By TIOL News Service

BANGALORE, MAR 28, 2016: THE appellant is output service provider and discharging service tax liability; they have their Head Office at Mumbai and registered with the department as ISD; the CENVAT credit availed or service tax is discharged by the service providers. The appellant had raised the plea before the adjudicating authority that the services on which service tax is paid and CENVAT credit is availed is in respect of the expansion of the business undertaken.

The issue involved in this case is whether the appellant has correctly availed CENVAT credit or otherwise in respect of the service tax paid on the services received by their Head Office in respect of the disinvestments undertaken.

The Tribunal observed,

It is seen from the records that the CENVAT Credit availed by the appellant is in respect of the service tax paid by various service providers who had rendered the services of advise, procedural issue as to raising the finance by pledging of the shares on behalf of the appellant for borrowing from IDFC Ltd.; advisory service provided in relation to divestment of stakes in Indus Ind Telecom Network Ltd.; advisory services provided for acquisition of shares in a company; advisory services provider for disinvestment of stakes owned by the appellant and its subsidiaries in various entities and syndication fee for arranging loan of Rs.200 crores to appellant.

It can be seen from the above reproduced services which were received by the appellant were in respect of raising of finance for the expansion of the business of the appellant. This specific plea taken by the appellant before adjudicating authority has not been controverted in the impugned order which would mean that the adjudicating authority has accepted that the appellant had embarked upon expansion of the business. It is to be recorded that for expanding any business, there is always requirement of working capital which needs to be raised by the assessee and in this case, it is undisputed that the appellant had raised such finances by investment and divestment and disinvestment of the business interest they had in various entities.

The plain reading of the definition of input services would indicate that the activities relating to business which is in the second portion of the definition includes the activity of financing which would mean that if an assessee pays service tax for the various services received by them for raising the finance, CENVAT credit can be availed. In our considered view, the CENVAT credit availed by the appellant or service tax paid cannot be disputed. In yet another angle, it has to be noted that the CENVAT credit which is availed by the appellant is in respect of the distribution of the service tax by their Head Office as input service distributor. We find nothing on record to indicate that Head Office of the appellant was issued a show-cause notice denying them such CENVAT credit. In the absence of any doubt raised as to the eligibility to avail the CENVAT credit at their Head Office, the recipient unit, cannot be asked to explain the nexus of such credit to the output service provided by them. In our considered view, and is undisputed that the amounts so raised by the appellant by disinvestment, investment, etc., were recorded in their financial account towards the expansion of the business activity undertaken by the appellant.

In our considered opinion, the expansion of the business activity is directly connected with the activity of the service provided by the appellant to their service recipient which is nothing but the correlation to the business undertaken by the appellant.

The Tribunal also held:

CENVAT credit can be availed on the invoices raised by the ISD for the services received prior to the registration of the Head Office as an Input Service Distributor .

(See 2016-TIOL-728-CESTAT-BANG)