2016 (1) TMI 1053

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....stry of Telecommunications, Government of India, with an objective of reducing the number of towers and thus optimizing the capital and operational expenditure of the telecom operators with an overall objective of reducing call rates for end customers. Applicant is registered with the Department of Telecommunication (DoT) as service provider for providing passive telecommunication infrastructure support services. In order to carry out its operations (i.e. provision of telecommunication network infrastructure services), the applicant purchases various machines/ equipments in bulk quantities throughout the year which are used at telecom sites across India. Some of the machines/ equipments which are purchased by the applicant are Diesel Generators (DG) Sets, Air Conditioners (AC), Batteries, Power Management Systems, Towers and Shelters. The aforementioned equipments are used to provide 24x7x365 power supply at desired current and voltage levels (at -48 DC current levels) to customers' transmission/ telecommunication equipments and to maintain the temperature below 35 degrees Celsius inside the shelter. To ensure that the operations of the Company are not disrupted, the aforesaid equi....

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....rts and spares of the equipments are identified. The defective parts identified shall be either repaired or replaced with new parts or usable parts extracted from irreparable equipments which will depend upon the condition of the defective parts. V. The identity of the original equipments will remain the same i.e. the original functionality of the equipments does not change and no new product emerges or is manufactured or formed out of the repairs and maintenance activities. The activity would merely entail repairing of the equipments so as to make them functional for re-use in services rendered by the applicant to its customers. VI. The parts not available in-house shall be procured by the applicant from third party vendors on payment of appropriate excise duty as applicable. VII. Once the equipments are repaired and certified to be in good working condition, the same shall be sent to the site for use in rendering services. VIII. Applicant proposes to repair its equipments and does not propose to repair any third party equipments. 4. Activity proposed to be undertaken by applicant can be defined as under:- The applicant will undertake repairs of its own equ....

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.... said process. In other words, whether the commodity already in existence will be of no commercial use but for the said process. Further, in various judicial precedents, the following principles have been laid down by the Courts in order to determine whether an activity amounts to manufacture or not. An activity would amount to manufacture in case the same results into a new commercial product i.e. a new article comes into existence as a result of the manufacturing activity. Manufacture can be said to have taken place, when after process, a new different article emerges having a distinct name, character or use. Manufacture should result in loss of original identity of the product. 8. Applicant submits that activities involving mere repair of goods (where there is no change in identity of products) would not amount to manufacture. Further, the proposed activities of repair and maintenance are not in the nature of 'manufacture' and thereby should not be eligible to Excise Duty on account of the following reasons: a) The applicant is only proposing to carry out repair / replacement of certain parts whereby the equipments shall retain its original ident....

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....parts and spares used for their replacement of the defective ones and Service Tax paid on inspection, certification, engineering services etc. for the aforesaid repair and maintenance activities and claim set off against the output service tax paid for rendering of passive infrastructure services by the Applicant to its customers. 13. It is noticed that third issue raised by the applicant has 2 parts; a) Whether the applicant is eligible to avail Cenvat Credit on Service Tax paid on input service i.e. Certification, inspection and engineering service provided by third party vendor to the applicant for repair of capital goods, such as D.G. sets, Air Conditioners etc. used for providing output service. b) Whether the applicant is eligible to avail Cenvat Credit on duty paid parts and spares used in repairing capital goods such as D.G. sets, Air Conditioners etc., used for providing output service. 14. As far as issue a) above is concerned, applicant submits that as per Rule 3(1) of Cenvat Credit Rules, 2004, a provider of output service shall be allowed to take credit of Service Tax leviable, paid on any input service received by the provider of output services. Applicant....

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....the applicant can avail Cenvat Credit on duty paid on parts and spares used for repair and maintenance of equipment of telecom site; that applicant is not entitled to avail credit on works contract of building, a civil structure or part and laying of foundation or making of structure for support of capital goods. Central Excise Commissionerate, Hyderabad, inter alia, submits that since there is no manufacture of goods under Section 2(f) of Central Excise Act, 1944, the applicant is not entitled to avail Cenvat Credit. Central Excise Commissionerate, Kolkata, inter alia, submits that in terms of Para 3 of Departmental Instructions dated 08.07.2010, credit is not allowed on inputs used in repair and maintenance of DG sets, Air Conditioners, Batteries etc. 20. It is observed that Rule 2(a) of Cenvat Credit Rules, 2004 reads as under; (a) "capital goods" means:- (A) the following goods, namely:- (i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading No. 68.05 grinding wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act; (ii) pollution control equipment; (iii)....

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....of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003); (ix) the service tax leviable under section 66 of the Finance Act; and (x) the Education Cess on taxable services leviable under section 91 read with section 95 of the Finance (No.2) Act, 2004 (23 of 2004) "(xa) the Secondary and Higher Education Cess on taxable services leviable under section 136 read with section 140 of the Finance Act, 2007 (22 of 2007); and (xi) the additional duty of excise leviable under section 85 of Finance Act, 2005 (18 of 2005) paid on - (i) any input or capital goods received in the factory of manufacture of final product or by the provider of output service on or after the 10th day of September, 2004; and (ii) any input service received by the manufacturer of final product or by the provider of output services on or after the 10th day of September, 2004. 22. It is observed from the perusal of Rule 3 ibid that a provider of output service shall be allowed to take credit of duty of excise and Additional duty of excise under Section 3(1) of the Customs Tariff Act, 1975 paid on capital goods received by the provider of output ....