Payment of Litigation Expenses to Association allowable as Cenvat Credit: CESTAT [Read Order]

Litigation Expenses - Cenvat Credit - CESTAT - Taxscan

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad bench has held that the expenses including legal fee paid to Distiller’s Association of Maharashtra to meet the legal expenses to file a case before the High Court shall be allowed as cenvat credit since the litigation was filed for the members of the Association, including the Company.

The appellant-Company is engaged in the manufacture of Pet preforms, jars, containers with caps. They are also availing Cenvat Credit in respect of duty paid inputs, input services, as well as capital goods under the Cenvat Credit Rules, 2004. During course of audit under EA-2000 by the Central Excise Audit officers, it was noticed that they had availed Cenvat Credit of Service Tax Rs. 24,19,434/- paid on legal consultancy services under reverse change mechanism. It was observed that the bills for legal consultancy services were issued by advocate Shri Murari B. Madekar to M/s Sunrise Containers Pvt. Ltd., Umbergaon. The bills were raised for the services given in a legal case of Distiller’s Association of Maharashtra vs. State of Maharashtra and ors. On enquiry from the appellant they had informed that there was one case filed by the Distiller’s Association of Maharashtra against State of Maharashtra in the High Court, Mumbai vide WP no. 557 of 2016 and M/s Sunrise Containers Pvt. Ltd. is one of themembers of the said Distiller’s Association of Maharashtra.

The department disallowed the cenvat credit holding that since the legal case for which the legal services of advocate was provided, it is to Distiller’s Association of Maharashtra and not to M/s Sunrise Containers Pvt. Ltd. exclusively because they are only one of the members of the said Distiller’s Association of Maharashtra. It was further observed that the service does not fall under ‘input services’ given under Rule 2(l) of Cenvat Credit Rules, 2004 for the reason that the legal service was not used in or in relation to manufacture of final products of the appellant.

While allowing the plea of the appellant, Judicial Member Mr.Ramesh Nair noted that there is no dispute that the legal case was filed by the Distiller’s Association of Maharashtra which consists of many member manufacturers.

“Therefore, the beneficiary of the outcome is not only the appellant but all the members which means that the service was availed by all the members of the association. Though the invoice was raised in the name of appellant but the services availed against the said bills has benefitted to all the members of the association. I agree with the submission of the learned counsel that even though the case was filed in the name of Distiller’s Association of Maharashtra but since the bill was raised in the name of the appellant, appellant is prima facie entitled for Cenvat Credit but only to the extent of portion of services related to the appellant. In this position, the Cenvat Credit attributed to the appellant needs to be re-worked out. Therefore, entire case needs a reconsideration. As regard the issue whether legal service is an input service or otherwise, I find that legal service is directly for the case related to manufacture of the final product. Moreover, the legal service is prescribed as input service in the inclusion clause of definition of input service. Accordingly, I hold that the legal service is an admissible input service,” the Tribunal said.

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