By TIOL News Service

NEW DELHI, MAY 08, 2014: THE dispute in the present appeal relates to availability of CENVAT credit of service tax paid on renting of premises, which premises the appellant has taken for their job worker.

Service Tax paid of Rs.4,19,467/- [on account of ‘Renting of Immovable Property'] and availed as credit during the period November 2007 to September 2009 stands denied to the appellant by the lower authorities along with imposition of penalty of identical amount.

As per the appellant the job worker was earlier working from their premises and on account of shortage of space, he was provided a separate rented premises along with the machinery etc. Furthermore, the job worker is exclusively doing the job for the company. According to the appellant, the use of the rented premises is for furtherance of their business and is covered by the definition of input services.

It is the Revenue contention that job worker is an independent entity and has entered into an agreement with the appellant and, therefore, he cannot be held to be an extended arm of the appellant.

The CESTAT observed -

++ Admittedly, the appellant is under no legal obligation to provide rented premises to the job worker. He has also entered into an agreement with the job worker for undertaking the job work.

++ The raw materials moved to the job work premises and after processing were returned to the appellants' factory under the job work challans. Full procedure for movement of the goods is being followed by both the persons i.e. the appellant has also the job worker. This fact establishes that job worker is an independent person working on principal to principal basis with the manufacturer.

++ If that be so, can the expression in ‘relation to business' be extended to such an extent so as to include the activities at the end of an independent person as having relation to the appellants' business. The answer would be a clear NO.

++ Admittedly the business of any person is dependent or associated with the business activities of alliance/other connected persons. If the activities at the job workers end are considered to be activities related to the appellants' business, there would be no end to the stretching of the said expression and the links in the chain would keep on increasing.

++ Viewed from the other side, if the rent of the premises occupied by job worker is paid by him only, whether the appellant would be entitled to avail the credit of the service tax paid on the same? Admittedly not, the appellant has extended the facility of the rented premises to its job worker out of his own sweet will. Such extended facility, along with installation of the machines would definitely have impact on the quantum of the job charges being charged by the job worker.

++ Merely because the appellant has chosen to provide rented premises to his job worker, it cannot be said that such a facility extended to the job worker is associated with the appellants' business and is covered by the definition of input services.

Accordingly, it was held that there was no merit in the contention of the appellant for availment of credit of tax paid on the renting activity.

In the matter of limitation, the Bench observed that the appellant was reflecting the credits taken in their statutory records as also in the returns filed with the department. Further the issue involved is also a bonafide dispute on interpretation of law and does not involve any clandestine activities and, therefore, no suppression, mis-statement or mala fide intention can be attributed to the appellant so as to justifiably invoke longer period of limitation.

The demand was held to be barred by limitation and the lower authority was directed to quantify the demand for the normal period.

Holding that the issue involved is bonafide legal issue and does not reflect upon any malafide intention on the part of the appellant, the penalty was set aside.

The Appeal was disposed of in above terms.

In passing : Also see 2014-TIOL-40-CESTAT-MUM.

(See 2014-TIOL-732-CESTAT-DEL)