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 ... Denial of refund claims for refund of service tax on 'input service' used for manufacture and export of the final product. - 100 per cent Export Oriented Unit - scope of the term 'activities relating to business' - disallowance of Cenvat credit on service tax paid on services namely (i) rent-a-cab service, (ii) outdoor catering service, (iii) air travel booking, (iv) telephone/mobile services and (v) steamer agent service on the ground that these services are not used in or in relation to the manufacture, whether directly or indirectly of the final product and clearance of final products from the place of removal - HELD THAT:- Admittedly the final products have been exported. There are no DTA clearances of the final product. It is the policy of the Central Government to give rebate/refund of taxes paid locally on goods and services used in export of the final product. Refund of duty paid on inputs is allowed in terms of rules 18 and 19 of the Central Excise Rules, 2002. Similarly, refund of service tax paid on services has been allowed vide Notification No. 41/2007-ST, as amended from time to time. In fact, it is pertinent to note that the said notification allows refund of service tax paid on 'service'. The said exemption notification does not use the term 'input service'. Further, the said exemption notification allows refund of service tax paid on services used by even merchant-exporters. In other words, the exporter need not be a manufacturer-exporter. The scope of the term 'activities relating to business' has been expanded and illustrated further with the addition of services such as coaching and training, share registry, credit rating etc. The above conclusion is also supported by the fact that activities such as coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation up to the place of removal; which pertain to various aspects of the activities relating to business of the assessee. Hence, the manifest intention of the Legislature is to allow credit on all such services which are activities relating to business of the assessee. The definition of 'input' and 'input service' both. In the definition of 'input' the definition is mainly emphasized for input and after the word includes the definition reads as lubricating oils, greases, cutting oils, coolants, accessories of for the final products cleared along with final product, goods used as paint, or as packing material, or as fuel or for generation of electricity or steam used in or in relation to the manufacture of final product or for other purpose within the factory of production. The definition of input is exhaustive and is restrictive in scope. It treats all goods used in or in relation to manufacture of final products or for any other purpose within the factory of production. But certain goods which would be eligible as per definition have been excluded and certain goods which could be interpreted as not includible have been specifically included, i.e., packing material, lubricating oil, accessories etc. Therefore, all goods other than specified as includible have to be shown to be used in or in relation to manufacture of final product or for any other purpose within the factory of production. In fact, the Apex Court has held that input and capital goods used in captive means are covered by the definition expanding the scope of definition. To conclude, the appellants are entitled to Cenvat credit availed on the services which are used in or in relation to the manufacture of final products or used in relation to the business activity and in this case the services used by the appellants are in relation to the business activity, they are entitled for Cenvat credit. Accordingly, the appeals are allowed. 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.