By TIOL News Service

NEW DELHI, OCT 22, 2016: THE appellant is a manufacturer as well as a service provider and is registered with the department.

They have maintained a common CENVAT account in which credit on inputs, capital goods as well as services availed have been taken. They undertook Turnkey projects for power distribution companies which included supply of goods - part of which was manufactured by them and partly bought out - and also for provision of services. The distribution companies have entered into separate supply and services agreement.

For procuring orders from the DISCOMS the appellant availed services of commission agents. They also availed insurance services for the goods and services supplied to DISCOMS. They availed CENVAT credit of the service tax paid on the commission agent services as well as insurance services.

Revenue entertained a view that the availment of CENVAT credit on these two services was improper.

The adjudicating authority ordered recovery of the credit of Rs.1,32,69,499/- availed during the period April 2006 to December 2007.

Before the CESTAT, the appellant inter alia submitted that both the services are input services as they satisfy the definition of rule 2(l) of CCR, 2004; credit available in the common pool can be used either for payment of excise duty or for payment of service tax; FAQ of December 2008 issued by DGST, para 12.1 endorses this view and so also the Board clarification F. No. 381/23/2010/862 dated 30/03/2010is on similar lines. Case laws were also cited in this regard viz. 2015-TIOL-2490-CESTAT-AHM; 2011-TIOL-700-CESTAT-MAD; 2011-TIOL-2043-CESTAT-MAD; 2014-TIOL-2196-CESTAT-MAD; 2013-TIOL-1512-CESTAT-MUM.

The AR justified the demand.

After considering the submissions made by both sides, the Bench extracted the definition of 'input service' [rule 2(l)], rule 3(4) of CCR, 2004 and observed -

++ Credit has been availed by the appellant on commission agent services as well as insurance services. The commission agent services have been used by the appellant for procurement of Turnkey orders from DISCOMS. Since part of such orders is for supply of goods manufactured by the appellant and the other part is for supply of services, such services qualify as input service. This view is also supported by several decisions. Similarly insurance services availed for the goods and services would also be eligible as input service. [Ambika Overseas - 2011-TIOL-951-HC-P&H-ST refers]

++ The scheme of CENVAT credit does not require segregation of the credits availed in terms of whether such input/input services or utilized for the manufacture of final products are used for rendering output service. This specific issue has been clarified time and again by CBEC. In the FAQ clarified by DGST, it has been mentioned that CENVAT credit may be utilized for payment of service tax on output services in addition to discharging the Central Excise duty liability on finished products. On the question of cross utilization of credit on inputs and input services, CBEC in Circular No. 381/23/2010/862 dated 30/03/2010, has clarified that the CENVAT credits on inputs/ capital goods and input services which are used for manufacture of goods or for provision of services is available in a common pool and can be used for payment of excise duty and/or service tax. The only caveat is that the input credit should be properly availed as prescribed under the CENVAT Credit Rules. [Case laws cited by appellant relied upon]

++ Credits have been properly availed on input services. Hence, there is no legal basis in the impugned order to restrict the CENVAT credit to the extent of the service portion of the erection, commissioning and installation service contract executed by the appellant. There is no bifurcation in the commission agent agreement regarding supply of goods and supply of services. Thus the entire quantum of the service tax paid by the commission agent is entitled as credit to the appellant.

The impugned order was set aside and the appeal was allowed.

(See 2016-TIOL-2756-CESTAT-DEL)