CENVAT - Services of merger has no relation with manufacture - Even if order goes beyond the SCN, same is not an error of a kind which can be rectified by a ROM application: CESTAT
By TIOL News Service
MUMBAI, JAN 16, 2018: THE facts of this interesting case go thus –
In audit, objections were raised in respect of service tax credit taken by the appellants.
The first objection related to CENVAT credit availed in respect of certain services obtained for handling a case on family settlement.
Another objection raised was in respect of credit availed on certain services relating to the issue of merger with two other companies.
As regards the first charge, the appellant reversed the credit.
Later, a SCN came their way demanding reversal of CENVATcredit amounting to Rs.4,53,818/- holding the same to be services utilised for purpose of family settlement.
In adjudication process, CENVAT credit of Rs.1.64 lakhs was allowed and demand of Rs.2,89,018/- was upheld as service tax paid towards services received for family settlement.
It is not known whether Revenue has filed an appeal against the portion of the order which was not in their favour.
However, the assessees appeal was rejected by the Commissioner(A) and, therefore, the yare before the CESTAT.
It is submitted that the proceedings wrongly held that the said services were used for the purpose of family settlement. The invoice under which the said credit was taken was produced before the CESTAT and which described the services as –
"Being professional services rendered for advise in realigning group structure & assistance in implementing the same vide LOE dated November 23,2011."
The said LOE, paragraph 1 of the same reads-
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1. Background
S.H. Kelkar & Co. Private Ltd. was incorporated on 1st day of July 1955 under the provisions of Indian companies Act, VII of 1913 under the name and style of S.H. Kelkar & Co. Limited. Further, with effect from 18th May 2001, the name of the Company was changed to S.H. Kelkar & Co. Private Limited under the provisions of Companies Act, 1956. SHK is engaged in the business of Flavours and Fragrances and has its registered office at Devkaran Mansion, 36, Mangaldas Road, Mumbai, Maharashtra.
The Management of the Company now contemplates to acquire the business of Tridhaatu Estates Private Limited and Amerigo Holdings & Investment Private limited to expand its commercial objective by way of merger.
In view of this background, the Company has approached KPMG to advise on alternative structures in this respect from tax and regulatory perspective and also assist them from a tax and regulatory perspective in the implementation of the Companies selected.
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The appellant pointed out that from the above it was evident that the said services were obtained not in respect of family settlement but for restructuring in the shape of merger.
The Bench enquired as to under what head of the definition of input services would these services be covered, to which the appellant pointed out that the services obtained in April 2007 would be covered under legal, accounting, financing services.
The AR reiterated the findings in the impugned order.
The Bench noted that the said services have been used for the purpose of merger with other companies.
After extracting the definition of Input service, rule 2(l) of the CCR, the CESTAT observed –
"8. It is seen that the services of merger has no relation with the manufacture. It is seen that the para 4 of the show-cause notice clearly alleges that the said services does not qualify as input services under Rule 2(l) of the Cenvat Credit Rules. The said service relates to corporate restructuring and is not specifically covered under any of the heads of input services. The ld. Counsel had suggested accounting, financing or legal services. I do not find any merit in the said assertion. The said was neither accounting nor financing or legal in any manner. Thus the said services do not qualify to an input service."
Consequently, the appeal was dismissed. See order dated 19.09.2017 - 2018-TIOL-219-CESTAT-MUM.
Interestingly, the demand raised in respect of credit availed on certain services relating to the issue of merger with two other companies was dropped by the adjudicating authority.
Be that as it may, the appellant is again before the Tribunal with an application for rectification of mistake in the subject order.
It is argued that the order goes beyond the charges leveled in the SCN and, therefore, there has been a mistake apparent on record.
The Single Member Bench observed –
"4. I have considered the arguments of the Counsel. I do not find that the order goes beyond scope of show-cause notice. Moreover, if even if it goes beyond the scope of show-cause notice, the same is not an error of a kind which can be rectified by an ROM. The application is dismissed."
(See 2018-TIOL-220-CESTAT-MUM)
