AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2013 (12) TMI 382
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....s of motor vehicles and parts falling under Chapter 87 of the Central Excise Tariff. They have an Engineering Research Centre (ERC in short) situated in their factory premises, which has also been recognized as a Technical Institute by the Department of Scientific and Industrial Research, New Delhi vide letter dated 29/04/2008. The appellant was availing Cenvat credit of service tax paid on input services utilised and consumed in the R&D activities in the ERC. However, they did not take any credit on inputs and capital goods, utilised in the ERC. It is the contention of the Revenue that these input services were consumed in the production of prototypes and the input services were "Consulting Engineer's Service" exclusively for R&D activities. Therefore, a show-cause notice dated 04/06/2010 was issued to the appellant proposing to deny the Cenvat credit of service tax paid on consulting engineers service for the period 01/04/2006 to 30/09/2009 for an amount of Rs. 168,34,80,564/- and proposing to recover the same under the provisions of Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1944 along with interest thereon under the said Rule read ....
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....received indigenously. These services received by the appellant were used at the ERC for development of prototypes. The purpose of developing the prototypes are for undertaking commercial production of vehicles and therefore, the "Consulting Engineers Service" received by the appellant is in relation to the manufacture of commercial vehicles on which the appellant has been discharging excise duty liability. Therefore, the consulting engineers service received by the appellant qualifies to be input services as defined in Rule 2(l) of the Cenvat credit Rules, 2004 and therefore, the appellant is rightly eligible for the Cenvat credit of service tax paid on such services. Even assuming that the appellant has used these services initially in the development of prototypes, the prototypes manufactured by the appellant are not completely exempt from payment of excise duty. The issue of exemption from excise duty of prototypes manufactured by the appellant was a subject matter of consideration by the Central Board of Excise and Customs as early as 1973 and the Board vide Order NO.194/53/72-CX.V (a) dated 29/11/73 had held that the benefit of Notification No.167/71-CE would be available to ....
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.... technical institute is unconditionally exempt from payment of excise duty under Notification No. 167/71-CE. When the goods are unconditionally exempt, in view of the provisions of Section 5A of the Central Excise Act, 1944, the appellant has no option to pay any duty as provided for in sub-section 1(A) of Section 5A and therefore, the payment of duty on prototypes by the appellant is not sanctioned by law and hence, the claim of the appellant that they have utilised the services both in respect of dutiable goods as well as exempted goods is not sustainable in law. It is further argued that, as regards the inputs and capital goods, the appellant has not availed any Cenvat credit of the excise duty/CVD paid which shows that the prototypes are not liable to excise duty and therefore, the appellant cannot take a different stand in respect of input services and hence it has to be held that the inputs service has been availed both in respect of dutiable as well as exempted goods. As regards the dropping of demand to the extent of Rs. 36 crores (approximately) by the Commissioner in the impugned order, the Revenue's case is that the Commissioner has merely accepted the appellant's conten....
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....er Oxfor English Dictionary 5th Edition "prototype" means "The first or primary type of something; the original of which a copy, imitation, representation, derivative, or improved form exists or is made; a pattern, a model, an archetype or primary version of a vehicle, machine, etc. Thus, as per the ordinary meaning of term, "prototype" which is only a primary version and is a necessary step before commercial production is undertaken. In the present case, the appellant has obtained technical assistance which has been used in the development of prototypes and the consultancy fees amounting thousands of crores of rupees has been paid. The service tax credit taken is about Rs. 137 crores and even assuming 10% rate, the consideration for the service paid would be of Rs.1370 crores. It is absurd and irrational to suggest that such a huge sum is paid to the consulting engineers for developing only prototypes and these services are not "in relation to" the manufacture of commercial vehicles. As held by the Hon'ble Bombay High Court in the case of Deepak Fertilizers & Petrochemicals Corporation Ltd. (cited supra), the definition of the expression "inputs service" covers any services used b....
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....ce as well as an indirect significance depending on the context." [Emphasis supplied]. In Renusagar Power Co. Ltd. v. General Electric Company and Another (1984) 4 SCC 679, Hon'ble Court observed as under: "Expressions such as "arising out of" or "in respect of" or "in connection with" or "in relation to" or "in consequence of" or "concerning" or "relating to" the contract are of the widest amplitude and content and include even questions as to the existence validity and effect (scope) of the arbitration agreement." 7.3 In view of the above, the scope of the expression "input service" is very wide to cover not only services used directly in the manufacture of commercial vehicles but also services which are used indirectly or in relation to the manufacture of commercial vehicles. Therefore, in the present case, we accept the contention of the appellant that the consulting engineers service which they received from the foreign as well as domestic service provider are in relation to the manufacture of commercial vehicles by the appellant and therefore, the appellant is eligible for the benefit of service tax paid thereon. As regards the Revenue's contentio....