2013 (4) TMI 44 - HC - Service Tax

CENVAT Credit Allowed on Input Services for Storage Tanks Outside Factory Premises Under Rule 2(l)

M/s. Deepak Fertilizers and Petrochemicals Corporation Ltd. Versus The Commissioner of Central Excise

HC held that CENVAT credit is admissible on input services used for setting up storage tanks located outside the factory premises if such services are ... Cenvat Credit - Input Service for setting up of storage tanks - Held that:- Rule 3(1) allows a manufacturer of final products to take credit inter alia of service tax which is paid on (i) any input or capital goods received in the factory of manufacturer of the final product; and (ii) Any input service received by the manufacturer of the final product. Tribunal was not justified in holding that the Appellant would not be entitled to avail of CENVAT credit in respect of services utilized in relation to ammonia storage tanks on the ground that they were situated outside the factory of production. The definition of the expression 'input service' covers any services used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products. The words 'directly or indirectly' and 'in or in relation to' are words of width and amplitude. The subordinate legislation has advisedly used a broad and comprehensive expression while defining the expression 'input service'. Rule 2(l) initially provides that input service means any services of the description falling in sub clause (i) and (ii). Among those services are services pertaining to the procurement of inputs and inward transportation of inputs. The Tribunal, proceeded to interpret the inclusive part of the definition and held that the legislature restricted the benefit of CENVAT credit for input services used in respect of inputs only to these two categories viz. for the procurement of inputs and for the inward transportation of inputs. This interpretation which has been placed by the Tribunal is ex facie contrary to the provisions contained in Rule 2(l). The input services in the present case were used by the Appellant whether directly or indirectly, in or in relation to the manufacture of final products. The Appellant, it is undisputed, manufactures dutiable final products and the storage and use of ammonia is an intrinsic part of that process - in favour of assessee. ISSUES: Whether the Appellate Tribunal was correct in denying credit of service tax paid on input services used for setting up storage tanks related to manufacturing.Whether services used in relation to storage of inputs located outside the factory premises are eligible for CENVAT credit. RULINGS / HOLDINGS: The Tribunal's denial of CENVAT credit on input services for storage tanks situated outside the factory was not justified, as Rule 3(1) does not restrict credit of input services to those received within the factory premises.Services used by the manufacturer 'whether directly or indirectly, in or in relation to the manufacture of final products' are eligible for credit, regardless of the physical location of the storage facility outside the factory.The Tribunal's interpretation limiting input services credit only to procurement and inward transportation of inputs is contrary to the plain and literal meaning of Rule 2(l) and is therefore unsustainable. RATIONALE: The Court applied Rule 3(1) of the CENVAT Credit Rules 2004, which distinguishes between inputs or capital goods and input services, allowing credit for input services received by the manufacturer without requiring physical receipt within the factory.Rule 2(l) defines 'input service' broadly to include any service used 'directly or indirectly, in or in relation to the manufacture of final products,' with an inclusive list of examples but not an exhaustive limitation.The Court rejected the Tribunal's narrow interpretation that restricted credit only to services related to procurement and inward transportation of inputs, emphasizing the 'words of width and amplitude' in the definition.The decision reflects a strict adherence to the plain language of the subordinate legislation without extending limitations not expressly provided therein.