Nexus should be established between services rendered and business carried on - Landmark Bombay High Court Judgement.
Is Maruti Suzuki being correctly interpreted?
THE 'across the board' credit of service tax and excise duty has created enough work for the consultants and hundreds of cases are pending in various stages of adjudication and appeal.
Credit of service tax paid on Mobile phones, Outdoor catering, Gardening and landscaping, Services used in residential colonies belonging to the factory, mediclaim policies - well these are some of the dispute areas and Show Cause Notices are being issued merrily and are being adjudicated this way or that.
The whole confusion starts with the definitions.
Inputs are to be used in or in relation to the manufacture of final products.
Input Service includes activities relating to business .
Normally all the commercial activities of a manufacturer will be relating to his business and so he should be allowed Credit. I used to argue that even if you send your receptionist to the beauty parlour, the credit is admissible.
As the dispute was going on merrily, last year the Supreme Court delivered a judgement in Maruti Suzuki Ltd. Vs . Commissioner of Central Excise, Delhi - , wherein it was held that inputs falling in the inclusive part must have nexus with the manufacture of the final product .
The Supreme Court was dealing only with inputs and not input services – and there is a difference. Now this nexus is being imported to input services . Though the Supreme Court was dealing with inputs and not input services, credit is being denied following Maruti Suzuki.
The Bombay High Court in a judgement delivered last week held establishing a residential colony for the employees and rendering taxable services in that residential colony may be a welfare activity undertaken while carrying on the business and such expenditure may be allowable under the Income Tax Act. However, to qualify as an input service, the activity must have nexus with the business of the assessee. The expression 'relating to business' in 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.
We bring you this landmark case today. Please see Breaking News.