The Hyderabad bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) upheld the Cenvat Credit demand as the input services had no nexus with the output service.
The issue in this case is that the appellant, M/s Vital Paper Products Pvt Ltd, received a show cause notice ( SCN ) on 25-05-2017, after an audit of their accounts. The notice demanded the recovery of Rs. 25,97,840, which was claimed as Cenvat Credit but was deemed irregular. The Department was of the opinion that certain credits were not allowed because they either fell under specific exclusions from the definition of “input services” or because terms like “setting up” were removed from the definition for not having a nexus with the output service. The SCN also contained a demand for interest and a penalty under Section 78 of the Finance Act, 1994.
In this case, the total demands have been split into 5 distinctive issues.
The counsel on behalf of the appellant contended that the Original Authority has gone beyond the show cause notice and has confirmed the demand on the grounds that there was no nexus between input services and output services, which was never alleged in SCN.
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The counsel, on behalf of the department, had reiterated the grounds mentioned in the order in original and stated that the appellant was not eligible to avail of the CENVAT credit as there was no nexus between the input services and output services provided by the latter.
The bench upheld Cenvat Credit’s demand of Rs. 84,044 as the services have no nexus with the output service provided by them and are hence not eligible. Thus, the original authority was right in imposing the demand, and therefore, it is recoverable from the appellant.
The CESTAT bench, comprising of A.K. JYOTISHI ( MEMBER TECHNICAL ), partly allowed the appeal.
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