CENVAT Credit availed on input service which are used for output service cannot be denied: CESTAT [Read Order]

The Chennai bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that CENVAT Credit availed on input services that are used for output service cannot be denied. The bench allowed the appeal as there is nothing on record to establish that the input services credit availed by the appellant were used for proving the exempted service of ‘trading’.

M/s. Enmas Andritz Pvt. Ltd, the appellant is engaged in designing and supply of recovery boilers for pulp and paper manufacturers in India and enters into composite contracts for the same. The activity undertaken by the Appellant involves identifying the type of boiler suitable for the particular manufacturer, designing the same, arranging for manufacture and sourcing of various parts and components of the boiler with related equipment and accessories, and supervision of the erection and commissioning of the boilers.

The Appellant has registered themselves with the Service Tax Department under the category of ‘Consulting Engineer’s Service’ and has duly discharged Service tax liability on the same during the period in dispute. The Appellant also engages various job workers for manufacturing various components of the recovery boiler on their behalf. This activity is incidental to the overall design and engineering activity undertaken by the Appellant.

During the period under dispute, the Appellant procured various input services such as banking and other financial services, business support services, courier services, chartered accountant's services, insurance service, manpower recruitment services, telephone/mobile phone service, technical testing service, renting of immovable property service, rent-a-cab service, canteen services, courier services etc., which were used by them for rendering the output service of Consulting engineering. Since the services were used in provision of Appellant’s output service, they availed Credit on the said input services and utilised the same for payment of their output service tax liability.

Show Cause Notices were issued proposing to deny CENVAT Credit availed by the appellant on the allegation that the appellant have not used the said services for providing their output service. It was also alleged that the documents based on which the appellant has availed CENVAT Credit on the input services were only relating to their trading activity which are not taxable services. After due process, the said notices were adjudicated which resulted in passing the impugned order, whereby CENVAT Credit availed by the appellant on various input services have been denied.

Counsel appearing on behalf of the appellant submitted that the said ‘input services’ on which they have availed CENVAT Credit have been used for providing ‘Consulting Engineering’ service. It is his submission that during the relevant period, input service as defined under Rule 2(l) of the CENVAT Credit Rules (CCR), 2004 covered all serviced used in relation to business; the definition of ‘input service’ is wide enough to cover all the input services on which CENVAT Credit has been availed by them.

The appellant submitted that all the above said services are directly linked with the output services of consulting engineering service rendered by them. Further, that all the said services are used in the relation to the business activities of the appellant. Hence it is contended that the appellant are eligible for the CENVAT Credit of the same.

It is a settled principal of law that once the department has accepted the payment of Service Tax on the output service rendered by them, the CENVAT Credit cannot be denied on the input services which were used for providing the said output service. In the present case, the department has accepted the payment of service tax on the consulting engineering service render by them. Thus, the appellant submits that CENVAT Credit cannot be denied on the input services which were used for providing the said output service.

The tribunal observed that the activity undertaken by the appellant is appropriately classifiable under the category of ‘Consulting Engineer’s Service’.The Department has accepted the said classification of the Service by the appellant and accepted the service tax paid by them under the said category. The appellant has taken registration with the Service Tax department under this category and duly discharging their service tax liability on the amounts collected by them as service charges from their clients. It is also a fact that the Department has never questioned the classification of the service and the payment of service tax by the appellant.

Regarding the eligibility of CENVAT credit on the input services used by the appellant for rendering the Consulting Engineering Service,the tribunal found that the appellant has undertaken the following activities while rendering the out out put service.

The appellant’s contract is directly with the clients in designing and supply of recovery boilers for pulp and paper manufacturers. The job work undertaken by various job workers is also a part of the contract of rendering ‘Consulting Engineering Service’. I find that there is no documentary evidence available on record to indicate that the appellant has rendered service in connection with the trading activity undertaken by them to the job workers. Thus, I find that there is no evidence brought on record to substantiate the allegation that the input service used by the appellant in this case were related to the trading activity. Thus, I find that the credit availed by the appellant cannot be denied on this ground.

A single bench of K. Anpazhakan, Member (Technical) found that there is no dispute that the input service on which the credit availed by the appellant were used in connection with the output service, namely, Consulting Engineering Service and held that the CENVAT Credit availed on the input service which are used for output service by the appellant cannot be denied.

There is nothing on record to establish that the input services credit availed by the appellant were used for proving the exempted service of ‘trading’. On the other hand, the evidence available on record indicate that all the activities of the appellant are directly related to ultimate clients, used in designing and supply of recovery boilers for pulp and paper manufacturers.

All the input services were used in relation to the business of the appellant and hence the same falls within the ambit of ‘input service’ as defined under Rule 2(l) of the CCR, 2004. The Tribunal held that the CENVAT credit availed by the appellant which are used for providing the output service, are eligible for credit as ‘input services’.

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