2014 (8) TMI 713 - HC - Service Tax

HC upholds CENVAT credit on CHA, shipping, container services under Rule 2(1) CCR 2004; overseas commission disallowed

Commissioner Versus Dynamic Industries Ltd.

The HC upheld the Tribunal's allowance of CENVAT credit on Customs House Agents, Shipping Agents, and Container Services, ruling these as input services ... CENVAT Credit - input services - scope of the term 'include' and 'such as' - suppression or misrepresentation - Whether the Hon'ble Tribunal was correct in holding that Credit of Service tax paid on Customs House Agents Services, Shipping Agents and Container Services and Services of Overseas Commission is admissible to the manufacturer as 'input Service Tax credit', by overlooking the Statutory provision of Rule 2(1) of the Cenvat Credit Rules, 2004 - Held that:- Tribunal has taken a stand that where the exports are Free on Board (FOB) basis, the place of removal has to be taken as port and, therefore, services availed by the respondent-assessee till the goods reach the port would be admissible. The manufactured goods since cannot be sold without the assistance of clearing agents, such input service on commission also has been considered necessary and, therefore, any CENVAT credit availed by the petitioner, according to the Tribunal, relating to the clearance of finished goods upto the place of removal, which is the port in the present case, would fall under the criteria and such amount shall be admissible. Clearing and forwarding agent is an agent of the principal. The goods stored by him after clearance from the factory would therefore, be stored on behalf of the principal, and as such the place where such goods are stored by the C & F agent would fall within the purview of sub-clause (iii) of clause (c) of section 4(3) of the Act and as such would be the place of removal. Viewed from that light the services rendered by the C & F agent of clearing the goods from the factory premises, storing the same and delivering the same to the customer would fall within the ambit of rule 2(l) of the Rules as it stood prior to its amendment with effect from 1.4.2008, namely clearance of final products from the place of removal. However, this court is not in agreement with the view adopted by the Tribunal that such services would amount to sales promotion and is, therefore, an input service. For the reasons stated while discussing the issue as regards service commission paid to foreign agent, the services rendered by the C & F agents cannot be said to be in the nature of sales promotion. This issue stands answered accordingly, in favour of the assessee and against the revenue. Considering the role of Customs House Agent and Shipping Agent for rendering Customs House Agent Service and Shipping Agents and Container Services, the decision of this Court referred to in the case of Clearing and Forwarding Agent would apply and the definition of 'input service' would also cover both these services, considering the nature of services rendered by them and the place of removal being the point in this case, the answer shall favour the Revenue. With regard to the commission paid to the overseas agents and service tax paid on the value of commission paid to the overseas agents under the business auxiliary category, under the definition of 'business auxiliary service' which is a taxable service, the services are provided by the Commission Agent. The assessee took CENVAT credit of service tax paid on commission paid to the overseas agents for the goods exported. The eligible category of service for availing the credit is that the service should be used directly or indirectly in the manufacture or clearance of final product, as neither for the purpose of sales promotion, the service of overseas commission agent has been used. - This is required to be answered in favour of the Revenue and against the assessee. Extended period of limitation - Held that:- the extended period of limitation would not be available to the Revenue in absence of any material to indicate suppression on the part of the respondent-assessee. It is not in dispute that there was no suppression nor any misrepresentation in respect of CENVAT credit availed by the respondent- assessee in respect of these services. - Decided partly in favor of assessee. ISSUES: Whether credit of service tax paid on Customs House Agents Services, Shipping Agents and Container Services is admissible as 'input service tax credit' to the manufacturer under Rule 2(1) of the Cenvat Credit Rules, 2004.Whether credit of service tax paid on commission to overseas agents under Business Auxiliary Service is admissible as input service tax credit.Whether the extended period of limitation under proviso to sections 11A and 11AB of the Central Excise Act, 1944 can be invoked for recovery of wrongly availed Cenvat credit in absence of suppression or misrepresentation. RULINGS / HOLDINGS: Credit of service tax paid on Customs House Agents Services, Shipping Agents and Container Services is admissible as 'input service tax credit' since these services are used by the manufacturer directly or indirectly in or in relation to the manufacture and clearance of final products upto the place of removal, which in case of export is the port of shipment.Credit of service tax paid on commission to overseas agents under Business Auxiliary Service is not admissible as input service tax credit because such services do not fall within the definition of 'input service' and are not analogous to the illustrative activities listed under 'activities relating to business' in Rule 2(1) of the Cenvat Credit Rules, 2004.The extended period of limitation under proviso to sections 11A and 11AB of the Act cannot be invoked for recovery of Cenvat credit wrongly availed on overseas commission services in absence of any material indicating suppression or misrepresentation by the assessee. RATIONALE: The legal framework centers on the definition of 'input service' under Rule 2(1) of the Cenvat Credit Rules, 2004, which states that input services include any service used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, and includes certain specified services.The Court relied on authoritative precedents including the Supreme Court decisions in Maruti Suzuki Ltd. and Ramala Sahkari Chini Mills Ltd., which clarify that 'input service' must have a nexus with manufacture or clearance of final products and that the definition employing 'means and includes' is exhaustive and expansive.It was held that for exports on FOB basis, the place of removal is the port of shipment, not the factory gate, thereby extending the ambit of input services to include services rendered at the port such as Customs House Agents and Shipping Agents services.The Court distinguished overseas commission services from input services by analyzing the inclusive clause 'activities relating to business such as...' and held that commission services do not bear analogy to the illustrative activities and thus fall outside the ambit of input services.Regarding limitation, the Court applied principles from the Central Excise Act and Cenvat Credit Rules, noting that extended limitation periods apply only where there is suppression or misrepresentation, which was absent in the facts of the case.The Court also examined various High Court decisions (e.g., Gujarat Heavy Chemicals Ltd., Cadila Healthcare Ltd., Ultratech Cement Ltd.) and departmental circulars, applying their reasoning to the facts to delineate the scope of admissible input services.Statutory interpretation principles relating to the use of 'means and includes' in definitions were extensively discussed, relying on Supreme Court rulings to affirm that such definitions are exhaustive and that the inclusive part serves to enlarge but not restrict the definition.