By TIOL News Service

MUMBAI 29, JULY, 2013: THE appellant is registered in respect of the taxable services such as Transport of the goods by air/road, Courier agency services, Management consultancy services and Online information and Database access and retrieval services.

During the course of audit, it was noticed that the appellant had classified the services, namely, information and tracking of delivery schedule, managing distribution & logistics, received from outside India, under the category of "Management Consultancy Services" and the appellant had availed CENVAT Credit of the Service Tax paid on these services under Rule 6(5) of the CENVAT Credit Rules, 2004.

The department was of the view that the services received by the appellant from abroad do not fall within the taxable service category of ‘Management Consultancy Services' but was classifiable under ‘Business Support Services' and, therefore, the appellant was not eligible to avail CENVAT Credit of the Service Tax paid on such services under Rule 6(5) of the CENVAT Credit Rules.

Accordingly to the department, there was a 20% cap for availing CENVAT Credit in respect of ‘Business Support Services' during the material time and the credit entitlement was only to the extent of Rs.3.66 crores as against the credit actually taken of Rs.18.34 crores and, therefore, the appellant was liable to reverse the ineligible credit of Rs.14.67 crores.

In adjudication proceedings, the CST, Mumbai-II confirmed a demand of Rs. 9.13 Crores [Rs.7.12 crores for the period 01.05.2006 to 31.03.2008 & Rs.2.01 Crores for the period 2008-09] and imposed penalties and interest.

Before the CESTAT the appellant submitted that the appellant company M/s Federal Express Corporation and the branch office of the said company in various countries including India, which covers the appellant, entered into a service agreement with M/s Federal Express European Services Incorporation on 1.6.2000. As per the said agreement M/s Federal Express European Services Incorporation provided services stipulated in Exhibits-II to XV to the said Agreement. The services provided included:-

(a) Sales Planning, Training and Communication

(b) Marketing and Advertising

(c) Financial and Management Accounting Services

(d) Legal services

(e) Information & Telecom services

(f) Human Resources and Training

(g) Procurement

(h) Global trade services

(i) Customer service

(j) Planning & Engineering

(k) Revenue Support

(l) Security

(m) GOCC

(n) Sub Regional Services

It was further submitted that these services were categorized as ‘Headquarter Management Services' broadly. For the services received by the branch office in India, which is the appellant, the consideration paid by the parent company was debited from the accounts of the branch office. Thus the services received by the appellant is correctly classifiable under ‘Management Consultancy Services'.

Reliance is placed on the Board Circulars No. 1/1/2001-ST dated 27.6.2001, No. 334/4/2006-TRU dated 28.2.2006 and the Tribunal decision in RPG Enterprises Ltd. Vs. Commissioner of Central Excise, Mumbai-IV - (2008-TIOL-643-CESTAT-MUM) to submit that the services rendered would be covered under the category of Management Consultancy Services and they are, therefore, rightly eligible for CENVAT Credit.

One more submission was made by the appellant and which is -

"(iv) … that even if it is held that the services received by them falls under the category of Business Support Services, the 20% cap prescribed for availing of CENVAT Credit was lifted on 1.4.2008 and the assessee could have utilized the entire credit thereafter. In case the assessee had utilized the credit for discharging of tax liability, what can be demanded from them is only interest portion on the wrongly utilized credit as clarified by the CBE&C vide Circular No. 137/72/2008-CX.4 dated 21.11.2008. It is also their contention that vide letter dated 30.4.2008, they had opted for availing credit on proportionate basis in respect of the input service credit attributable to dutiable products and intimated the same to the department for exercising the option."

The Revenue representative submitted that the services received by the appellant was only relating to information for tracing of delivery schedules, managing distribution and logistics, accounting and processing of transactions and these are correctly classifiable under the category of ‘Business Support Services' and, therefore, the appellant was not eligible for availing 100% CENVAT Credit during the impugned period and hence the demand is sustainable in law.

The Bench referred to the agreement and observed that the services received by the appellant were more appropriately classifiable under the category of Management Consultancy Services. Adverting to the Board Circular No.1/1/2001-ST dated 27.6.2001 and the CESTAT decision in RPG Enterprises Ltd. Vs. Commissioner of Central Excise, Mumbai-IV - (2008-TIOL-643-CESTAT-MUM), the Bench held that the classification proposed by the Revenue of the services received by the appellant under the category of Business Support Services is not sustainable in law.

It was further observed as under -

"5.2 As regards the demand for the period 2008-09 amounting to Rs.2,01,50,952/-, we find that this demand is unsustainable in law. The cap of 20% on the utilisation of CENVAT Credit under Rule 6(3)(c) of the CENVAT Credit Rules, 2004 was lifted on 1.4.2008. From 1.4.2008 onwards, the appellant had the liberty to reverse Service Tax credit attributable to exempted services on a proportionate basis, which the appellant had done in the in the instant case vide letter dated 30.4.2008 submitted to the department. Inasmuch as the appellant had reversed the credit attributable to exempted services, they cannot be saddled with the liability to pay amount equal to 8% of the value of the exempted services. Therefore, there is merit in the contention of the assessee that what can be demanded from them in case of any excess availment for the period prior to 1.4.2008 is only interest on the excess credit availed in terms of Circular dated 21.11.2008 issued by the Board. Accordingly, we set aside the demand for Rs.2,01,50,952/- confirmed in the impugned order and if the appellant had availed any excess credit for the period prior to 1.4.2008 in excess to 20% cap and what can be recovered from them is on the excess Service Tax credit availed and liability, if any, should be restricted to this amount only."

In fine, the appeal was allowed.

In passing: Any "interesting" revenue appeal pending?

(See 2013-TIOL-1137-CESTAT-MUM)