Services With Direct Or Indirect Relation To Output Service Qualify As Input Services: CESTAT New Delhi

The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) recently held that services such as common area maintenance, vending machine operations, and travel agent services qualify as “input services” under Rule 2(l) of the CENVAT Credit Rules, 2004, in the case of a company providing taxable services including manpower supply, rent-a-cab, business auxiliary, and legal consultancy services.

The tribunal held that such services have an indirect nexus with the provision of output services, and CENVAT credit cannot be denied on that ground.

Judicial Member Dr. Rachna Gupta observed that the definition of input service under the Rules is not confined to services having a direct nexus with the output service, and noted that,

"Any service to fall under this said definition should have a direct or indirect relation to the manufacture of final products and clearance thereof, upto the place of removal or to the Output Service.The perusal also makes it clear that the definition is categorized with an inclusion clause. Hence, all the services mentioned specifically under the said inclusion clause are the eligible input services. There is an exclusion clause also to specifically exclude certain taxable service as are mentioned in the said clause. Apparently, the services in question are neither covered under the inclusion clause nor under the exclusion clause.”

The order was passed in the case of Forrester Research India Private Limited, which is registered with the Service Tax Department for providing various taxable services, including rent-a-cab operator service, manpower supply agency service, business auxiliary service, and legal consultancy.

The company had filed refund claims of Rs 1,54,823 in respect of common area maintenance, vending machine, photography and travel agent services, along with a claim of Rs 11,60,206 relating to export of services.

The department denied the refund, holding that the services did not have the required nexus with the output services provided by the appellant and further alleged that the appellant and its foreign affiliate, FRLON, could not be treated as distinct persons, and therefore the transactions could not be treated as export of service.

The tribunal held that the definition of input service under Rule 2(l) is wide enough to include services having even an indirect nexus with the provision of output services. It observed that maintenance of business premises, employee facilitation services such as vending machines, and travel arrangements are necessary for efficient business operations, and absence of such services would adversely affect the quality and efficiency of the services provided.

The bench held that common area maintenance service, vending machine service and travel agent service were used in relation to the provision of output services and were therefore eligible input services, and denial of refund of CENVAT credit on this ground was not sustainable.

On the issue of the export of services, the tribunal rejected the Department's contention that the appellant and its foreign affiliate were not distinct persons, noting that both are separately incorporated companies and the mere fact that they belong to the same group or have a common director does not make them the same entity.

The tribunal held that the services provided by the appellant to its overseas affiliate satisfy the conditions of export under Rule 6A of the Service Tax Rules, 1994, and observed that,

“appellant/service provider is in India, whereas FRLON, the service recipient is located in non-taxable territory, irrespective both being the holding companies, the service provider is in compliance of Rule 6A(f) of the Service Tax Rules, 1994. The transaction between the two, therefore, amounts to Export of Service.”

In view of these findings, the tribunal set aside the impugned orders and allowed the appeals, holding that the appellant is entitled to a refund of the CENVAT credit along with consequential relief.

For Appellant: Advocate Atul Ninawat

For Respondent: Kuldeep Rawat, authorised representative