2009 (12) TMI 143 - AT - Service Tax

Refund of service tax and Cenvat credit allowed to 100% EOU-exporter under Rule 5 CENVAT Credit Rules

CESTAT Mumbai allowed the appeals of the 100% EOU-exporter and set aside denial of refund of service tax and disallowance of Cenvat credit on services ... Input service - activities relating to business - used by the manufacturer whether directly or indirectly in or in relation to the manufacture of final products and clearance of final products up to the place of removal - inclusive interpretation of 'includes' and 'such as' - CENVAT credit/refund on input services used in export of final productsInput service - activities relating to business - inclusive interpretation of 'includes' and 'such as' - CENVAT credit/refund on input services used in export of final products - Admissibility of Cenvat credit/refund of service tax paid on rent-a-cab service, outdoor catering service, air travel agent service, telephone/mobile service and steamer agent service as 'input service' under rule 2(l) of the Cenvat Credit Rules, 2004 - HELD THAT: - The Tribunal construed rule 2(l) of the Cenvat Credit Rules, 2004 broadly. The definition comprises (i) the main 'means' part - services used directly or indirectly in or in relation to manufacture and clearance - and (ii) an illustrative 'includes' part which expands scope and is not exhaustive. The words 'includes' and the phrase 'such as' were held to enlarge, not restrict, the definition. 'Activities relating to business' and the expression 'in relation to' have a wide import; the Rule-maker deliberately chose broader wording for 'input service' than for 'input' (goods), and services need not be received within the factory. Precedents and policy considerations were applied: the Court noted the legislative intent and Press Note that Cenvat is intended to neutralise tax on inputs and to avoid cascading; service tax is a value added/consumption tax whose burden should rest on the final consumer, making input-stage credit appropriate, particularly in exports. The Tribunal distinguished decisions on 'input' (goods) such as Maruti Suzuki (which require use within the factory) from the wider concept of 'input service'. The Department's selective allowance of refunds for some services but denial for the five in dispute was considered inconsistent. Having applied the above legal principle and relevant precedents (including Larger Bench decisions favourable to allowing credit for services used in relation to business and forming part of assessable value), the Tribunal held that the services in question qualify as 'input service' and are eligible for Cenvat credit/refund, particularly where final products are exported.Cenvat credit/refund of service tax paid on the specified services is admissible as these services fall within the wide definition of 'input service' under rule 2(l); the appeals are allowed.Final Conclusion: The Tribunal allowed the appeals and held that rent-a-cab, outdoor catering, air travel agent, telephone/mobile and steamer agent services qualify as 'input service' under rule 2(l) and the appellants are entitled to Cenvat credit/refund, applying a broad, inclusive construction of the definition and the policy of Cenvat for exports. Issues: Whether service tax paid on specified services (rent-a-cab, outdoor catering, air travel agent, telephone/mobile and steamer agent) qualify as 'input service' under rule 2(l) of the Cenvat Credit Rules, 2004 and whether refund/credit of such service tax is admissible to the exporter-manufacturer.Analysis: The legal framework comprises the definition of 'input service' in rule 2(l) of the Cenvat Credit Rules, 2004, the Cenvat/ VAT conceptual scheme and refund provisions for exports. The definition contains a substantive 'means' part (services used directly or indirectly in or in relation to manufacture and clearance) and an inclusive illustrative part (services 'used in relation to' setting up, advertisement, activities relating to business, etc.). The inclusive wording 'includes' and the illustrative phrase 'such as' broaden the scope and are not exhaustive; 'activities relating to business' and the phrase 'in relation to/relating to' are to be given wide import. Service tax is a value added consumption tax; credits on input-stage services that form part of the assessable value should be allowed to avoid tax on exports. Prior Tribunal and Larger Bench rulings treating such services as input services, together with the legislative scheme and illustrative list, support entitlement to credit where the services relate to the business of the manufacturer. Distinctions between 'input' (goods) and 'input service' (services) and authorities addressing nexus and factory/location conditions are considered; factual prerequisites noted in some precedents (e.g., examination of number of factory workers and whether canteen costs form part of assessable value) are not determinative where the inclusive limb and business-related nexus are satisfied. The adjudicating authority's reliance on a Tribunal decision reversed by the Bombay High Court was also addressed.Conclusion: The specified services qualify as 'input service' under rule 2(l) where they are used in relation to the business/manufacture and form part of the value of the final product; accordingly the appellants are entitled to Cenvat credit/refund in respect of those services.