Custom, Excise & Service Tax Tribunal
M/S. Tata Motors Ltd vs Commissioner Of Central Excise, Pune I on 1 August, 2016
IN THE CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
Appeal No.
E/86153/13
(Arising out Order-in-Original No. 42/RKS/CEX/P-I/2012 dated 12.12.2012 passed by the Commissioner of Central Excise, Pune I)
For approval and signature:
Honble Shri M.V. Ravindran, Member (Judicial)
Honble Shri Devender Singh, Member (Technical)
1. Whether Press Reporters may be allowed to see No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the No CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy Yes
of the Order?
4. Whether Order is to be circulated to the Departmental Yes
authorities?
M/s. Tata Motors Ltd.
Appellant
Vs.
Commissioner of Central Excise, Pune I
Respondent
Appearance:
Shri Rajesh Ostwal, Advocate for the appellant Shri Hitesh Shah, Commissioner (AR) for the respondent CORAM:
Honble Shri M.V. Ravindran, Member (Judicial) Honble Shri Devender Singh, Member (Technical) Date of hearing : 01-08-2016 Date of decision : 01-08-2016 O R D E R No: ..
Per: M.V. Ravindran This appeal is directed against Order-in-Original No. 42/RKS/CEX/P-I/2012 dated 12.12.2012.
2. Heard both sides and perused the records.
3. The issue involved in this appeal is regarding the denial of cenvat credit to the appellant of the service tax paid on Consulting Engineers Services which are exclusively used in R&D activities in the Engineering Research Centre of the assessee and prototypes are manufactured. The period involved in appeal is from 01.04.2011 to 31.12.2011. The adjudicating authority after following the due process of law analysed the provisions of Rule 6(1) of Cenvat Credit Rules, 2004 and held that appellant is ineligible to avail the cenvat credit of the service tax paid on the input services which are used in Engineering Research Centre (ERC).
4. Ld. counsel appearing on behalf of the appellant after taking us through the factual matrix of the case submits that the adjudicating authority has erred in coming to a conclusion inasmuch as the Engineering Research Centre is within the factory premises and the prototype which are manufactured are further used for manufacturing of vehicles on which excise duty is discharged. He would submit that in an identical issue in respect of the very same assessee, for the period 01.04.2006 to 30.09.2009, the lower authorities held against the appellant which were appealed before the Tribunal in appeal no. E/1037/12, E/939/11 and E/1050/11 and was disposed of in their favour by the bench by final order no. A/773-776/13 dated 21.08.2013. He would produce a copy of the said judgment and also copy of the application for rectification of mistake which was only in the cause title and Order-in-Original number.
5. Ld. Commissioner(AR) appearing for the revenue would submit that the Prototype means the trial model or preliminary version of a vehicle, machines etc., hence the service which are rendered by the Consulting Engineers in ERC are only for preliminary vehicle or the vehicle on which no central excise duty is paid. He would be refer to the meaning of the word prototype in Shorter Oxford English Dictionary. It is his further submission that the prototype are destroyed during the testing of the vehicle and are exempted by notification 167/71 which would mean that the prototype which are manufactured/built in ERC are exempted from payment of duty, corollary of which is that the appellant is not eligible to avail the cenvat credit on input services. He would read the decision of the Tribunal in the case of Jyoti Structures Ltd. 2004 (170) ELT 190, Robert Bosch India Ltd. 2004 (178) ELT 701 for the proposition that testing charges in respect of prototype transmission towers and import of capital goods for development of software of prototype of the car credit cannot be availed. He would also refer to the decision of the apex court in ITC Ltd. 2003 (151) ELT 246 for the proposition that samples which are drawn during the manufacturing process are not liable to duty. Applying the said analogy, prototype which are manufactured are not liable to duty, hence cenvat credit is not eligible. In the same proposition, he would rely upon decision of apex court in Medley Pharmaceuticals Ltd. 2011 (263) ELT 641 (SC).
6. On consideration of the submission made by both sides, and perusal of the records, we find that the issue involved in this case is regarding the eligibility to avail cenvat credit on the input services which are used in ERC which manufactured/ developed prototype of cars.
7. Ld. counsel appearing for the appellant was correct in pointing out to us that identical issue has been considered by this bench in final order dated 21.08.2013; we reproduce the relevant para wherein the ratio applies to the case in hand.
7.1 From a reading of the above Rule, it is seen that any service used by the manufacturer whether directly or indirectly, in or in relation to the manufacture of final products would be eligible for Cenvat credit. When a manufacturer receives Consulting Engineers Service for the design of the vehicle and utilised those services in the manufacture of prototypes, the usage is in relation to the manufacture of vehicles. "Prototype by definition is only a preliminary sample. As per Shorter Oxford 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 Honble 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 by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products. The words directly or indirectly and in or in relation to are words of width and amplitude. The subordinate legislation has advisedly used a broad and comprehensive expression while defining the expression input service. Rule 2 (l) initially provides that input service means any services of the description falling in sub clause (i) and (ii). Rule 2 (l) then provides an inclusive definition by enumerating certain specified services........ First part of Rule 2 (l), inter alia, covers any services used by the manufacturer directly or indirectly, in or in relation to the manufacture of final products. The inclusive part of the definition enumerates certain specified categories of services. However, it would be farfetched to interpret Rule 2 (l) to mean that only two categories of services in relation to inputs viz. for the procurement of inputs and for the inward transportation of inputs were intended to be brought within the purview of Rule 2 (l). Rule 2 (l) must be read in its entirety. ......... This must be read with the broad and comprehensive meaning of the expression input service in Rule 2 (l).
7.2..............
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 Revenues contention that Notification No.167/71 unconditionally exempts a goods manufactured in educational institution, technical or research institutes, this argument of the Revenue is not acceptable for a variety of reasons. In the appellants own case, the CBE&C vide order dated 29/11/1973 held that the appellant would be eligible for the benefit of the said notification only when the prototypes manufactured by them get destroyed in the process of testing of the goods or it is scrapped after testing and experimentation is over. It is also on record that the appellant had cleared the prototype goods on payment of duty either for export or for other purposes. If that be so, the prototypes cannot be construed as exempted goods. In such a scenario, provisions of Rule 6 (5) of the Cenvat Credit Rules, come into play. As per the said Rule, when input services are used both in the manufacture of dutiable goods as also in exempted goods, then the appellant is eligible to avail Cenvat credit of service tax paid on certain specified services manufactured by the said rule. Consulting Engineers Service is one of the specified services under sub-rule (5) of the said Rule 6. Viewed from this perspective, the appellant is not required to reverse any credit of the service tax paid on consulting engineers service and we hold accordingly.
8. Since this bench in an identical issue in respect of the very same assessee for the earlier period has come to a conclusion that cenvat credit cannot be denied on the Consulting Engineers services which are utilised in ERC; respectfully following the same, we hold that the impugned order is not sustainable and accordingly, set aside the same and allow the appeal.
(Operative part pronounced in Court) (Devender Singh) Member (Technical) (M.V. Ravindran) Member (Judicial) //SR
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E/86153/13