Karnataka High Court
Commissioner Of Central Excise vs M/S Ecof Industries Pvt Ltd on 3 February, 2011
Bench: N.Kumar, Ravi Malimath
Vf~T§;{ri'§.{;.§<u%%%aresha:2 for Sr§.8,§\i,G;,:mraj, Advscates}
HJTHEk§GF§CQUR?Cfl'KARNATAKAiH"EANGALORE
DATES THIS THE 3" DAY OF FEBRUARY 201
PRESENT
ma HOWBLE MR. 3usT:<jE z\':'_:. rT<':;.V!z§%:AR' "
AND H' % .
THE i~£ON'BLE MR.3UsT:C'E:_F<Av1 MAs.'¢:"MA:TH':',
c5A.rm7. 20 V. %
BETWEEN:
Comméssionér o§ 'C,éh€i*3é 4E'§'>€'.'jLjLE.é"e'*~
Bangaiore ~1,..CQtfimiss1i:Q:1er'a_te{_' '
C.R.BuEldingV, Queewsf Rc?1ad,_
Bangalore «ages 7 ...APP"ELLANT
(By Sri TM*ven'::;t%aVVRéd5'y.;. ;:a.;:}£;;%o{:ate)
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ws;sags:1:nd;;:;§:~e%:s::s%.p%.;:r;. zm,
Plot N(1.f:31_'& 6'3'_;_~.KIADE Industrial Area,
'% V T'-amiazur -2 553 :30,% *
Kt:)i.ar :32s:rac:t:';~ = " ...RESPOE\i{Z1EE\1T
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charges, traveliirig expenses, advertising, market research,
courier, xerox maineenariee, utility eervices, bank charges,
Ali/lC, professienai charges, etc. The head effiee
distributed the service tax to the aseeesee. The;"as'ses'Se'e_. 4
availed end utilized the said credit fer peym.ee.tA4_:i3f LZ~e:ritrali"
Excise Duty on their final ;3i'Odt3:r;iZS.:.,i fi_ii"liL"-E' "services=ilA_lr:2:f
question were received by their.4_head".Qffice evf:'C;ifie4riiiaij'; in
respect of advertisement and ii§'t.i_i'er_Vserv'i-tee,'fiwiiigch are
meant fer the products iri3_a'ifiufe.i_V;c;ttg.fe'd«._i;v"ti*3eir unite located
at other pieces i.e., other_tfha;ri--V*'The services
like teiephone,2_'ée:;i:.2:.rity":ha:rg'es;_" aii received by
them ai§:_ch.e'riiia'i7:;iai§i'ln':5i;i,:_re.Iated to Maiur Unit. On the
groimé tha't_;iie.Vae3e4S§;'e'eé'::_E:ad contravened the provisions
Of eiiiig érzii of ';::rre.evf;§ifric:rei:liii: Ruies {roi short hereinafter
'=__ref:er.i'es:i .,te«.e:~:i:'he 'Ruies'), a show cause rietice came to be
ieeiiiehd.'tevtiée-._e'e;é'eseee on 31k}--2§2DQ? tie shew cauee as to
.Vwiiv'.44i"i'rei;.¥;;iar.V service tax credit availed of Rs.3,09,E18
duty ~i~ Rs.-4,631/-- cess ) on input services
...i.'.~w%'iieiii"are est need in air iii reletien its the meriiifecture ef
...4..
finished geedés or in reietion to their manufacturing unit
during December 2GO€3i sheuid not be demanded and
recovered from them under Ruie 14 of CENVATH.Cj:r_e'di.t
Ruies, 2004 reee with Secticm 11 {A) of Centrai
1944 aleng with interest and penaity. The ae.se.e:$«eVe"Afi:ie.d "
detaiied statement of objectioeis' ainécijj.iigritended~..i__i:5t{.uE
referring to Ruie 7 under vvhich an irir5u_té:ervir;e'u'-xii:§:trii:>u:'§;o'i*
is aiiewed to distribute CENVAT'Veretjit_ in iesgiiect cfiservice
tax eaici on input service._4_i:'t:;. its.'_e'2eniLiFee.!;ii"riMng unite er units
previding output' servi;;g_:i' .Th.ve_Vre§fereiV.' sought for
dropping of Authority
taking eote Féuie 7 and as wen as the
circuiar is§:"uie€E.i§_'{.se'rci dropped the proceeding.
Aggr.ieye<:f~ by ithev-..<$e_me,, the revenue preferred an appeai
iaejmre t_i§e=.VC;in1r_rzissioraer of a Central Excise (Appeai$~«I),
Commissioner feurid that the Credit
«eistriiiimstetji "wee pertaining to the advertisement of the
VV'""'xvi;3redr1i_ct "~;«mic;:r: were manufactured at the reepoeeenfig
.'e'i;ifie'r":§eii: and net in their unit at Feiaiuri Tee creeit evaiieé
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V' :'~erd'e~t_in erigieei. Aggrieved by the same, the revenue is in
--f;eQeeaL
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Divisioe, Bangaiere was set aeide and he ceefirmed the
demand and interest and directed fer payment of penalty
of esi1,oe,oee/~ eeeer Rate 15 of cemvm Credit
2004. Aggrieved by the same, the assessee
appeal tea the trébureai, The tribunal reiying_.V:)»r:i"---F?.u¥ef~"7t:
weii as the master circuiar issued
the combined reading of Ruie 2? and t'iiei"c.iarifa[ei:é;r§k'<:ir<:tiier 'V
dated 23.082007 cieariy shoiAis.:tii*:a'c the-.efe"'*a--r-ie draiyr two
restrictions regarding thevuérevditfi The
said two restrictiens have facts of this
case. The rest'ri§.j:';1i_dé1S eoughtst:O~e'e--:_'app_E£ed in this case in
iimitingfthe 'e'éstri'EiiJtio:14"eef_."t;i1e "service credit tax made in
respect efkhe Maiurt'e';_n'it':_'t3n the greund that the services
.-v..'werje'5--iise"<;E in reSee(;_t____Qf' the Cuttack unit finds ne mention
inflthg .,re§e\,rg§'r1t__rL:ies and therefore the said restrictien
ee-zfi.s";*:i:l*: Accerdingtyg he aiiowed the appeal, set
g aeide' tztze.e'rd.er of the aepeiiete authority and restered the
3' The Leareeé Counsel for the revenee'je::eeV§:E'i:*;g
the irrmugnee erder contends that admitted?-Q"tifie:'V'eervi¢e
tax is paid in respect of the emit at»rC::t4tec%§.ee4d"rifijie"§i§ii:g}:.t a
£10 be evaiied ey the unit at E'v%aiuri;i«A eerie éeid'
been paid in connection witFr:fi'e..VEnp1§'i: u_sedV in_r%:.e'r1'ufe'5cture"'
of products at Maie§__enitVAV0.ru:'irn_"the edvertis.ement or
prodectien at Maiur UVni'*:.,V:fiti:ei'--e_eE;ese'eVe:_ entitied to the
benefit of cei§.iai'p;r e;e'de;~ The fewer
Appeiiate which Grder has
been tribunal and therefore
he sz5e:ij'rzit.s~eAVVee'se-V-fereiééfierrfereiéce is made out.
4,.' .,_ 'i5'ier' Learned Counsei for the
assefssee. eebrei.t_S"rha{' the definition of input service and
fl"%::pii't.ser%g*éeeig;>rovide:* read with Rule 3(1) and Ruie 7(1) ef
I '--iiiie"_ruiieefawjiyaiéiee«:'E':: very clear that it is net the requirement
ofAi*a.w,Athe unit, which nae paid the tax aione, is
'4'*.. '"e.ni;it¥ee"iae tee benefit ef the credit under the eeheme. if e
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manufacturer has seéverai units: and has paid input tax_.,.__ne
is expected to register himseif as a input
distributor, ceiiect aii these taxes gaid "
distribute the same to its variousitsnits i:=><cVe'j;§'it--VI.'toV"t.'r5~i,<;>
conditiens which are mentioned in 'i3uié.'_'?'.'i Téieiirefoteg_:r:s§"--.
submits that there is no rea£§9,n"-i..for iAntiaf_ri2'3_ijiin~{; tine
etder passed by the,.t!'ibUi:3a--i,:.'"--W'Vi~i.Ch 'ié'»s;.tifir.:5tiy in
accordance with iaw.
5, E2}.-ith,eiiAI§_i_g'.nt' tije --..af€ii'e$ai6 facts; and rivai
COi'it€E'i'CiOvi'3_S_,,V t'i"ie_V"'q:t::;g_si;i0..n" tfiat 'a.ri,5e:'s fair consideration is
that whén --.s'erviVtéj"--.t4a;<,4"i:3__""';3ai<i£ in respect of services
obtained by/"a__4Uf}VitxEzE.'Ci'it'i$%:'3< whether such a credit of the
_._said $.<?{r\ric'e taxV';3"a.itiVV_'t:§i_nnot be utilized by a unit at Maiur
"~i_beiQ'n..gVir;gvtQt.ijé~--,s_ame manufacturer, narneiy the assessee.
TA5 \i"ifV.E"v"ai'€."? concerned oniy about input service,
it is "S'Uffiv--§C;Eéi'"fi_ to extract the definitien Gf input, input
"'.v."£;§é'r'xri;i,;e 3r*ie::i. innut S@E""v'i(TIS dégtributor, wnici: are ciefined at
M9".
Rafe 2 (R) »-- 'Input', Ruie 26) ~ 'Insist service' and Rafe
2(m) ~ 'twist service provider' as :.m<:£er:w
"i52t;le .2 (K) "lrzpu't"means~
(i) all goods, except light diesel_ol!;_:hlg;'§.l.::'
speed diesel oil ma' ";'r?otor V
commonly known aneypetrol, o:;éem
or in relation .to=._t\he fr;-arVwfecé1jfeAj"o.fV
final products tyvljether V"o'.'.'.re'ctly er
l'r7o'lrect!y*' and ,w'heth'ef"'colwtalned "in
the final x;5';"OdlJCt'_ notfiazid mctrludes
lubricating oils, gzfelaseey. ttuttlhg oils,
;t:oolg3§i7ts,"._ aiceessorleéi' = .of: the final
'etje.e?*e§1"'x;alohg. with the final
AV g:zt§o{js- tlsed as paint, or as
" % paglkvfig ';tn.;§'tet**lal, or as fuel, or for
gler;evrat~:?on'~.--"lVof electricity or steam
t1S'f.3d__fl? or in relation to manufacture
*.__of final products or for any other
' V«;:tg.rpose,
within the factory of
' 'j__ .f3roduction;
(:7)
all goods, except light diesel oil, high
speed cjiesel oil, motor spirit,
commonfy l<r:owr:« 33 petrol' and motor
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Ra;/e .2 (I) "input service" means any Services»
5;) used by a provider of taxabie se_r3;>i<:ef » A'
_.. W
vetzicles, used fr}: prew'0'i'ng any
output service,'
fer providing an output serw'r:e,_._ L"
direcrtiy or indirectly, 2?: er in reV:'etian'*
to the manufec't;}}*e_% of frr2.5_if';3_r<J:jz}k:ft?3"'
and ciearance o_f__tI'r1_e:'- ..pi'edt!ets_ from
the p!ace'._p5f. rer.r:m;faZ; ~ u ' " « _
and r':2CIur:§'es:'Vse:j?;/i'tf'es' 'used in
'v~.re/aAtif:??{7 tpsetting up, modernization,
Vrehoé/"ation'i'i'--QrV..~repairs of a factory,
",:1reimis'es" ;;)rovider of output
Séfjitlltie er an office reiating to such
facterfior premises, advertisement or
safiies promot/'00, market research
'Asterege upto the piece at removes'
procurement of inputs, acttivities
refeting ta business, such as
aceountmg, aua'itz'r2g, financing,
recruitment and euefity Centtoi,
(ii) used by the rnanutacttirer,
M. 11 ,...
r:oar:hi'ng and train:'ng, ctempufer
networking, Credit rating, share
registry, and security, i}{?W5i'fi(1.. "'.4'_>'~.
transportation 02' inputs er <:a;;ii'a'ie'u'.'__'__i"V5
goeds and eutward :'§'{'§i'2S;f)C)ff'aL?__l:;"iO:":Is'w:
upto the place of reme»vai;'
2 (in) "input service di's«iEi'i'i>ui?or" in.eans"«. " i'
as office of mai2~:ifac:i:_uiser'-fleru
producer of fine! x,e'rc§d¢;g:ts er efoivider
of outpfib. '_ seiiiniee; i 1. yviiiisij reeeives
invoices issufedi's;ii%c?';er__:i1i£e..LéiXJi of the
Sei=i/Vice ;"i"a><-- i 2 'to wards
3._bui}:fi;3ses' E7?' i'ijg:2.:ii*' sefviees and
~ bviiivor, as the case
'iney;."'be;'-e}i.=giig:n for the purposes of
" :iisVfri:E§Vu§ir2Q_"..'s':he Credit of service tax
V me said' ser'vi(:'es fr) :~§i'.1<:i;r
mahiiféeturei' or producer or
Aviiprovider, as the case may be,"
F>§L3.VE"ej_ has been defined as :mder:~
. "A manufacturer er producer of fine!
" preeucts er 5 ;:irevi'c:/er of taxebie service sheii
' -fie aiiowed ze Sake credit':
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8. It is in this eontext, the defihitéoe of input ,<:..e'2?>~_t::E'r;e_
ééstribeter makes it clear that a manufe<:tur"e'r'--C.oV--r.:__'eéi.:L'".
producer of a final product or e grovider of seirvéee " u
may have more than one unit andirmaiygait'itistrs'hLrt'e;:f___:ihisr
various parts of the ceeetry. ,Zét4__.Es
definition of service eistributorttvivéieefihedfita.§_VV:e't§iceVf;of the
manufacturer or preducehef or erexv/ider of
output service whfeh rece_iy:'esVV under Ruée
4A of the Serv§'ee":?Te'x "tVo'v»'a~r<é:is purchases of
input er, as the case may
be, chaiéen efdistributing the credit of
service tax' paid oh'--th'e.VA'sa{d~services to such manufacturer
er prrotjizcer er ;j';'e__\/ider,' as the case may be, Therefore,
:"v.Vth:e«.iaww that the manufacturer who wants to
a\?'aii"-tide ber.2.e_fitV.t'Vef"this service tax if he has more than one
urzit sh'ou!e" eiso get registered himself as a service
""53"'?--;:f*:msaer anti then, he wouid he abfe to colieet ah the inpet
s_e'r=x§Et;e--A'ta>< eaéd in alt its; units and aceemuiate them at its
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head «office and distribute the said credit: to its various
units.
distribution is erevideé in Rafe 7 winch reads ~
"Rule F, Manner of distribuzijczn __of eredi'f--:£?;/V''''' '
(a)
We
input service distribuiégyr,
service distributor. may 7.diS~tributTe,.".; °
CENX/AT Credit in ieebect oi ine..§eMcé""
tax paid on the ::e_vrvic:.§..A,£:;~_
manufacturii2 "junfije ':,..i;_ii',fS« . % pro viding
output service, to-.._:ithef'V.fe:.s'low:'ng
Condit-ib::.5_, _ V
the' _.¢jiefi:ibe§ed 3 ebcument
i'efer,f_e';:'_ toiiin Qdbeéi riot exceed the
c?!i7(3{i,'?l5'_'OfSé?iT\./iC_é tax paid thereon, or
moi? tax attributable to
eefikiee :1se*.':'_n" st'-~£init exciusiveiy engaged
ain m'a-n_£)fectere of exempted goods er
i.,"i'»;_7r'0..\(r'di'ngVMei; «exempted Services shall not
" ~ _ i psi 1:'iei'.fibuted. "
WM"ii."'eViȎi:ribgJtio'ii'sof credit by an input service distributor.
At the time of éistributien, the manr'aeif"'«..iefvV
"'i'*~hert.f€~éf<>'re', eniy {we limitations are put for the
E~."§%i--:,tV:Ei§,i',-i'it Carma: exceed ihe amezmt ef service tax paid
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and secondéy, the credit of service tax attributable'---..»t0
serv'i<:e used shat! not be distributed in a unét e>§.:f':::$'iv4%:%dy"v..
engaged in the manufacture ef exempted M
providing of exempted services.
9. Infect, the Beard haVs~..i_:S'$'*._:ed Ci§'CLI_ld§'f_7 E'!-Véfé'%'yi'é§g
in this regard, which is ex§racted'*'E:r§r_:'?f§'ed.tribu"riai'-at"bare 7*'
which reads ag a.snder:- '
"Para ?. V éiééra :'::.'j§é.T"_$"%{{aSté:ar'x'v Circuiar
f€f€9;TFE?(§W{";} !d.._.--,'ijdx}o§féf£e reads as
'*';:>,.3;--a distributor' is an
'A effice 'or ééfab/:i§'f3d}??:ent cf a manufacturer
- .. of"4é:d:isaZ§/e or provider <22' taxable
1._dA':servicé;" "v--Ef-«'recer'v@s tax paid :'nv0ir:es/ A, 'ii;/i!_§d':3f':'nput services proazred (on which 1 «::re9dt't$ can be taken) and .~dfSfiri"}_'3utes Sud? credits :0 its units 'pm 1/idfng taxable services or manufacturing excisabie gocrcis, The d'i5tr;'burfon of Credit is subject 30 {he c9r2d'fzfs'cns that -M (53) the Credit
--§T.':<*:p":;;;tmE:§A the manner meacribed mime?" raw. Thereffireg the MES"
cffsfribaszed againgt an eiigibie dccasmerzf shafi net' exceed the amaunz $2' 3ervi'z:ta3"~..""'« "
tax paid thereon, and {£3} crea'f:;'_ 'b?? '_~ service tax attributable to services''_'u$e:§f =. ' in a unit either exciz;sive»:'32"'n33nufac::zf*i;2::g' V n exempted gaods 0:" eXCiusiv%:é:'y'TVyfsvidffég V exempted servic:;*3___ sfwlaalf' nozf"
distributed, An in;3':;st:'¥3%<:~érvice'"dfSi*:€§;>ufix{' is required (wider S5::t§'§=r{6»§f of ff#'c';'~'--A,«'-§£t*,:, read with iVc}'£?f?)'catiQn?.;.»'{5J5'.'*2v§2e%2QQ5-S,71 ) to fake a sepajfa é'§':V.re§1_fs:tf{a'.fffa-n; '5' ~ 1C2. TheEégfo;%e,':'--__;:fi65jf??jargfthézfi {).S'}§y two limitations, which are----im§}:€>'s§é'd.':§§j; pfévveniing the manufacturer from utitvfzinégthevjCEi\.E4$fATu'c_Eéé'd__'it; otherwise, he is entitfed to the said cfregifit. Vf~'?.efeI;'k'«t§'iécause the input service tax is .-paid Vfeaiai_§3a:jt:ia:::,ifé':*«.Lm.Etv and the benefit is sought to be "avaV§}'e:'f_aE:_az3(:4£;i*i'er_ unit, the same is net prohibited under !as.%s'.- 1TtV'isv.V§r:"-".tj%:%§I=vfiantext, the manufacturer is expected to *rf»=3gis'tefi"..f*}E;3'a.sfeif as as input service distributor and i-;.§i§fl£;€V;a'.fffier{ ha is entiiied ta fiistribution ef Cresiét 9? such
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order passed by the tribamai is legai am vaiid and deeg-.;3ot suffer from any Eegai infirmity and does not can mterference and therefore it is dismisseé.
Pr5*