place only after the Customs transaction is completed.

Therefore, the question of levying Service tax on the transportation by barges from the mother vessel to the jetty onshore, would not arise at all since the said activity is part of the import transaction leviable to import duty. Hence, charge of suppression was invalid and, consequently, extended period of limitation could not have been invoked.