TaxTMI 
TaxTMI 
2015 (11) TMI 100
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....ch a conclusion that the appellant had availed ineligible CENVAT credit, various show-cause notices were issued proposing to recover the ineligible credit along with interest and for imposing penalties. Appellant contested the show-cause notices on merits and also on limitation. Adjudicating authority did not agree with the contentions raised and confirmed the demands raised along with the interest and also imposed penalties. Aggrieved by such an order an appeal was preferred. The first appellate authority after following due process of law, rejected the same. 3. Learned Counsel appearing on behalf of the appellant would take us through the entire case records and both the orders of the lower authorities. It is his submission that undoubtedly the CENVAT credit availed by the appellant on the service tax paid is in respect of the services rendered at residential complex/townships were attached with the factories and the said factories are situated at remote area. To ensure smooth functioning of factories, they were required to provide residential premises/quarters to the employees and such quarters were constructed and maintained by the Company and the cost was debited to their p....
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.... a proposition that it did not decide. He would also submit that the Hon'ble Supreme Court in the case of Ispat Industries - 2006 (202) ELT 561 (SC) has held so. He also relied upon the judgement of the Apex Court in the case of Mittal Engineering Works (P) Ltd. - 1996 (88) ELT 622 (SC) for the same proposition. 4. Learned D.R. after taking us through the order-in-appeal would submit that appellant is not denying that the CENVAT credit availed is in respect of the services which were rendered at the residential colony/township attached to the factories. He would submit that the Hon'ble Bombay High Court in the case of Manikgarh Cement (supra) was specifically looking on the very same issue. He would draw our attention to the paragraph 8 of the said judgement and submit that the hon'ble High Court has held that establishing residential colony for the employees can be a welfare activity undertaken while carrying out the business and such expenditure may be allowed under Income Tax Act. However, to qualify as 'input service' the activity must have nexus with business with the assessee and expression "relating to business" in Rule 2(l) of Cenvat Credit Rules, 200....
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....ppellant had considered the expenses and included the same while arriving at the cost of production of the final products manufactured in those factory premises. It would mean that setting up of residential colony/township is in 'relation to the business activity of the appellant which is manufacturing of petroleum products and clearing the same on payment of excise duty. The Central Excise duty paid by the appellant on their finished goods is on advalorem which has been arrived at after considering all the expenses that had gone into manufacturing of the finished goods which included the cost of setting up of township and the residential colony. 7.2 At this juncture we would like to record a little history as to the levy of Central Excise and the reasons for extending credit of Central Excise duty. 7.3 The duty of excise leviable under Section 3 of the Central Excise Act, 1944 on all excisable goods produced or manufactured in India is statutorily called the Central Value Added Tax. The fact that Central Excise duty leviable under concept of value added tax has also been recognized by the Apex Court in a judgement in the case of All India Federation of Tax Practitioners ....
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....ough a credit mechanism. The Hon'ble Court also took cognizance of the findings of the Apex Court in the case of All India Federation of Tax Practitioners, wherein it was held that excise duty is a tax on value addition on goods. The Court also took cognizance of the guidelines issued by the OECD as per which Value added taxes or taxes on consumption, was paid ultimately by the final consumer and that the same functions on the principle that the business should not bear the burden of taxes and that since there are mechanism and place that allow for a refund of tax levied on the intermediary transaction between firms. The system is based on tax collection in a stage process, with successive tax payers entitled to deduct input tax on purchases and account for output, tax on sales. Each business in the supply chain takes part in the process of controlling and collecting the tax, remitting the proportion of tax corresponding to its margin i.e. on the difference between the VAT paid out to the suppliers and the VAT charged to the customers. The relevant findings of the Hon'ble High Court are extracted herein below for ease of reference. "12. Chapter V of the Finance Act....
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....ded in clause (2). (2) The proceeds in any financial year of any such tax levied in accordance with the provisions of clause (1) shall be (a) collected by the Government of India and the States; (b) appropriated by the Government of India and the States, in accordance with such principles of collection and appropriation as may be formulated by Parliament by law. Article 269. Taxes levied and collected by the Union but assigned to the States. (1) Taxes on the sales or purchase of goods and taxes on the consignment of goods shall be levied and collected by the Government of India but shall be assigned and shall be deemed to have been assigned to the States on or after the 1st day of April, 1996 in the manner provided in clause (2). Explanation. For the purposes of this clause,- (a) the expression "taxes on the sale or purchase of goods" shall mean taxes on sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce; (b) the expression "taxes on the consignment of goods" shall mean taxes on the consignment of goods (whether the consignment is to th....
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....: 38. Electricity. Arguments: 15. .... 16. .... 17..... 18. .... 19. .... 20. .... 21. .... 22. .... 23. .... 24. .... 25. .... 26. .... 27. .... 28. .... 29. .... 30. .... 31. Learned counsel for the appellants in support of his argument that the words professions and services are synonymous for the purposes of deciding the question of legislative competence of the State Legislature under Entry 60 List II, placed heavy reliance on Article 276, which has been quoted hereinabove. 32. Article 276 corresponds to Section 142A of the GOI Act, 1935. However, under a large number of laws enacted before the 1935 Act came into force, power was conferred on local Governments and local authorities to impose taxes on certain activities which broadly came under the Heads Taxes on professions, trades etc. on one hand and Taxes on income on the other hand. This resulted in the enactment of Section 142A by British Parliament, which saved the power conferred by pre-existing laws to impose tax on professions, callings etc.....
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....icial decisions. The said test is also applicable to taxation laws. That is the reason why the Entries in the Lists have been divided into two Groups, one dealing with general subjects and other dealing with taxation. The entries dealing with taxation are distinct entries vis-a-vis the general entries. It is for this reason that the doctrine of pith and substance has an important role to play while deciding the scope of each of the entries in the three Lists in the Seventh Schedule to the Constitution. This doctrine of pith and substance flows from the words in Article 246(1), quoted above, namely, with respect to any of the matters enumerated in List I. The bottom line of the said doctrine is to look at the legislation as a whole and if it has a substantial connection with the Entry, the matter may be taken to be legislation on the topic. That is why due weight age should be given to the words with respect to in Article 246 as it brings in the doctrine of pith and substance for understanding the scope of legislative powers. Competence to legislate flows from Articles 245, 246 and the other Articles in Part XI. A legislation like Finance Act can be supported on the basis of a numbe....
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....rt that a tax on a thing or goods can only be with reference to a taxable event but there is a distinction between such a tax and a tax on the taxable event. In the first case, the subject-matter of tax is the goods and the taxable event is within the incidence of the tax on the goods. In the second case, the taxable event is the subject-matter of tax itself. In our view, para 57 supports the reasoning given by us here-in-above. As stated above, service tax is a value added tax. Value addition is on account of the activity like planning, consultation, advising etc.. It is an activity, which provides value addition as in the case of manufacturer of goods, which attracts service tax. In the present case, tax falls on the activity which is the subject-matter of service tax. In other words, we are substituting the word service in place of goods by applying the principle of equivalence. Under the Act, the Taxable Event is each exercise undertaken by the service-provider in giving advice on tax planning, auditing, costing etc.. It is the said principle of equivalence which equates service tax to the Central Excise Duty, one taxes the provision of services and other production of goods. S....
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.... a right to engage in trading business on the pavements of Delhi city. In that context, it was held by the Constitution bench of this Court that, the guarantee under Article 19(1)(g) extends to practise any profession, or to carry on any occupation, trade or business. In that case, the word profession had been defined to mean an occupation carried on by virtue of specialized qualifications, personal qualifications, training or skill. We do not find any relevance of this judgment to the present case. As stated above, we are concerned with interpretation of legislative heads under the three Lists in the Seventh Schedule to the Constitution. As stated above, we have to go by the schematic interpretation of those entries. Moreover, we are concerned with a distinct taxing entries and not general entries. Hence, the judgment in the case of Sodan Singh (supra) has no application to the present case. 37. In the case of Tamil Nadu Kalyana Mandapam Assn. v. Union of India and ors. reported in (2004) 5 SCC 632 the Division Bench of this Court held that service tax is an indirect tax and is to be paid on all the services notified by the Government of India. It has been further held th....
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..... Since goods in question consisted of electromagnetic waves or radio frequencies, which carries voice, messages or other data, a telephone service was nothing but a service. We are not concerned with such a controversy in the present case. In the present case, we are concerned with the legislative competence of Parliament to legislate in respect of service tax under Entry 97/92C of List I. In the present case, we are concerned with the period covered by the Finance Acts of 1994 and 1998. However, learned counsel for the appellants has relied upon para 82 of the said judgment in the case of Bharat Sanchar Nigam Ltd. (supra) in which it is observed that the residuary powers of Parliament under Entry 97 of List I cannot swamp away the legislative Entries in the State List. Entry 54, List II read with Article 366(29-A), therefore, cannot be whittle down by referring to the residuary provision. As stated above, we are concerned with the application of the above principles. In the present case, as stated above, we are concerned with the Constitutional status of the levy. As stated above, we have to examine the nature of the levy. We have done so and we have come to the conclusion that t....
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....tive overheads relating to production activity and form part of the cost of manufacture of final products." This contention of the Appellant had not been rebutted nor disputed by the Revenue either during the course of adjudication or at the appellate stage. There being no dispute that the factory township expenses incurred form a part of the cost of production and consequently applying the ratio laid down by the Hon'ble Bombay High Court in the case of Coca Cola and that of the Karnataka High Court in the case of Milipore India Pvt Ltd., credit of the service tax paid on such services is admissible as the said services used by the manufacturer indirectly, in relation to manufacture of the final products. It is relevant to note here that factories are generally set up at remote locations which are several 100 kilometers away from big town and cities. Given this fact most companies are compelled to create an integrated township with the factory, either in the same campus of the factory or at some distance so that they are able to attract and retain qualified professionals as also workmen at such remote locations. Without such townships, these companies would find it virtually....
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....of the final product manufactured by the person advertising, as long as the manufacturer can demonstrate that the advertisement services availed have an effect of or impact on the manufacture of the final product and establish the relationship between the input service and the manufacture of the final product. The manufacturer thereby can avail the credit of the service tax paid by him. Once the cost incurred by the service has to be added to the cost, and is so assessed, it is a recognition by Revenue of the advertisement services having a connection with the manufacture of the final product. This test will also apply in the case of sales promotion." 8.1 It can be seen from the above reproduced relevant paragraphs from the judgement of the Hon'ble High Court the ratio is very clear in as much the CENVAT credit has to be allowed in respect of the service tax which has been paid and which forms a part of the value of the finished goods on which excise duty is charged. 8.2 The reliance placed by the learned D.R. in the case of Manikgarh Cement (supra) needs to be addressed by us as the lower authorities have also relied upon the very same judgement to hold against the appel....