TaxTMI 
TaxTMI 
2013 (1) TMI 304
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....rvice, Maintenance or Repair service, Interior Decorator Service, Management Consultancy Service, availed by the assessee, as eligible services for availing input service credit as defined under Rule 2(l) of the CCR, 2004?" 2. The respondent-assessee is engaged in the manufacture of P. & P. medicines classifiable under Chapter 30 of the First Schedule of the Central Excise Tariff Act, 1985 and is also availing CENVAT facility as provided under the Central Credit Rules, 2004 (hereinafter referred to as "the Rules"). During the course of Audit by the Head Quarters Audit, it was noticed that the assessee had availed CENVAT credit in respect of services, which according to the department were not eligible as input services as defined under rule 2(l) of the Rules. Accordingly, two show cause notices came to be issued to the assessee. Show cause notice dated 8.6.07 came to be issued in respect of the following input services: (2) Technical Testing and Analysis - Rs. 1,23,09,894/- (3) Commission paid to the foreign agents - Rs. 39,45,791/- (4) Courier service - Rs. 36,54,709/- (5) Clearing and Forwarding Serv....
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....; (i) Technical Testing and Analysis services (ii) Commission paid to foreign agents, (iii) Courier service, (iv) Clearing and forwarding service, (v) Management and Consultancy service, (vi) Interior Decorator service, (vii) Construction service, (viii) Technical Inspection and Certification, (ix) Repairs and maintenance service, (x) Commercial construction service, to be "input service" as envisaged under rule 2(l) of the CENVAT Credit Rules, 2004? 5. Each of the above services would be required to be examined independently. For the sake of convenience, where the service in question is common in respect of both the show cause notices, reference is made to the facts relating to the show cause notice dated 04.03.2008. 5.1 Technical Testing and Anal....
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....taken on such service is not admissible. (ii) It was submitted that insofar as input service tax credit in respect of Technical Testing and Analysis services is concerned, the said service was rendered in respect of a final product which was produced on trial basis but has not been manufactured and sold. Hence, the service tax, if any, paid in respect of such services cannot be taken credit of. Reference was made to the definition of manufacture as defined under section 2(f) of the Act, to submit that from the said definition it is clear that the Technical Testing and Analysis service availed by the assessee is not used for manufacture of final product or for clearance of the final product from the place of removal and is also not related to the activities specified in the inclusive part of the definition of input service. The input credit on a service is available in or in relation to the manufacture of final product only and not for Research and Development (R & D) of the product of which production has not been started. The definition of input credit is in the context of tax paid on input services used in or in relation to the manufacture of final product and....
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....he services mentioned in the section are only illustrative and not exhaustive. Therefore, when a particular service not mentioned in the definition clause, is utilised by the assessee/manufacturer and service tax paid on such service is claimed as CENVAT credit, the question is as to what are the ingredients that are to be satisfied for availing such credit. If the credit is availed by the manufacturer, then the said service should have been utilised by the manufacturer directly or indirectly in or in relation to the manufacture of final product or used in relation to activities relating to business. If any one of these two tests is satisfied, then such a service falls within the definition of "input service" and the manufacturer is eligible to avail CENVAT credit of the service tax paid on such service. (v) The decision of Karnataka High Court in the case of Commr. of C.Ex.& Service Tax, LTU, Bangalore v. Micro Labs Ltd., 2011(24)S.T.R. 272 (Kar) was cited for a similar proposition of law. Reliance was also placed upon the decision of this court in the case of Commissioner of Central Excise v. Excel Crop Care Ltd., 2008(12) S.T.R. 436(Guj.) as well as on an unr....
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....al "testing and analysis" as defined under Section 65(106) of the Finance Act 1994 and is liable to service tax. The laboratories which provide the said service to the respondent, pay service tax on the said service and the respondent takes CENVAT credit of the same. (vii) It was further submitted that the process of developing a new drug and getting its approval from the Drug Licensing Authority is an ongoing process which may be spread over a long period of time. If the results of the clinical trials are not satisfactory or are not approved by the licensing authority, the assessee has to carry out the necessary improvements until satisfactory results are obtained on clinical trials/testing. After satisfactory results are obtained on clinical trials/ testing which are approved by the licensing authority, the assessee can manufacture the new drug for sale. It would thus be seen that such service of "technical testing and analysis" has necessarily to be availed by the assessee for the purpose of carrying out the manufacture of new drugs and without availing such service it is impossible for the assessee to manufacture new drugs. Such service is, therefore, clearl....
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.... further submitted that the respondent is in the business of manufacture and sale of drugs. The service of "technical testing and analysis" is received solely for the purpose of and in the course of the said business activity and for no other purpose. The same is, therefore, clearly in relation to the respondent's business activity. The significance of "service received in relation to activity relating to business in the "includes" portion of the said definition would become apparent if it is borne in mind that service tax is a consumption based tax to be borne by the consumer and which cannot be a charge on the business. In this regard, the learned counsel placed reliance upon the following observations of the Supreme Court in the case of All-India Federation of Tax Practitioners and ors v. Union of India, (2007) 7 SCC 527 = (2007-TIOL-149-SC-ST) : "6. At this stage we may refer to the concept of "Value Added Tax (VAT) which is a general tax that applies, in principle, to all commercial activities involving production of goods and provision of services. VAT is a consumption tax as it is borne by the consumer. In the light of what is ....
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....to be 'input service' within the meaning of such expression as defined under rule 2(l) of the Rules? (xvi) "Input service" has been defined under rule 2(l) of the Rules and as it stood at the relevant time reads thus: "(l) "input service" means any service, - (i) used by a provider of taxable service for providing an output service; or (ii) 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 services used in relation to setting up, modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage up to the place of removal, procurement of inputs, activities relating to business such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry and security, inward transportation of inputs ....
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....h, is completed before its removal for test and after testing only packing of the same is done. Therefore, the sticks of cigarettes which are removed for the purpose of test in the quality control laboratory within the factory premises of the appellant Company are liable to excise duty. (xix) In the facts of the present case the assessee is engaged in the manufacture of medicaments. By their very nature, the drugs manufactured by the assessee prior to final production thereof are required to be subjected to technical testing and analysis before entering into commercial production. For such purpose, the products are manufactured in small trial batches and thereafter, sent for testing and analysis purpose. Undisputedly, when the goods are removed for testing and analysis, excise duty has been paid thereon. Since production of medicaments are subject to approval by the regulatory authorities of various countries to which such drugs are exported, the assessee is required to obtain approval before starting commercial production. Thus the final product can be manufactured only upon approval of the regulatory authority after the product undergoes technical testing and ....
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.... behalf of the client and includes services as a commission agent. (i) The Adjudicating Authority held that on a perusal of the definition of commission agent as defined under clause(a) to the Explanation under section 65(19) of the Act, a commission agent is a person who acts on behalf of another person and causes sale or purchase of goods. In other words, he is directly responsible for selling or purchasing on behalf of another person and that such activity cannot be considered as sales promotion. According to the Adjudicating Authority there is a clear distinction between sales promotion and sale. A commission agent is directly concerned with sales rather than sales promotion. He, accordingly, held that service provided by commission agent does not fall within the purview of the main or inclusive part of the definition of 'input service' as laid down in rule 2(l) of the Rules and, therefore, the assessee was not eligible for CENVAT credit in respect of the service tax paid on commission paid to foreign agents. (ii) The Tribunal has held that foreign commission agent service is in the nature of sales promotion and without any elaborate ....
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....e service tax paid to a commission agent for sale of final product would fall within the ambit of sales promotion which is a 'business auxiliary service' and would, therefore, also fall within the purview of 'input service'. (v) In the backdrop of aforesaid facts and contentions, reference may be made to the definition of 'business auxiliary service' as defined under section 65(19) of the Finance Act, 1994, which to the extent the same is relevant for the present purpose reads thus: Business Auxiliary Service" means any service in relation to, - (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or promotion or marketing of service provided on behalf of the client; or and includes services as a commission agent but does not include any information technology service and any activity that amounts to manufacture within the meaning of clause(f) of section 2 of Central Excise Act, 1944 Explanation - For the removal of doubts, it is hereby declared that for the ....
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.... sales achieved through contests, demonstrations, discounts, exhibitions or trade shows, games, giveaways, point-of-sale displays and merchandising, special offers, and similar activities. The Advanced Law Lexicon by P. Ramanatha Aiyar, third edition, describes the term 'sales promotion' as use of incentives to get people to buy a product or a sales drive. In the case of Commissioner of Income-tax v. Mohd. Ishaque Gulam, 232 ITR 869, a Division Bench of the Madhya Pradesh High Court drew a distinction between the expenditure made for sales promotion and commission paid to agents. It was held that commission paid to the agents cannot be termed as expenditure on sales promotion. (viii) From the definition of 'sales promotion', it is apparent that in case of sales promotion a large population of consumers is targeted. Such activities relate to promotion of sales in general to the consumers at large and are more in the nature of the activities referred to in the preceding paragraph. "Commission agent" has been defined under the explanation to "business auxiliary service' and insofar as the same is relevant for the present purpose means any person who act....
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....ll within the purview of the main or inclusive part of the definition of input service as laid down in rule 2(l) of the Rules. (ix) As regards the contention that in any event the service rendered by a commission agent is a service received in relation to the assessee's activity relating to business, it may be noted that the includes part of the definition of 'input service' includes "activities relating to the business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security". The words "activities relating to business" are followed by the words "such as". Therefore, the words "such as" must be given some meaning. In Royal Hatcheries (P) Ltd. v. State of A.P., 1994 Supp (1) SCC 429, the Supreme Court held that the words "such as" indicate that what are mentioned thereafter are only illustrative and not exhaustive. Thus, the activities that follow the words "such as" are illustrative of the activities relating to business which are included in the definition of input service and are not exhaustive. Therefore, activities relating to business could als....
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....flected in Notification No. 41/2007-ST dated 6.10.2007 as amended by Notification No.3/2008-ST dated 19.2.2008. The adjudicating authority placed reliance upon a decision of the Tribunal in the case of Universal Cables Ltd. v. Commissioner of Central Excise, 2007(7) STR 310 (Tri- Del) and was of the view that the present case is squarely covered by the said decision. In the said case, the Tribunal held that the charges paid on courier service are charges for the delivery of finished goods, akin to outward transportation from the factory of the assessee to its customers. The definition of "input service" permits the credit of outward transportation upto the place of removal, which in this case is the factory gate from where the courier collects the parcel for further transportation. It was held that credit on outward transportation was not permissible. The adjudicating authority also was of the view that the notifications on which reliance was placed by the assessee were exemption notifications and would not be applicable to the present case. He, accordingly, held that the assessee had wrongly availed of CENVAT credit in respect of service tax paid towards courier service. The Tribu....
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....rance of the final product from the place of removal. The expression 'in relation to manufacture' is wider than 'for the purpose of manufacture'. The words 'and clearance of the final products from the place of removal' are also significant. Means part of the definition has not limited the services only upto the place of removal, but covers services used by the manufacturer for the clearance of the final products even from the place of removal. It can thus be seen that main body of the definition of term 'input service' is wide and expansive and covers variety of services utilized by the manufacturer. By no stretch of imagination can it be stated that outward transportation service would not be a service used by the manufacturer for clearance of final products from the place of removal. 19. When we hold that outward transportation would be an input service as covered in the expression 'means' part of the definition, it would be difficult to exclude such service on the basis of any interpretation that may be offered of the later portion of the definition which is couched in the expression 'includes'. As already obse....
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....l products from the place of removal. 21. We must, however, for our curiosity reconcile the expression "from the place of removal" occurring in the earlier part of the definition with words 'upto the place of removal" used in inclusive part of the definition. Counsel for the assessees submitted that when a manufacturer transports his finished products from the factory without clearance to any other place, such as godown, warehouse etc. from where it would be ultimately removed, such service is covered in the expression 'outward transportation up to the place of removal" since such place other than factory gate would be the place of removal. We do appreciate that this could be one of the areas of the application of the expression 'outward transportation upto the place of removal'. We are unable to see whether this could be the sole reason for using such expression by the Legislature. 22. Be that as it may, we are of the opinion that the outward transport service used by the manufacturers for transportation of finished goods from the place of removal upto the premises of the purchaser is cover....
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....es. (ii) The learned counsel for the appellant submitted that the service rendered by the C&F agents is also related to sales. It is used after the manufacturing activity is over and after clearance of the final products, that is, after the place of removal, therefore, it does not fall in the main part of the definition of input service and is also not in relation to any of the activities specified in the inclusive part of the definition. It was further submitted that the services rendered by C&F agents can in no manner said to be sales promotion so as to fall within the ambit of the expression 'input service. On the other hand the learned counsel for the assessee submitted that the respondent appointed C&F agents in different States for the purpose of sale of the respondent's final products. The goods are stock transferred to the C&F agents who store the same and thereafter sell them. In these cases there is no sale from the respondent's factory gate. The goods are sold from the premises of the C&F agents. Accordingly, in these cases "the place of removal" is the premises of the C&F agents. As per section 4(3)(iii) of the Central Excise Act, where goods....
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....gnment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory; from where such goods are removed. (vi) Thus, the 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 serv....
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....ow cause notice dated 4.3.2008. (ii) The Tribunal, in the impugned order has held that without maintenance and repair or management, the factory cannot be run and therefore, service tax paid on these services is admissible. In respect of CENVAT credit availed on service tax paid on repair and maintenance of photo copier, air conditioner, water cooler etc., the Tribunal placed reliance upon several decisions of the Tribunal cited by the assessee and held that CENVAT credit was admissible on such services. (iii) The learned counsel for the appellant submitted that the above referred miscellaneous services availed by the assessee do not fall in the main clause of the definition of input service and are also not related to the activities specified in the inclusive part of the definition of input service. (iv) On the other hand, the learned counsel for the assessee drew the attention of the court to the provisions of sub-rule (5) of rule 6 of the Rules to submit that in the light of the said provision it is apparent that credit of the whole of service tax paid on taxable service specified thereunder is admissible unless such se....
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....word in a statute has to be read in isolation. In fact, the statute has to be read as a whole. A statute is an edict of the legislature. It is incumbent on the court to avoid the construction if possible on the language which would render a part of the statute devoid of any meaning or application. In the interpretation of statutes, the courts always presume that the legislature inserted every part thereof for a purpose and the legislative intention is that every part of the statute should have an effect. (V. Jaggannadha Rao v. State of A.P.., (2001) 10 SCC 401). (viii) The Supreme Court in RBI v. Peerless General Finance & Investment Co. Ltd., (1987) 1 SCC 424 = (2002-TIOL-670-SC-MISC), held thus: "33. Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as....
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....vices on or after the 10th day of September, 2004. Thus, CENVAT credit is admissible on service tax paid on any input service. If the services mentioned in sub-rule (5) of rule 6 of the Rules are not in the nature of input service, the provisions of sub-rule (5) would be in conflict with the provisions of rule 3 of the Rules which certainly cannot be the intention of the rule making body. (x) Besides, the inclusive part of the definition of 'input service' specifically includes services used in relation to renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, activities relating to business, such as accounting, computer networking etc. Thus, the services rendered by interior decorator, commercial and industrial construction services would squarely fall within the inclusive definition of 'input service'. Such services would, therefore, fall within the ambit of 'input service' as defined under rule 2(l) of the Rules. (xi) As regards services availed by the assessee towards repair and maintenance of copier machine, air conditioner, water cooler, etc. it cannot be....
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....nical Inspection and Certification agencies" is availed to ensure that the said instruments/equipments are of the standard/accuracy/ precision which is required for manufacture of the final products. There can, therefore, be no manner of doubt that the said service is received in relation to the manufacture of final products. The 'means' portion of the definition is an expansive one and covers all services used in or in relation to the manufacture of final products and it is immaterial whether such use is direct or indirect. Further, such service is used in relation to the respondents business activity only and not for any other purpose. The same is, therefore, covered by the 'includes' portion of the definition. (iv) From the facts and contentions noted hereinabove, it is apparent that technical inspection and certification services have been availed of by the assessee in respect of inspection and checking of instruments which are used for the purpose of measuring size: gauges and vernier calipers, measuring weight: scales, and measuring temperature: temperature indicators, and instruments like thermo hygrometers for measuring humidity and temperature, ....