2013 (4) TMI 44 - HC - Service Tax

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

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 - manufacturer of final products - received by the manufacturer - directly or indirectly / in or in relation to the manufacture - inclusive definition - storage as part of manufactureCENVAT credit - input service - storage as part of manufacture - Appellant entitled to CENVAT credit of service tax paid on input services used for setting up ammonia storage tanks installed outside the factory where the stored input is intended for use in manufacture. - HELD THAT: - Rule 3(1) distinguishes between (i) inputs or capital goods received in the factory and (ii) input services received by the manufacturer. The latter contains no requirement that the service be received within the factory. Rule 2(l) defines 'input service' to include any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products, and then gives an inclusive enumeration. The phraseology 'directly or indirectly' and 'in or in relation to' is deliberately wide. The Tribunal's restrictive reading, confining input-related services to only procurement and inward transportation of inputs, is contrary to the plain language of Rule 2(l) and to the broader scheme of Rule 3(1). The services in question were used by the appellant in relation to manufacture (storage of ammonia integral to the manufacturing process) and therefore fall within the definition of 'input service' and are eligible for credit. [Paras 5, 6]Credit allowed in respect of service tax paid on input services for the ammonia storage tanks; Tribunal's contrary view set aside.Input service - received by the manufacturer - place of receipt requirement - Services used in relation to storage of inputs situated outside the factory are eligible for CENVAT credit because Rule 3(1)(ii) requires only that the input service be received by the manufacturer, not that it be received within the factory. - HELD THAT: - Clause (i) of Rule 3(1) specifically requires inputs or capital goods to be received in the factory; clause (ii) contains no analogous locational restriction for input services. Reading Rule 2(l) and Rule 3(1) together shows Parliament intended a wider ambit for input services. Thus services relating to storage outside the factory, if used by the manufacturer in or in relation to manufacture, fall within the statutory entitlement to credit. The Tribunal's interpretation imposing a factory-location requirement for input services misconstrues the statutory language. [Paras 5, 6]No factory-location requirement for entitlement to credit of input services; Tribunal's contrary conclusion reversed.Final Conclusion: The appeal is allowed: the Tribunal's denial of CENVAT credit for service tax paid on input services relating to ammonia storage situated outside the factory is set aside; such services qualify as 'input service' when used directly or indirectly in or in relation to manufacture, and therefore credit is available. No order as to costs. 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.