TaxTMI 
TaxTMI 
2009 (12) TMI 143
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....on payment of Central Excise Duty). However, the quantum of the said sale is very small. As a result of which, credit of service tax on input service remains unutilised. 3. Accordingly, the appellants have filed periodical refund claims for refund of service tax paid on "input service" which are used in the manufacture and sale of exported goods in terms of rule 5 of the Cenvat Credit Rules read with Notification No. 05/2006-CE, dated 14-3-2006. 4. However, show-cause notices came to be issued proposing rejection of refund claims on the ground that services namely (i) rent-a-cab service, (ii) outdoor catering service, (iii) air travel booking, (iv) telephone/mobile services, and (v) steamer agent service do not qualify as "input service" as defined under rule 2(l) of the Cenvat Credit Rules. 5. The case of the department in the above show-cause notices was that the credit of service tax paid on services would be available only if such services are "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". In other words, the contention of the department is that the aforesaid se....
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.... and quality control. Thereafter, a Press Note dated August 12, 2004, Paras (iii) and (iv) 2004 (170) ELT T19, was issued along with the draft rules highlighting the salient features of Cenvat Credit Rules. The relevant extract thereof is as under : "(iii) In principle, credit of tax on those taxable services would be allowed that go to form a part of the assessable value on which excise duty is charged. This would include certain services which are received prior to commencement of manufacture but the value of which gets absorbed in the value of goods. As regards services received after the clearance of the goods from the factory, the credit would be extended on services received up to the stage of place of removal (as per section 4 of Central Excise Act.) In addition to this, services like advertising, market research, etc., which are not directly related to manufacture but are related to the sale of manufactured goods would also be permitted for credit. (iv) Full credit of service tax on services (such as telephone, security, construction, advertising service, market research etc.) which are received in relation to the offices pertaining to a manufactu....
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....p to the place of removal;". 8.6 Thus, 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. 8.7 Hence, the manifest intention of the Legislature is to allow credit on all such services which are activities relating to business of the assessee. 8.8 The above aspect is over and above the point that even the 'means' portion of the definition employees the expression "directly or indirectly" in or in relation to manufacture of final products. Both parts of the definition have to be construed harmoniously 9.1 The definition of the term 'Input service' as defined under rule 2(l) of the Cenvat Credit Rules, 2004 has two parts - (i) the 'means' part which....
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....trictive approach. In Regional Director, Employees' State Insurance Corpn. v. High Land Coffee Works PEX Saldana & Sons 1991 (3) SCC 617, the Hon'ble Apex Court has held as under: "...The word 'include' in the statutory definition is generally used to enlarge the meaning of the preceding words and it is by way of extension, and not with restriction. The word 'include' is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used, these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import but also those things which the interpretation clause declares that they shall include. [See (i) Stroud's Judicial Dictionary, 5th edn. Vol. 3, p. 1263 and (ii) CIT v. Taj Mahal Hotel 1971 (3) SCC 550, (iii) State of Bombay v. Hospital Mazdoor Sabha AIR 1960 SC 610]." (p. 620) The term "such as" is merely illustrative and not exhaustive 11.1 Definition of input service uses the term 'such as' which is purely illustrative but not exhaustive. See: Concise Oxford Dictionary : "....
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....tatutes, it must be construed in a broad rather than a restricted sense. "The words 'business connotes', it was observed by this court in Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax 1955 1 SCR 952 'some real, substantial and systematic or organised course of activity or conduct with a set purpose....'" (p. 866) 12.4 Thus, the term "business" is of wide import particularly in fiscal statutes. "Relating to" is also to wider than scope of the definition 13.1 In addition, definition of input service employs the phrase "activities relating to business". The words "relating to" further widens the scope of the expression "activities relating to business". This is in view of following observations of Supreme Court in Doypack Systems (P.) Ltd. v. Union of India 1988 (36) ELT 201, interpreting the expression "in relation to" as under : "48. The expression 'in relation to' (so also 'pertaining to'), is a very broad expression which pre-supposes another subject-matter. These are words of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the conte....
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....in something for itself. The test for present purposes is not whether the other party benefited, nor indeed whether this was a prudent transaction which resulted in ultimate gain to the appellant, but whether it was properly entered into as a part of the appellants' legitimate commercial undertakings in order to indirectly facilitate the carrying on of its business." (p. 5) 14.3 The above test was followed by the Hon'ble Allahabad High Court in Addl. CIT v. Symonds Distributors (P.) Ltd. [1977] 108 ITR 947. 14.4 The expenditure incurred on the aforesaid expenses such as telephone/mobile phones, outdoor catering etc., is allowed as "business expenditure" under the provisions of the Income-tax Act, 1961. This fact is not in dispute. Hence it would be incorrect to suggest that for the purposes of income-tax, the said expenditure would be business related expenditure and not for the purpose of service tax. 14.5 In Shahzada Nand & Sons v. CIT [1997] 108 ITR 358 (SC). In the said case, the Hon'ble Apex Court held that the commission paid to the employees to increase the prosperity of the assessee's business is to be allowed as "business expenditure". The relevant....
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....e his self-interest but in the context of current socio-economic thinking which places the general interest of the community above the personal interest of the individual and believes that a business or undertaking is the product of the combined efforts of the employer and the employees and where there is sufficiently large profit, after providing for the salary or remuneration of the employer and the employees and other prior charges such as interest on capital, depreciation, reserves, etc., a part of it should in all fairness go to the employees. We are, therefore, of the view that the sum of Rs. 45,380 paid by the assessee to Saheb Dayal and Gurditta Mal by way of commission during the relevant accounting year was reasonable having regard to all the circumstances of the case and it ought to have been allowed as a deductible expenditure under section 36, sub-section (1), clause (ii)." [Emphasis supplied] (p. 366) 14.6 In Jagarnath Therani v. CIT AIR 1925 Patna 408, the Hon'ble Patna High Court held that the expenditure on "Basa Kharch" and "Bidagri" are admissible allowance as these payments were apparently make the service in order or to retain the services for the benefi....
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....dding the word 'includes' is normally not a part of the first part. So taking resort to the first part of the definition is wholly irrelevant. May be, the legal fiction it has been so. May be, this is what the Legislature thought should also be included apart from the other items which are included in the earlier part of the definition. . . ." [Emphasis supplied] (p. 36) Cenvat (i.e. excise duty) and Service Tax are Value Added Taxes and Consumption Taxes 15.1 CBEC vide para 24.1 of Circular No. 80/10/2004-ST, dated 17-9-2004, inter alia, clarified as under: (remaining portions are not extracted here being not relevant for the present purposes). "Service Tax like CENVAT is basically a value added tax which is operated through credit mechanism." 15.2 CBEC Circular No. 56/5/2003-ST, dated 25-4-2003, issued in the context of export of services, clarified that service tax is a consumption tax. Excise duty and service tax are value added taxes. They are consumption taxes, held by Supreme Court 16.1 In All India Federation of Tax Practitioners v. Union of India 2007 (7) SCC 527, His Lordship Hon'ble Mr. Justice Kapadia speaking for the Bench of t....
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....ds with guidelines issued OECD that VAT is a consumption tax 17.1 Guidelines issued by Organization for Economic Co-operation and Development (OECD) are also to the same effect. 17.2 A 'consumption tax' derives its name from the fact that tax burden is ultimately borne by the final consumer and business do not bear burden of the tax since the business are allowed to take credit of tax paid on inputs supplies received by them. If therefore Cenvat credit (in the instant case, refund) is denied of the input service received by the assessee in the present case, they will become burden to the assessee, which is against the very grain or principle of VAT being a consumption tax. 17.3 In the present case, service tax paid on expenditure incurred by assessee on the outdoor catering, telephone, etc., has to be allowed as input stage credit particularly since the same forms a part of the price of final product of the assessee. In other words, credit of input service must be allowed on any expenditure incurred by the assessee which form a part of the assessable value of the final product. If the above is not done, as sought to be done by the department in the present case, it....
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....ax notwithstanding that the conditions of another head of exemption are not satisfied and such income is not free from tax under that head of exemption...." [Emphasis supplied] (p. 819) 19.2 In Share Medical Care v. Union of India 2007 (209) ELT 321 (SC), the Supreme Court has laid down the same proposition in the following words as under : "(15) From the above decisions, it is clear that even if an applicant does not claim benefit under a particular notification at the initial stage, he is not debarred, prohibited or estopped from claiming such benefit at a later stage. (16) In the instant case, the ground which weighed with the Deputy Director General (Medical), DGHS for non-considering the prayer of the appellant was that earlier, exemption was sought under category 2 of exemption notification, not under category 3 of exemption notification and exemption under category 2 was withdrawn. This is hardly a ground sustainable in law. On the contrary, well-settled law is that in case the applicant is entitled to benefit under two different Notifications or under two different Heads, he can claim more benefit and it is the duty of the authorities to grant ....
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..... In other words, credit (refund) of service tax paid on input services other than the said five services is being allowed by the department. Once this is the admitted position, it is impossible for the department to deny credit of service tax paid on the aforesaid five services inasmuch as admittedly Courier services, Photography service, Management Consultant service, Advertising Agency service etc., are not used directly or indirectly in or in relation to the manufacture of the final product. Yet credit/refund of the same is being allowed without any objection. Hence, the present stand of the Revenue is unacceptable. It is well-settled that the Revenue cannot blow hot and cold at the same time. The law does not permit blowing bugle at both ends. Decision of the Larger Bench in GTC Industries Limited 22.1 During the course of hearing, the ld. DR suggested that the matter could be remanded to the Commissioner (Appeals) or the adjudicating authority to verify the fact as to whether the factory of Semco has more than 250 workers or not. Based on this submission, the suggestion of the ld. D.R. was if it is found that there are more than 250 workers, then credit could be allowed....
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....e course of hearing, the ld. DR submitted that the issue in dispute is seemingly covered by decision of the Hon'ble Supreme Court in the case of Maruti Suzuki Ltd. v. CCE [2009] 22 STT 54. Hence, it is pertinent to examine the decision of the Supreme Court in the case of Maruti Suzuki Ltd. (supra). 23.2 In that case, the issue before the Supreme Court (as can be seen from Para 2 of the judgment) was whether the Department was right in demanding reversal of proportionate credit to the extent of power wheeled out by the appellant to sister unit, vendor, joint venture or not. In that case, Maruti Suzuki used Naphtha as fuel to run turbine for the purpose of generation of electricity. They were availing credit of duty paid on naphtha used for generation of electricity in the case of turbine. However, they were also using Diesel Generating Set (DG set) for generation of electricity with the use of diesel for which they had not avail credit. They had common distribution point for electricity generation in turbine as well as DG set and the entire electricity generated in the turbine and DG set was distributed through the common distribution point. In this context at paras 9 and 10,....
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.... input and input service. Even the 'means' part of the definition of input and input service do not appear to be pari materia. There is no condition under the "means" part of the definition of "input service" that the said service should be used within the factory of production. However, the aforesaid decision of Supreme Court was rendered in the context of "input" and did not consider the definition of "input service" under rule 2(l). 23.7 The "includes" part of the definition of input service does not find any match in the definition of "input". Had the intention of the Legislature been so, it would have been easier for them to define "input and input service" means any goods or services used in or in relation to manufacture of the final products, directly or indirectly, within the factory of production. The Legislature would not have undertaken the exercise of enacting an elaborate definition of "input service". The Legislature would not have invited comments from the Trade and Industry on draft credit rules. Hence, proper meaning has to be given to the letter of law in its true spirit. This view is also supported by the fact that there is a world of difference betwee....
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.... services is not allowed, the Indian manufacturer become internationally uncompetitive. This is contrary to the intention of the Legislature. This view is fortified by decision of the Hon'ble Bombay High Court in the case of Repro India v. Union of India 2009 (235) ELT 614, Para 8 thereof. 25.1 Independently, the aforesaid five services have been held to be "input service" as defined under Rule 2(l) of the Cenvat Credit Rules, 2004 in view of series of decisions of this Tribunal. The ld. D.R. has not cited any contrary judgments. 25.2 The ld. Advocate further placed reliance on the following judgments in support of his contentions :- Outdoor Catering Service 1. Victor Gaskets India Ltd.'s case (supra) 2. CCE v. GTC Industries Ltd. [2008] 17 STT 63 (Mum. - CESTAT) 3. Larsen & Toubro Ltd. v. CCE [Order No. S/390 of 2008/SMB/C-IV, dated 7-11-2008] 4. Ferromatik Milacron India Ltd. v. CCE [2009] 23 STT 200 (Ahd. - CESTAT) 5. Millipore India Ltd. v. CCE [2009] 22 STT 536 (Bang. - CESTAT) 6. Mahindra Sona Ltd. v. CCE [Final Order No. A/106 of 2009/SMB/C-IV/, dated 12-3-2009] 7. Finolex Cables Ltd. v.....
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....the definition of the "input service" given in the rule 2(l) of the Cenvat Credit Rules, 2004. The Original authority as well as the Appellate Commissioner for that matters have given their findings by applying the main part read with the inclusive part of the said definition of input service which in fact has been the core subject of the finding of the Hon'ble Bombay High Court in their judgment in the case of Coca-Cola India (P.) Ltd. v. CCE [2009] 22 STT 130. 28.1 The ld. JDR submitted that the Hon'ble High Court is held as under - "...To illustrate, input services used in relation to setting up, modernization, renovation or repairs of a factory will be allowed as credit, even if they are assumed as not an activity relating to business as long as they are associated directly or indirectly in relation to manufacture of final products and transportation of final products up to the place of removal. . . ." [Emphasis supplied] (p. 151) 28.2 Thus it is explicit that the use of the service in relation to the use of the final product and transportation of the final product up to the place of removal is a condition sine qua non. This is further supported by Their ....
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....rounds of this appeal and consideration of the submissions of SDR, I find that the short question which arises for consideration is whether the above services would qualify to be 'input services' under rule 2(l) of the Cenvat Credit Rules, 2004. If they were used by the assessee, directly or indirectly, in relation to the manufacture of their final products or the clearances thereof from their factory, they are 'input services' within the definition of this term given under rule 2(l). The lower authorities have apparently found no evidence of the repairs and maintenance service having been used in respect of vehicles of the company, run in connection with their business activity. In respect of garden maintenance services, the authorities have categorically held that the meaning of the term 'input service' is not wide enough to include this service. At this stage, it is pointed out by the SDR that only garden maintenance service had been taken into account in the relevant show-cause notice. However, both the authorities chose to deal with both the services. 4. Any manufacturer can manufacture excisable goods and clear the same from his factory withou....
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....utdoor catering service (used in the factory canteen for supply of food to factory workers) was admissible as 'input service' under rule 2(l) ibid. The learned SDR submits that the service used in a factory canteen for supply of food to employees has no connection with the manufacture or clearance of the goods manufactured in that factory. In this connection, he has made an endeavour to show that the catering service so used would not come within the ambit of the definition of 'input services' given under rule 2(l). 2. After considering the grounds of this appeal and submissions of the SDR, I have no option but to follow the Larger Bench decision in GTC Industries' case wherein, in respect of a factory which employed more than 250 workers for the manufacture of excisable goods, the Bench found that outdoor catering services were used in the factory-canteen for supply of food to the workers and that the cost of food supplied formed a part of the cost of production of excisable goods. In the present appeal, however, I have not come across any pleadings as to the number of workers in the factory and as to whether the cost of supply of food in the factory-c....
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....eir factory is 180 (apprx.). Accordingly as the No. of workers is less than 250, their case is not covered by the Larger Bench decision in GTC Ind. Ltd.'s case (supra). In the result, their appeal should fail. 32. However another point was raised thereby the requirement of the number of workers was challenged on the ground that there is no such requirement laid down by the Larger Bench in GTC Industries Ltd.'s case (supra).It is, therefore, essential to reproduce the relevant portion of the Larger Bench decision in GTC Ind. Ltd.'s case (supra). "We further note that in case of a factory having more than 250 workers under section 46 of the Factories Act, 1948, it is mandatory on the part of the factories to provide a canteen facility within the factory premises and failure to comply with the provisions of section 46 attracts prosecution and penalty under section 92 of the Factories Act, 1948. A service tax on outdoor catering services is paid by the manufacturer for running the canteen, irrespective of the fact that a subsidised food is provided or not. Whether the cost of food is borne by the worker or by the factory, the same will form part of expenditur....
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....s Generator Technologies (India) Ltd. (supra) referred to hereinbefore; and 3. In the case of Mahindra Sona Ltd. (supra). In the case of Mahindra Sona Ltd. (supra), the Tribunal observed as under :- "4. The catering/canteen services are neither used in or in relation to the manufacture or clearance of final products nor can it be said to be an activity relating to business. The illustrations of activities relating to business, viz. accounting, auditing, financing etc., are all connected with the business of manufacture. Catering service cannot be treated as an activity relating to business and even if it is obligatory on the part of the assessees/respondents as per the requirement of the Factories Act, 1948, to provide a canteen, this does not automatically lead to the conclusion that a catering service relates to business activity. It is in the nature of welfare activity and not an activity relating to business. I, therefore, set aside the finding of the Commissioner (Appeals) that catering/canteen services are covered under the definition of input services." The use of input service in or in relation to the manufacture of the final products is ....
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....on'ble Apex Court in the case of Maruti Suzuki, Bombay High Court in the case of Coca-Cola India Ltd. and the decisions of Hon'ble Tribunal in the case of Kirloskar Oil Engines, Vikram Ispat & Cummins Generator-and the position of facts found by the Hon'ble Tribunal-in the case of Mahindra Sona Ltd., Cummins Generator & Kirloskar Oil Engines Ltd.-the party's appeal should fail. 36. On going through the submissions made by both the sides, I found that the main issue is relating to dis-allowance 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. 37. The main contention of the learned DR in this case is that these services are not covered within the definition of rule 2(l) of the Cenvat Credit Rules, 2004. To examine the same, the definition of input service under Rule 2(l) is to be reproduced here as under :- "input ....
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....mphasized to the illustrations put by the Hon'ble High Court which is reproduced below :- "To illustrate, input services used in relation to setting up, modernization, renovation or repairs of a factory will be allowed as credit, even if they are assumed as not an activity relating to business as long as they are associated directly or indirectly in relation to manufacture of final products and transportation of final products up to the place of removal." 38.4 But accordingly to the Hon'ble Court, credit can be denied only when assessee fails to become eligible in any one of the categories. I find that in category V, service used in relation to activities relating to business is covered and therefore what I have to examine is whether the appellants are covered under this category or not? 38.5 Moreover in the case of Coca-Cola India (P.) Ltd. (supra) the Hon'ble High Court has discussed the issue in detail and with reference to the expression used in the input service definition. The references are as follows :- Reference of "Expressions" used in the input service definition 1. "Means and includes" 2. "Such as" 3. "Busin....
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....ss". The expression "in relation to" (so also "pertaining to") is very broad expression which presupposes another subject-matter. Similarly, the used of the word "activities" in the phrase "activities relating to business" further signifies the wide import of the phrase "activities relating to business". The Rule-making authority has not employed any qualifying words before the word "activities", like "main" activities or "essential" activities etc. Therefore, it must follow that all and any activity relating to business falls within the definition of "input service" provided there is relation between the manufacturer of concentrate and the activity. (6) "Services" - The word 'services' is given such a wide meaning for the purposes of value added tax that it is capable of embracing everything which a taxable person does in the course or furtherance of business carried on by him which is done for consideration. Finally the Hon'ble High Court has held that - (i) service tax like Cenvat is basically a value added tax which is operated through credit mechanism. Service tax is VAT. Just as excise duty is a tax on value addition on goods, service ta....
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....ic part of the definition. In each case it has to be established that inputs mentioned in the inclusive part is "used in or in relation to the manufacture of final product." The Apex Court in this has observed that - "It is the functional utility of the said item which would constitute the relevant consideration. Unless and until the said input is used in or in relation to the manufacture of final product within the factory of production, the said item would not become an eligible input. The said expression "used in or in relation to the manufacture" has many shades and would cover various situations based on the purpose for which the input is used." 40. The contention of the ld. DR is that input and input service are identical and in the case of Maruti Suzuki Ltd. (supra), the Hon'ble Apex Court has held that the input should be used in or in relation to the manufacture of final product in the substantive/specific part of the definition. In each case it has to be established that inputs mentioned in the inclusive part is "used in or in relation to the manufacture of final product". The main emphasis of the Apex Court in Maruti Suzuki Ltd.'s case (supra....
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....t has considered the word "input" in rule 2(k) of Cenvat Credit Rules, 2004 and there is no finding with regard to "input service". Therefore, the reference of ld. DR in the case of Maruti Suzuki Ltd. (supra) is no help to him. 44.1 The ld. DR further relied on Kirloskar Oil Engines Ltd. and Vikram Ispat wherein this Tribunal has held that "the above services was not used directly or indirectly in relation to manufacture or clearance of final product. I concur with the lower authorities on this point". In the above cases also the issue was of admissibility of Cenvat credit of Garden maintenance service. 44.2 But in both these cases, the decision of the Hon'ble Bombay High Court in Coca-Cola India (P.) Ltd.'s case (supra) had not been considered as not available. As already observed earlier, it is not for me to judge whether a garden is essential or used in or in relation to manufacture but to examine whether this service can be considered as an activity relating to business. I cannot or would not like to take a view that a garden is not relating to manufacture. A good garden creates a better atmosphere and environment which increases the working efficiency and the con....
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....ndustries Ltd. (supra), wherein this Tribunal mainly held that the issue before the Larger Bench was that whether catering service in the factory is eligible for Cenvat credit or not. In that case the Hon'ble Larger Bench's decision was in favour of the assessee and held that credit of service tax paid on those taxable services would be allowed that go to form a part of the assessable value on which excise duty is charged. The issue before the Larger Bench was not whether when the factory has more or less than 250 workers, credit is admissible. It is only an additional fact noted by the Larger Bench that the assessee has to provide canteen facility under section 46 of the Factory Act where the workers are more than 250. 50. From the above discussion, it does not mean that a factory which is having 249 workers is not entitled for Cenvat credit. 51. The learned Advocate further relied on Force Motors Ltd. v. CCE [2009] 23 STT 160 (Mum. - CESTAT) wherein this Tribunal has held as under :- "(8) On examination of the records and reliance placed before me, I find that as per the show-cause notice there was an allegation against the appellant that these services are....