The New Delhi, Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that services such as hedging/forex advisory, insurance covering raw materials, finished/semi-finished goods and capital goods used in business, and employee training-related travel/services, when used directly or indirectly in relation to the manufacturing business of the appellant/taxpayer, qualify as “input service” for the purposes of Cenvat credit under the Cenvat Credit Rules, 2004.
The Tribunal further held that where the appellant has itself paid service tax on such services and the department has not produced evidence to rebut the appellant’s case, Cenvat credit cannot be denied merely because the invoices mention another address or because the insurance policies also extend to a sister concern. Accordingly, the Tribunal set aside the order denying Cenvat credit.
A Single Judicial Member Dr. Rachna Gupta noted that in the earlier remand order it had already recorded the appellant’s submission that it had sufficient proof to segregate insurance-related credit pertaining to its own factories, and had also observed that service tax paid on employee air travel undertaken for the business of the appellant would be eligible for Cenvat credit. Similar observations had also been made with respect to professional fee/consultancy fee.
On professional/consultancy fees relating to hedging services, the Tribunal observed that the appellant imported materials and exported final products, and therefore dealt in foreign exchange. Since frequent currency fluctuations could lead to losses, hedging was adopted to avoid such losses. The Tribunal held that this activity was indirectly related to the manufacturing business of the appellant and was therefore eligible as input service under Rule 2(l) of the Cenvat Credit Rules, 2004.
On insurance services, the Tribunal observed that the insurance covered raw materials, finished and semi-finished goods, and stores used in the ball bearing industry, and therefore the insurance services were taken in relation to the manufacture of final products, though indirectly. It further noted that the credit had been denied only because the policies also covered the risk of the appellant’s sister concern, but the appellant had specifically submitted that the service tax on those policies had been paid by the appellant itself and not by the sister concern, and the department had produced no evidence to dislodge that submission.
The Tribunal also observed that, in the appellant’s own earlier case, where invoices bore addresses different from the manufacturer’s premises, it had been held that such mention of another address was inadvertent when payment had been made by the main manufacturer. It further referred to Rule 3 of the Cenvat Credit Rules, 2004 and noted that Cenvat credit is admissible on duty/service tax “paid” and not “payable”.
With respect to tour and travel expenses of Rs. 35,862/-, the Tribunal observed that the appellant had a large employee base and had engaged a human resource company for training employees in communication skills and new idea generation. Since productivity of employees increases post training, the service charges paid to such human resource agency were held to be indirectly related to manufacture of final products.
Briefly, the appellant is engaged in the manufacture of ball bearings and axle boxes. The department alleged that the appellant had wrongly availed Cenvat credit of service tax on insurance services, professional fees/consultancy, and air fare expenses for the period from August 2014 to April 2015, aggregating to Rs. 38.19 lakhs, and issued a show cause notice.
In the first round, the original adjudicating authority dropped the demand of Rs. 13.83 lakhs relating to professional/consultancy fees but confirmed the balance demand of Rs. 24.36 lakhs. The Commissioner (Appeals) upheld that order, after which the CESTAT, by Final Order dated January 29, 2020, remanded the matter for fresh adjudication.
Upon remand, by Order-in-Original, a further amount of Rs. 1.79 lakhs relating to professional/consultancy fees was dropped, but Cenvat credit of Rs. 22.56 lakhs was still disallowed with interest and penalty. On appeal, the Commissioner (Appeals) allowed credit of Rs. 3.25 lakhs on taxi and airfare expenses and Rs. 9.32 lakhs on professional fees/consultancy fees, reduced the penalty to Rs. 1.93 lakhs, but held that credit of Rs. 9.98 lakhs, in respect of insurance was not permissible.
Appearances:
Advocate S.C. Vaidyanathan, for the Appellant/ Taxpayer
Authorized Representative Rohit Issar, for the Respondent/ Revenue
