Imposition of service tax with penalties by commissioner, upheld by Tribunal.

1. This is an appeal filed by M/s. Telco Construction Equipment Company Ltd. (TCECL for short) Dharwad impugning an order of the Commissioner of Central Excise & Customs, Belgaum vide which he disallowed and demanded an amount of Rs. 2,22,35,165/- availed by the appellant as credit of Service Tax paid on various input services during the period October, 2006 to March, 2008 along with applicable interest and imposed penalties of Rs. 2,000/- for each credit entry in the CENVAT Account under Rule 15(3) of the CENVAT Credit Rules, 2004 (CCR) in respect of each of the two showcause notices decided. Tribunal held as under,

2. I find that the decision in the case of Coco Cola analyses the definition of input services in 5 limbs and holds that each limb of the definition of input service can be considered as providing an independent benefit or concession or exemption. One of the limbs considered related to services used in relation to activities relating to business . However, the scope of the term activities relating to business was not spelt out in the said decision. However, the latter decision of the Honble High Court of Bombay, Nagpur Bench in the case of Ultratech Cement Ltd. has dealt with the scope of the said phrase and held as under :

3. The expression activities in relation to business in the definition of input service postulates activities which are integrally connected with the business of the assessee. If the activity is not integrally connected with the business of the manufacture of final product, the service would not qualify to be a input service under Rule 2 (l) of the 2004 es.

4. It is also relevant to note that the decision in the case of Ultratech Cement Ltd. has been rendered after considering the decision in the case of Coca Cola case (Paragraphs 37 & 38).

5. It is further noticed that the Honble High Court of Bombay in the case of Manikgarh Cement has also interpreted the expression relating to business and held as under :

“However to qualify as an input service, the activity must have nexus with the business of the assessee. The expression relating to businessin Rule 2 (l) of CENVAT Credit Rules, 2004 refers to activities which are integrally related to the business activity of the assessee and not welfare activities undertaken by the assessee.

6. On the other hand, a close perusal of the decisions relied upon by the learned advocate for the appellant, reveals that the said decisions did not interpret the expression „relating to business?.

7. In view of the above, the appellant should be required to establish integral connection between the service and the business of manufacture of final product for the benefit of CENVAT credit on the service as held by the learned Member (Judicial) relying on the Honble High Courts judgement in the case of Ultratech Cement Ltd.

8. The above requirement should also be met in respect of the five services mentioned in para (a) of points of differences.

9. In view of the above, I prefer to concur with the opinion of the Honble member (Judicial) on both the points.

10. The file is returned to the regular Bench for final decision in view of the foregoing findings.