2011 (3) TMI 248 - HC - Service Tax

Restrictive versus expansive reading of 'input service' limits service tax credit for post-removal transport after amendment

HC held the definition of 'input service' must be read restrictively where the statute uses 'means' and expansively where it uses 'includes.' Outward ... Scope of 'input service' under Rule 2(1)(ii) - output transportation - services availed by a manufacturer for outward transportation of final products from the place of removal - meaning of the word 'activities relating to business' - definition of 'place of removal' - Held that:- The definition of 'input service' contains both the word 'means' and 'includes', but not 'means and includes' - The portion of the definition to which the word means applies has to be construed restrictively as it is exhaustive. However, the portion of the definition to which the word includes applies has to be construed liberally as it is extensive. The exhaustive portion of the definition of 'input service' deals with service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products. The phrase 'activities relating to business' is an omni-bus one and it finds a place in the inclusive definition. The question is, by a judicial interpretation, outward transportation of the final product from the place of removal till it is delivered to the customer, could be construed as falling within the definition of 'input service'. It is a well settled rule of interpretation that, while interpreting a provision, the Court must take note of not only the express words used but also the words which are not used. If the legislature has expressly used the words 'in respect of the transportation' in a particular manner and did not choose to include within the ambit of the word 'transportation', certain aspects, having regard to the scheme of the Section, the way it is worded, it is not open to the Court to include something which the legislature deliberately did not include in the definition. When a specific provision is made in the first part of the definition portion of the Cenvat Rules which refers to 'clearance of final products from the place of removal' and in the second part (inclusive) of the definition when the phrase used is 'activities relating to business such as', merely because in that portion of the definition either transportation charges is not included or service rendered for clearance of final products is not included, it is impermissible to read those words as in the earlier portion of the definition, it is specifically provided for. It is a well known rule of interpretation that when the statute uses words and phrases in a particular section, meaning has to be given in each of those sections. By notification No.10/2008-C.E.(N.T.) dated 1.3.2008, the words 'clearance of final products upto the place of removal' were substituted in the place of the words 'clearance of final products from the place of removal'. The intention of the legislature is thus manifest. Till such amendment, the words 'clearance from the place of removal' included transportation charges from the place of removal till it reached the destination, namely the customer. Therefore, the said input service was included in the early part of the definition 2(1)(ii). – Credit of service tax paid on outward transportation allowed prior to 1.4.2008 Issues Involved:1. Definition and interpretation of 'input service' under Rule 2(1)(ii) of the CENVAT Credit Rules, 2004.2. Eligibility of CENVAT credit on service tax paid for outward transportation of finished goods beyond the place of removal.3. Applicability of the definition of 'place of removal' from the Central Excise Act, 1944 to the CENVAT Credit Rules, 2004.4. Impact of amendments to the CENVAT Credit Rules effective from 1.4.2008 on the interpretation of 'input service'.Issue-wise Detailed Analysis:1. Definition and Interpretation of 'Input Service':The core issue revolves around whether services availed by a manufacturer for outward transportation of final products from the place of removal should be treated as 'input service' under Rule 2(1)(ii) of the CENVAT Credit Rules, 2004. The Tribunal held that the definition of 'input service' must be interpreted in light of business requirements and should not be read restrictively. The Tribunal concluded that services availed for outward transportation from the place of removal qualify as 'input service,' thus allowing manufacturers to claim credit for the service tax paid on such services.2. Eligibility of CENVAT Credit on Outward Transportation:The authorities argued that the assessee was not entitled to avail credit for service tax paid on outward transportation of finished goods beyond the place of removal. They contended that such transportation does not qualify as 'input service' under the CENVAT Credit Rules, 2004. However, the Tribunal disagreed, stating that outward transportation services from the place of removal are integral to the business and thus qualify as 'input service.'3. Applicability of the Definition of 'Place of Removal':The learned Additional Solicitor General of India argued that the term 'place of removal' as defined under Section 4 of the Central Excise Act, 1944, should apply to the CENVAT Credit Rules, 2004. The Tribunal, however, noted that the definition in the Central Excise Act is confined to Section 4 for valuation purposes and should not be applied restrictively to the CENVAT Credit Rules. The Tribunal emphasized that the definition of 'input service' includes services used in relation to the clearance of final products from the place of removal, thus encompassing outward transportation.4. Impact of Amendments Effective from 1.4.2008:The Tribunal observed that the words 'clearance of final products from the place of removal' were substituted with 'clearance of final products up to the place of removal' effective from 1.4.2008. This amendment clarified that transportation charges from the place of removal to the customer's destination were included in the definition of 'input service' until the amendment. The Tribunal concluded that the interpretation of 'input service' should include outward transportation services up to the place of removal, aligning with the legislative intent before the amendment.Conclusion:The High Court upheld the Tribunal's order, affirming that outward transportation services from the place of removal qualify as 'input service' under the CENVAT Credit Rules, 2004. The Court emphasized that the definition must be interpreted in light of business requirements and should not be read restrictively. The Court also acknowledged the impact of the 1.4.2008 amendment, which clarified the scope of 'input service' concerning outward transportation. The substantial questions of law were answered in favor of the assessee, affirming their entitlement to CENVAT credit for service tax paid on outward transportation services.