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Vinay Jain, Chartered Accountant, & Sachin Mishra, Advocate

1. Whether a show cause notice can be issued to Input Service Distributor for recovery of CENVAT credit distributed to manufacturing units?

Facts & pleadings: Mahindra & Mahindra Ltd. (hereinafter referred to as ‘Appellant’) is a head office of various manufacturing units and also registered as Input Service Distributor (herein after referred to as ‘ISD’). Input service credit was distributed to all the registered units by the Appellants including credit pertaining to Haridwar unit which was engaged in manufacturing of exempted goods.

The case of the department is that the total credit was distributed to all the registered units whereas the Haridwar unit is exempted from payment of excise duty. Therefore, the credit attributed to the Haridwar unit is not admissible and should not have been distributed. Accordingly, the demand was raised under Rule 14 from the appellant, who is Input Service Distributor.

The appellant submitted that they are only an Input Service Distributor in the terms of Rule 7 of CENVAT Credit Rules, 2004. The appellant referred to Central Board of Excise and Customs (CBEC) Clarification issued vide F. No. 137/68/2013-ST dated 10-3-2014 wherein it was clarified that recovery under Rule 14 can only be from the manufacturer or Service Provider and that there is no provision for issuing a show cause notice to Input Service Distributor. In the present case, the appellant is neither availing the CENVAT credit, nor utilised the same. Therefore, the recovery of wrong availment of credit if any cannot be made against the Appellant i.e. ISD.

Judgment: - The Hon’ble CESTAT was of considered view that the Appellants as an ISD have not taken/utilised any credit. The Appellants has merely distributed the input service credit. The credit was taken by various manufacturing units of the appellants. Further, Rule 14 of CCR, 2004 can be made applicable only on the person who avails the CENVAT wrongly and utilizes the same. The Hon’ble CESTAT has held that the demand raised on appellant being an Input Service Distributor is not sustainable in law.

M/s. Mahindra & Mahindra Ltd. vs. CST, Mumbai; CESTAT, Mumbai decided on 29-5-2017 vide Final Order No. A/87950-87957/17/STB

M/s. Mahindra & Mahindra Ltd.

2. Whether turnover of onsite services provided by the overseas branches will form part of the export turnover/total turnover for the purpose of calculation of refund under Rule 5 of the CCR, 2004?

Facts & pleadings: Zensar Technologies Ltd. (hereinafter referred to as ‘respondent’) has numerous overseas branches. These overseas branches are inter alia engaged in providing services to foreign clients of the Respondents. While applying for refund under Rule 5 of the CCR, 2004, the respondents had not included the value of such services provided by these overseas branches in the value of their export turnover as well as in their total turnover.

During adjudication of the said refund under Rule 5 of the CCR, 2004, the Adjudicating Authority excluded the said turnover of the services provided by the overseas branches in the export turnover and then added the same in the total turnover of the respondent. Subsequently, the Commissioner (Appeals) set aside the said findings of the Adjudicating Authority and held that once the value of services provided by a foreign branch is found liable to be excluded from ‘export turnover’ of the appellant, the said value will have to be excluded from the value of ‘total turnover’ also.

Judgment: - The Hon’ble CESTAT concurred with the findings of the Commissioner (Appeals) and held that once the revenue itself has admitted that service provided from the branch office of overseas is not includible in the export turnover on the footing that the services are provided by branches, the same principle has to be applied with regard to total turnover. Accordingly, the value of the services provided by the branch offices cannot be added in the total turnover under Rule 5 of the CCR, 2004.

CCE, Pune vs. Zensar Technologies Ltd.; CESTAT, Mumbai decided on 30-5-2017 vide Final Order No. A/87576-87580/17/EB.

Zensar Technologies Ltd.

3. Whether service tax can be levied in respect of consideration received for putting up machinery/storage facilities in furtherance of manufacture and sale of various types of industrial gases?

Facts & pleadings: Air Liquide North India Pvt. Ltd. (hereinafter referred to as ‘Appellants’) are engaged in the manufacture and sale of various types of industrial gases. In respect of some of the clients they have also entered separate agreements to provide certain plant and machinery or mostly, gas storage facilities along with necessary accessories. For providing such supply and installations, the appellants are getting consideration termed as ‘facilities service charges’/ ‘rental charges’/ ‘facility fees’.

The Revenue was of the view that such charges collected by the appellant shall be liable to service tax as the said activity amounts to Infrastructural Support Services covered under tax entry ‘Business Support Service’ brought w.e.f. 1-5-2006.

The appellant submitted that the scope of Infrastructure Support Service as mentioned under tax entry ‘Business Support Service’ will not cover the present case. Firstly, the appellants are paying VAT on such transaction treating the same as ‘transfer of right to use goods’ i.e. deemed sale. Secondly, the category of ‘Infrastructure Support Service’ cannot be read in isolation to the main category of ‘Business Support Services’. Infrastructural support service is used along with various other types of activities like telemarketing, processing of purchase orders, etc. These are basically in the nature of outsourced services. Further, the explanation in the tax entry clearly stipulates that nature of activities which are generally considered as ‘infrastructural support service’ are mainly administrative and office related support. The types of activities undertaken by the appellants like putting up and managing gas storage facility in industrial unit are not fitting into overall scope of ‘Infrastructural Support Services’. Therefore, the demand under ‘Business Support Services’ is not sustainable.

Judgment: - The Hon’ble CESTAT agreeing with the contention of the appellants held that though the activities of the appellant, can be brought under very generic understanding of infrastructure support, when examined with statutory scope as per explanation indicating nature of services which are to be brought under tax net then it would appear that the present activity will not get covered under the ‘Infrastructural Support Services’. Further, as the appellants have already discharged sales tax on the said transaction, Hon’ble CESTAT has set aside the said impugned orders.

M/s. Air Liquide North India Pvt. Ltd. vs. C.C.E. Jaipur; CESTAT New Delhi, decided on 8-6-2017 in Final Order No. 53734-53737/2017.

M/s. Air Liquide North India Pvt. Ltd.

Note: The Whole Decisions can be downloaded from the CTC Website www.ctconline.org under Knowledge Centre.

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