Cenvat Credit allowable of Service tax for Financial Services provided by Bank: CESTAT [Read Order]

The Chennai bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has held that Cenvat Credit allowable service tax for financial services provided by the bank.

M/s. Wendt India Limited, the appellant is a manufacturer of “Diamond Grinding Wheels” falling under Chapter Sub-Heading No. 68042110 of the First Schedule to the Central Excise Tariff Act, 1985.  During the verification of the accounts of the appellant, it was found that the appellant had taken CENVAT Credit of the Service Tax paid on bank charges on the strength of a certificate issued by the bank authorities to the tune of Rs.2,78,316/- during the period from April 2009 to August 2010. 

The Department was of the view that the certificate issued by the bank is not an eligible document for availing credit and also that such bank charges do not have any nexus with the manufacturing of the final product and therefore does not qualify as an input service.

A Show Cause Notice was issued proposing to demand the wrongly availed CENVAT Credit along with interest and also for imposing penalties. After due process of law, the original authority confirmed the demand, along with interest, and imposed an equal penalty. On appeal, the Commissioner upheld the same.

It was submitted by him that the credit has been availed on the strength of the certificate issued by the bank evidencing the collection of Service Tax on banking and financial services provided to the appellant; along with this certificate, the details of the Service Tax paid have also been appended. The said document is generally issued by banks evidencing the collection of Service Tax.

He further contended that the banking services were availed by the appellant in connection with their manufacturing activity; the same falls within the definition of “input service” as the definition includes services such as accounting, auditing, financing, etc.

The issue to be decided in the appeal is whether the appellant is eligible for the CENVAT Credit of the Service Tax paid on the bank charges. The first reason for denying the credit is that the bank certificate issued evidencing the collection of Service Tax is not a document mentioned in Rule 3 of the CENVAT Credit Rules, 2004. It is general practice that the bank issues a certificate for the collection of bank charges along with Service Tax and separate invoices cannot be expected in such transactions.

The second reason is that the banking activities do not have any nexus with the manufacture of the finished product. On perusal of the definition under Rule 2(l) of the CENVAT Credit Rules, 2004, it is clear that banking services are included in the said definition.

A division bench comprising Mrs Sulekha Beevi C S, Member ( Judicial ) and Mr Vasa Seshagiri Rao, Member ( Technical ) found that the disallowance of credit is without any basis. While allowing the appeal, the CESTAT set aside the impugned order.

Shri S. Yuvarajan, Authorized Representative for the Appellant and Shri N. Satynarayanan, Assistant Commissioner for the Respondent

To Read the full text of the Order CLICK HERE

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