Karnataka High Court
M/S United Telecoms Ltd vs The Commissioner Of Central Excise on 27 June, 2013
Bench: D.V.Shylendra Kumar, B.S.Indrakala
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IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 27TH DAY OF JUNE, 2013
PRESENT
THE HON'BLE MR. JUSTICE D. V. SHYLENDRA KUMAR
AND
THE HON'BLE MRS. JUSTICE B.S. INDRAKALA
CEA NOS. 22-24/2012
BETWEEN:
M/s. United Telecoms Ltd.,
18A/19, Doddanekundi Industrial Area,
Mahadevapura PO,
Bangalore-560 048. ...Appellant
(By Sri. B.N. Gururaj, Advocate )
AND:
The Commissioner of Central Excise,
Bangalore-I Commissionerate,
Central Revenue Building,
Queens Road,
Bangalore-560 001. ...Respondent
(By Sri. P.S. Dinesh Kumar, Senior Standing
Counsel)
These CEAs are filed under Section 35G of the
Central Excise Act, 1944 arising out of final order No.06
and 07, dated 04.01.2012 passed by the CESTAT, South
Zonal Bench, Bangalore, which sustained the order of the
lower authorities and dismissed the appellant's appeals, in
the interest of justice.
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These CEAs coming on for Admission this day, D.V.
Shylendra Kumar. J., delivered the following:
JUDGMENT
This is an appeal under Section 35g of the Central Excise Act, 1944 the appeal is directed against the order of the Customs, Excise & Service Tax Appellate Tribunal, South Zone, Bangalore which is dated 4.1.2012 passed in Final Order Nos.6 and 7/2012.
2. The appellant has sought to raise the following questions as substantive questions in this appeal:
a. Whether the Hon'ble Tribunal traversed beyond the scope of the original proceeding in inquiring into the question of the application of the sale proceeds of the sale of shares of dismissing the appeal?
b. Whether, the Hon'ble CESTAT is correct in holding that there is nothing in the Memorandum of Association or in the Director's affidavit to show that the shares were sold for accomplishing any purpose integrally connected with the business of the appellant?
c. Whether, the Hon'ble CESTAT is correct is holding that the stock broker's service is not an input service within the ambit of definition under rule 2(I) of CCR 2004?
d. Whether the Hon'ble CESTAT is correct in not following its own earlier decision in 3 Bharat Fritz Werner case on very same issue?
3. The appellant/assessee is a manufacturer and supplier of telecom equipment and other related products such as Mobile phone exchanges, SMPS Power Plant, High Speed line driver, assembled printed circuit board for telecom equipment, CDMA wireless test set and cellular mobile telephones falling under the Chapter 85 of the Central Excise Tariff Act, 1985. The appellant also claims to manufacture in relation to taxable services such as installation, commissioning, maintenance and repair, manpower supply in respect of its products and also renting of immovable property and clears its final products on payment of duty to the manufacturers or on payment of output service tax as the case may be.
4. The appellant/assessee had invested in shares of another company by name M/s J T Mobiles Limited later known as Bharti Airtel Limited at the time when the cellular services was introduced in India. 31% of the share holding was with the other company. The share holding 4 proportionately got reduced with M/s J T Mobiles Limited in which the appellant/assessee had invested as it got merged with Bharti Airtel Limited. It appears the appellant/assessee sold away its investment by way of shares in the Bharti Airtel Limited in November 2008.
5. For that sale of the shares, the assessee/appellant had availed the services of the stock brokers and on such services, service tax had been levied. The appellant who had borne the service tax had sought for availing input service credit of the amount of service tax paid as against the excise duty and service tax payable under the Cenvat Credit Rules, 2004 as an input service. The original authority denied the availing of cenvat credit being of the view that the input service in respect of which tax had been paid i.e., the amount paid as service to stock brokers did not come within the definition of input service as per Rule 2(l) of the Cenvat Credit Rules. The assessee had contended otherwise that it is very much part of the activities relating to the business of the appellant; that the amount realized by the sale of shares had been utilized for 5 the purpose of carrying on the appellant's business viz., that it was utilized for the business purpose of the company and the amount had been credited to the current account of the appellant and was used for its business activities such as paying salaries of employees, discharging of loans etc. The assessee being aggrieved had preferred the appeal to the Commissioner of Central Excise (Appeals No.1), Bangalore in Appeal Nos.315 and 316/2010/
6. However, the assessee did not meet with success as the appellate commissioner dismissed the appeal affirming the view taken by the original authority that it did not constitute any input service having regard to the nature of the business of the assessee and the activities of the assessee.
7. The assessee further appealed to the tribunal. The tribunal which heard the learned counsel for the appellant, company and representative of the department, noticed that the stand of the assesssee as per the affidavit filed by the Working Director of the Company is as under: 6
"the money received as sale proceeds of the shares were credited to the current account of the company maintained with Axis Bank and the same merged with other moneys which were lying to the credit of the company in the said account. The money was used for the company's operational purposes such as paying creditors, salaries, capital expenditure repaying the company's debts and the like. As the company has branch offices and is holding accounts with other banks also, the money from the above current account has been transferred to other banks also. I state that, in the bank account, distinction cannot be maintained based on the source of money credited to the account. The bank account of the company will contain thousands of transactions of debits and credits and it is not able to trace the source of money for each cheque issued by the company or each debit made to the bank account. Once the credit is available, it is used in the ordinary course of business for all the business purposes. In this case, I state that all the sale proceeds arising out of Bharti Airtel shares have been used for the company's business purposes alone. I state that the sale proceeds have been used for financing working capital requirements, capital expenses, and for repaying the debts of the company".
8. It was urged on behalf of the assessee that there is integral connection between the services availed from the stock broker and the business activity of the company and reliance was sought to be placed on the decision of the Bombay High Court in COMMISSIONER vs ULTRATECH 7 CEMENT LIMITED 2010(260)ELT369(Bom). It was submitted that the stock broker's service used by the appellant for the purpose is covered by the inclusive part of the definition of 'input service' and does qualify as one of the illustrated activities expressed as 'such as' figuring in the inclusive part of the said definition.
9. On the other hand, it was contended on behalf of the department that unless the assessee is able to establish the integral connection between the sale of shares and the business of the company (manufacture and clearance of excisable goods), the assessee does not qualify for claiming input service credit and pointed out to paragraph 29 of the Judgment in Ultratech Cement's case (Supra) as against paragraph 35 relied upon by the assessee. The department representative also relied upon the decision of the Bombay High Court in COMMISSIONER vs MANIKGARH 2010(20) STR 456 (Bombay). The tribunal which examined the case of the appellant found that the decision of the Bombay High Court in Manikgarh Cement's case (supra) had in turn placed reliance on the Judgment 8 of the Supreme Court in MARUTI SUZUKI LTD. vs COMMISSIONER 2009(240) ELT 641 (SC) wherein it had been held that certain taxable service rendered by the Company in the residential colony was not integrally connected with the business of the assessee which is one of manufacturing cars and it was held that the expression relating to 'business' in Rule 2(l) defining input services did not cover such activities of the assessee.
10. Examining the facts on hand, the tribunal found that the assessee while carrying on the business of investment in shares and sale of shares and in the process had paid some service tax but its main business was only manufacture of instruments in telecom related industry and therefore, no integral connection was found between the activity of selling of some shares held by the assessee/company in some other company and the rendering manufacturing or service activities. Therefore, the tribunal thought it proper not to interfere and dismissed the appeals.
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11. It is against this order of the tribunal, the present appeal, as noticed earlier, is filed.
12. Appearing on behalf of the appellant, submission of Mr Gururaj, learned counsel is that the tribunal has not borne in mind the definition of input service as defined in Rule 2(l) of the Cenvat Credit Rules; that the assessee had infact utilized the amount realized in the sale of shares for the purpose of investing in the business activities of the assessee; that it had been credited to its current account and used for the payment of salaries and discharge of other loans etc and therefore, it is a relatable activity as it is very much an integral part of the business activity of the company; submits that the authorities and the tribunal are in error in disallowing the Cenvat credit.
13. Notice had been issued to the respondent/department who is represented by Mr Dinesh Kumar - learned Senior Standing Counsel for the respondent.
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14. Mr Dinesh Kumar points out that no exception can be taken to the order and findings of the tribunal; that the activity of the appellant/company was only in the telecom products manufacturing and rendering services in that regard; that it did not cover any financial activity or even an activity in the nature of investment and sale in the share; that it was not incidental to the business activity but the assesseee which had invested earlier in shares of some company had sold it and paid some service tax to the facilitators. That cannot be claimed as an input credit for the purpose of claiming the set off as against the Central Excise Duty or Service Tax Duty payable by the assessee; that the activity did not establish or form part of any integral business activity of the assessee.
15. Mr Dinesh Kumar also submits that the tribunal has rightly placed reliance on the Judgment of the Supreme Court in Maruti Suzuki's case (Supra) which has been followed by the Bombay High Court in Manikgarh Cement's case (Supra) and therefore, prays for dismissal of the appeal.
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16. We have bestowed our consideration to the orders of the authorities, submissions made at the bar and the materials placed before the Court along with the memorandum of appeal.
17. No doubt Mr Gururaj, learned counsel for the appellant has drawn out attention to the Memorandum of Articles and particularly, Article 8 wherein one of the incidental objects of the assessee can be, "To invest and deal with the monies of the Company not immediately required in any manner and in particular to accumulate funds or to acquire or take by subscription, purchase or otherwise however or to hold shares or stock or debentures, in or the security of any Company, association or undertaking in India or abroad or to place monies on loans, deposits on interest or profit sharing terms."
18. Mr Gururaj has also drawn our attention to paragraph III of the Memorandum of Association which 12 deals with the main objects of the company to be pursued by the company which reads as under:
(A) Main Objects of the Company to be pursued by the company of its incorporation:
1. To manufacture Television sets of all types and descriptions and its components.
2. To manufacture and deal in Electronic Components, instruments, equipment, transmitters, amplifiers, receivers, walkie-
talkie sets, systems circuits required in military and commercial, electrical industry, including heavy-duty weather- proof communications, telephones, radio frequency microphones, computers rack and panel printed circuits and television components, potentiometers, micro-
switches and trimmers.
Though the activity of investment and dealing with the monies of the company, not immediately required in any manner as found in paragraph 8 of memorandum, comes under objects incidental or ancillary to the attainment of the main objects, it is nevertheless one of the objects of the company and therefore, it cannot be said that it is not an activity with which the company is involved. 13
19. On the other hand Mr Dinesh Kumar, learned standing counsel for the respondent/revenue submits that the main object of the company is only to manufacature telecom sets of all types and its components and also manufacture of telecom and electronic equipments etc. While the assessee is carrying on its main activity, the objects incidental or ancillary to the attainment of main objects is not carried on by the assessee and at any rate as pointed out by the leaned counsel for the assessee in sub- para 8 of incidental or ancillary objects, the activity is not carried on a regular business scale but in isolation and amount obtained by sale of shares that was invested in other company, does not partake in the business activity of the assessee which is carried on on a regular basis and at any rate, it is not the activity carried on by the assessee at the relevant point of time and therefore, the tribunal is right in observing that the assessee is yet to establish its activity relating to financial transaction for claiming it as input credit service tax paid to the facilitators as against the excise tax liability or service tax liability. 14
20. We are of the opinion that on a perusal of even the main objects and objects incidental or ancillary to the attainment of main objects of the appellant, it is not that the assessee is carrying only the main objects and not the incidental objects as in Sub-para 8 of Part B. But the question whether the incidental object of investing and dealing in shares would in any way relate to and form part of the main business of the assessee has been answered by the authorities in the negative. The fact remains the incidental business which finds mention in para-8 is not being actually carried on and a categorical finding is given by all the authorities in that regard. Therefore, we are of the opinion that the claim for input service credit is not against any liability arising out of the business activity of the assessee and not relatable to the business activity of the assessee and therefore, we find that there is no scope 15 for interfering with the order of the tribunal and accordingly, this appeal is dismissed, as not involving any question of law, wrongly decided by the Tribunal requiring examination in this appeal.
Sd/-
JUDGE Sd/-
JUDGE brn