Gujarat High Court
Central Excise vs Inductotherm India P ... on 31 January, 2014
Author: Sonia Gokani
Bench: Akil Kureshi, Sonia Gokani
O/TAXAP/22/2014 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 22 of 2014
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CENTRAL EXCISE....Appellant(s)
Versus
INDUCTOTHERM INDIA P LTD....Opponent(s)
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Appearance:
MR YN RAVANI, ADVOCATE for the Appellant(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MS JUSTICE SONIA GOKANI
Date : 31/01/2014
ORAL ORDER
(PER : HONOURABLE MS JUSTICE SONIA GOKANI) Revenue has challenged the judgment of the Customs, Excise and Service Tax Appellate Tribunal ('CESTAT' for short) dated 20th June 2013 by filing this Tax Appeal under section 35G of the Central Excise Act, 1944 ('the Act' for short) proposing following substantial question of law for our consideration:
"Whether the Tribunal was correct in holding that Credit of Service tax paid on Cargo Handling Services is admissible to the manufacturer as "input service tax credit", by overlooking the Statutory provisions of Rule 2(1) of the Cenvat Credit Rules, 2004?"
We have heard learned counsel Mr.Yogesh Ravani appearing for the appellant and with his assistance examined the material on record.
Page 1 of 14O/TAXAP/22/2014 ORDER This appeal arises in the following factual background:
Respondent M/s.Inductotherm India P. Ltd., the assessee manufactures Induction Melting and Heating Furnace, Induction Welding equipments and spare parts which are classifiable under Chapter Heading 8514, 8515 and 8454 of the Schedule to the Central Excise Tariff Act, 1985. Facility of cenvat credit duty paid on inputs and inputs service was availed by the assessee -respondent under the Cenvat Credit Rules 2004 ('Credit Rules' hereinafter).
For the period from 2008-09 to 2010-11, it was noted by the Audit Department that the assessee had availed cenvat credit of service tax paid on cargo handling services amounting to Rs.10,32,141/-. Details were called for from the assessee which provided such details, inter alia, stating that the sum paid on cargo handling service at the time of export of the goods during such period was claimed giving year-wise bifurcation.
Although the attention of the assessee was drawn to this fact by the Department, it had continued to avail such credit of service on cargo handling and therefore a show cause notice was issued proposing to recover the service tax credit of the total amount vide notice dated 1 st March 2012 under proviso to sub-section (1) of section 11A of the Act read with rule 14 of the Credit Rules as also for charging interest at the prescribed rate under section AB and for imposition of penalty under rule 15(2) of the Credit Rules read with section 11AC of the Act.
By the order in original, the department rejected the claim of the assessee wherein the Additional Commissioner, Central Excise, Page 2 of 14 O/TAXAP/22/2014 ORDER Ahmedabad upheld the demand of total amount of Rs.10,32,141/- under rule 14 read with proviso to sub-section (1) of section 11A of the Act. He also imposed penalty and ordered recovery of interest as well.
This was challenged by way of appeal before the Commissioner (Appeals) who negated the version of the department by an elaborate discussion of both the provisions as well as of the decided case laws. It also did not permit the extended period of limitation on the ground that the details were provided by the assessee time and again and if there was any objection on the part of the department, it could have brought to the notice of the assessee. Thus in absence of any suppression on the part of the assessee, the extended period was not permitted to be invoked.
Aggrieved by the said order, the Department challenged the same before CESTAT which also concurred with the findings of the Commissioner (Appeals) and upheld the claim of the assessee negating the challenge of the Department. While so doing, reliance was placed on various decisions and judicial pronouncements by stating that service of cargo handling would be admissible service for availment of cenvat credit.
It is contended before us by the Department that both the Commissioner (Appeals ) and the Tribunal committed an error in holding that cargo handling service can be included in the input service as the place of removal cannot be said to be the port of shipment. It is also contended that the cargo handling service as has been availed by the manufacturer after the clearance of final products from the factory, in absence of express mention of such service in the definition clause, same cannot be termed as "input service". It is also the contention of the Page 3 of 14 O/TAXAP/22/2014 ORDER appellant that any service utilized even for the purpose of export of goods beyond the place of factory gate would not constitute input service and if the analogy could be drawn from the reasoning set out by both the authorities where the delivery of the goods is to be made at the buyers' premises, then the buyers' premise also will have to be treated as place of removal. Accordingly, it is urged to quash and set aside the judgments of both the authorities.
Having heard learned counsel Mr.Ravani and having examined the material on record, the question that requires to be considered in the present appeal is whether the input credit of service tax paid by the assessee-respondent on cargo handling service would be admissible and whether the same would fall under the purview of definition of "input service". Cargo handling service is rendered on clearance of final product from the port for the purpose of export and therefore whether input of such cargo handling service received by the manufacturer can be said to have been used for clearance of final product upto the place of removal and hence whether such amount is admissible for taking cenvat credit needs examination.
At this stage, definition of input service as defined under rule 2(1) of the Cenvat Credit Rules 2004 requires consideration. Definition of "input service" is as under:
"(l) "input service" means any service,
(i) used by a provider of taxable service for providing an
output service; or
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the pace of removal, and includes services used Page 4 of 14 O/TAXAP/22/2014 ORDER in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal."
'Place of removal' as defined under clause (c) of sub-section (3) of section 4 of the Central Excise Act, 1944 needs reproduction:
'Place of removal' means (i) a factory or any other place or premises of production or manufacture of the excisable goods, (ii) a warehouse or any other place on premises wherein the excisable goods have been permitted to be deposited without payment of duty, (iii) a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory from such goods are removed.
This Court had an occasion to interpret these statutory provisions in the case of Commissioner of C.Ex. & Customs v. Parth Poly Wooven Pvt. Ltd., 2012 (25) S.T.R. 4 (Guj.). This Court after discussing various judicial pronouncements on the expression in the form of 'means and includes' held that when a word is defined to mean such and such, the definition is prima facie, restrictive, whereas where the word is defined to include something, the definition is prima facie expansive. And, when the Legislature uses the expression 'means and includes', such definition is meant to be exhaustive, by further adding that such principles, however, are subject to certain exceptions. The term "input service" has been interpreted as under:
"18. Bearing in mind the above judicial pronouncements, if we revert back to the definition of the term 'input service', as already Page 5 of 14 O/TAXAP/22/2014 ORDER noticed, it is coined in the phraseology of "means and includes".
Portion of the definition which goes with the expression means, is any service used by the manufacturer whether directly or indirectly in or in relation to the manufacture of final products and clearance of final products from the place of removal. This definition itself is wide in its expression and includes large number of services used by the manufacturer. Such service may have been used either directly or even indirectly. To qualify for input service, such service should have been used for the manufacture of the final products or in relation to manufacture of final produce or even in clearance of the final product from the place of removal. The expression 'in relation to manufacture' is wider than 'for the purpose of manufacture'. The words 'and clearance of the final products from the place of removal' are also significant. Means part of the definition has not limited the services only upto the place of removal, but covers services used by the manufacturer for the clearance of the final products even from the place of removal. It can thus be seen that main body of the definition of term 'input service' is wide and expansive and covers variety of services utilized by the manufacture. By no stretch of imagination can it be stated that outward transportation service would not be a service used by the manufacturer for clearance of final products from the place of removal."
While considering the question as to whether goods transport agency used for transportation of finished goods from place of removal upto the premises of the purchaser, whether can be said to be a service directly or indirectly in or in relation to manufacture of final product or clearance of final product from the place of removal, it was observed as under:
"19. When we hold that outward transportation would be an input service as covered in the expression 'means' part of the definition, it would be difficult to exclude such service on the basis of any interpretation that may be offered of the later portion of the definition which is couched in the expression 'includes'. As already observed, it is held in several decisions that the expression 'includes' cannot be used to oust any activity from the main body of the definition if it is otherwise covered by the expression 'means'. In other words, the expression 'includes' followed by Page 6 of 14 O/TAXAP/22/2014 ORDER 'means' in any definition is generally understood to be expanding the definition of the term to make it exhaustive, but in no manner can the expression 'includes' be utilized to limit the scope of definition provided in the main body of the definition. To our mind this was also not the intention of the Legislature in the present case.
20. There, of course, are certain areas which still remain to be cleared. It was vehemently contended before us by the counsel for the Revenue that later portion of the definition which provides for the inclusion clause limits the outward transportation service up to the place of removal. That being so, according to them, the outward transport service utilized by the manufacturer beyond the place of removal would not qualify as an input service within the definition of rule 2(l). We may only notice two things in this regard. Firstly, in our view, when we find that outward transport service is covered by the main body of the definition which provides for means part, as specifically including any service directly or indirectly in or in relation to manufacture of final product or clearance of final product from the place of removal, no interpretation of the later part of the definition would permit us to exclude such a service form the sweep of the definition. Secondly, we notice that the definition of the term 'input service' came to be amended with effect from 1.4.08 and instead of words "clearance of final products from the place of removal", the words "clearance of final products upto the place of removal" came to be substituted. What would be the position if the case had arisen after 1.4.08 is a situation we are not confronted with. We, therefore, refrain from making any observations in this regard. We, however, cannot help noticing the change in the statutory provisions which is at the heart of the entire controversy. In so far as the cases on hand are concerned, the statutory provisions cover the service used by the manufacturer in relation to the manufacture of the final products or even the clearance of final products from the place of removal.
21. 21. We must, however, for our curiosity reconcile the expression "from the place of removal" occurring in the earlier part of the definition with words 'upto the place of removal" used in inclusive part of the definition. Counsel for the assessees submitted that when a manufacturer transports his finished products from the factory without clearance to any other place, such as godown, warehouse etc. from where it would be ultimately removed, such service is covered in the expression Page 7 of 14 O/TAXAP/22/2014 ORDER 'outward transportation up to the place of removal" since such place other than factory gate would be the place of removal. We do appreciate that this could be one of the areas of the application of the expression 'outward transportation upto the place of removal'. We are unable to see whether this could be the sole reason for using such expression by the Legislature.
22. 22. Be that as it may, we are of the opinion that the outward transport service used by the manufactures for transportation of finished goods from the place of removal upto the premises of the purchaser is covered within the definition of "input service" provided in rule 2(l) of the Cenvat Credit Rules, 2004."
This Court in Tax Appeal Nos.353 of 2010 and Tax Appeal No.204 of 2011 decided on 18th October 2012 and 7th November 2012, in the case of Commissioner of Central Excise, Ahmedabad-II v. M/s.Cadila Healthcare Ltd. had dealt with similar question in respect of various services which also included clearing and forwarding agent, courier service, etc. for availing input service credit as defined under rule 2(i) of the Cenvat Credit Rules 2004. A Division Bench of this Court exhaustively interpreted various provisions and also discussed the judicial pronouncements on the subject in respect of clearing and forwarding services and courier service. However, in the case of both these services, the Court held that these services are not falling in the main clause of definition of 'input service' and are also not related activities to include in the definition of 'input service' The Bombay High Court in the case of M/s.Deepak Fertilizers and Petrochemicals Corporation Ltd. v. The Commissioner of Central Excise, Belapur, 2013-TIOL-212-HC-MUM-CX, interpreted the definition and expression 'input service' by holding that rule 3(1) of the Cenvat Credit Rules, 2004 allows a manufacturer or final products to take credit of service tax paid on any input or capital goods received in Page 8 of 14 O/TAXAP/22/2014 ORDER the factory of manufacturer of the final product and any input service received by the manufacturer of the final product. It also held that distinction is made between the input or capital goods on one hand and input services on the other and that the service tax should be paid on any input or capital goods received in the factory of manufacture of the final product and such a restriction is not imposed in regard to input services since the only stipulation in clause (ii) is that the input services should be received by the manufacturer of the final product. The Court held thus:
"Hence, even as a matter of first principle on a plain and literal construction of Rule 3(1) the Tribunal was not justified in holding that the Appellant would not be entitled to avail of CENVAT credit in respect of services utilized in relation to ammonia storage tanks on the ground that they were situated outside the factory of production. The definition of the expression 'input 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. Among those services are services pertaining to the procurement of inputs and inward transportation of inputs. The Tribunal, proceeded to interpret the inclusive part of the definition and held that the legislature restricted the benefit of CENVAT credit for input services used in respect of inputs only to these two categories viz. for the procurement of inputs and for the inward transportation of inputs. This interpretation which has been placed by the Tribunal is ex facie contrary to the provisions contained in Rule 2(l). The 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 Page 9 of 14 O/TAXAP/22/2014 ORDER 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. The Tribunal has placed an interpretation which runs contrary to the plain and literal meaning of the words used in Rule 2(l). Moreover as we have noted earlier, whereas Rule 3(1) allows a manufacturer of final products to take credit of excise duty and service tax among others paid on any input or capital goods received in the factory of manufacture of the final product, insofar as any input service is concerned, the only stipulation is that it should be received by the manufacturer of the final product. This must be read with the broad and comprehensive meaning of the expression 'input service' in Rule 2(l). The input services in the present case were used by the Appellant whether directly or indirectly, in or in relation to the manufacture of final products. The Appellant, it is undisputed, manufactures dutiable final products and the storage and use of ammonia is an intrinsic part of that process."
Some of the relevant decisions of the Tribunal on the issue referred to in the instant case by the CESTAT require brief reference.
In the case of Commissioner of C.Ex., Nagpur v. Ultra Tech Cement Ltd. 2010 (20) S.T.R. 577 (Bom.), the Bombay High Court held thus:
"27. The definition of "input service" as per Rule 2(l) of 2004 Rules (insofar as it relates to the manufacture of final product is concerned), consists of three categories of services. The first category, covers services which are directly or indirectly used in or in relation to the manufacture of final products. The second category, covers the services which are used for clearance of the final products up to the place of removal. The third category, includes services namely;
a) Services used in relation to setting up, modernization, renovation or repairs of a factory,
b) Services used in an office relating to such factory,
c) Services like advertisement or sales promotion, market Page 10 of 14 O/TAXAP/22/2014 ORDER research, storage upto the place of removal, procurement of inputs,
d) Activities relating to business such as, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit relating, share registry and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal.
Thus, the definition of 'input service' not only covers services, which fall in the substantial part, but also covers services, which are covered under the inclusive part of the definition."
In the case of Meghachem Industries v. Commissioner of E.Ex., Ahmedabad, 2011 (23) S.T.R. 472 (Tri. Ahmd.) the Tribunal, Ahmedabad was dealing with the Customs House Agent service received by the exporter where goods were exported on FOB basis. The Tribunal held that the place of removal is to be taken as port. While doing so, it relied on the decisions in the case of Ultratech Cement Ltd (supra) and in the case of Commissioner v. Adani Pharmachem Pvt. Ltd., 2008 (232) E.LT.804 (Tribunal).
The Delhi Tribunal in the case of Commissioner of Central Excise, Raipur v. H.E.G. Ltd., 2010 (18) S.T.R.56 (Tri. Del.), was dealing with inputs of cargo handling service and technical testing analysis service. Relying on a Larger Bench decision of the Tribunal in the case of ABB Ltd. v. CCE & ST, 2009 (15) S.T.R. 23, it held that cargo handling service was considered as inclusive in the definition of 'input service' and this service even though rendered on clearance of final products from the place of removal, service tax paid on such service was eligible for availing the credit. The Tribunal was of the opinion that 'input service' has to be interpreted in light of the requirement of business and cannot be read restrictively so as to confine only upto the Page 11 of 14 O/TAXAP/22/2014 ORDER factory or only up to depot of manufacturers, following the decision n the case of ABB Ltd. (supra).
Mumbai Tribunal, in the case of JSW Steel Ltd v.
Commissioner of Central Excise, Thane, 2012 (281) E.LT. 582 (Tri.- Mumbai) dealt with the clearing, material handling, terminal handling, aviation, bank commission and commission on export sales. These services were availed by the exporter during the course of export of goods and were held within the ambit of 'input service'.
In light of this discussion, facts require to be reverted to. As noted hereinabove, both the Commissioner (Appeals) and the Tribunal have concurrently held in favour of the assessee that the charges incurred towards service tax paid on cargo handling services need to be included in the input services. The order in original denies to the respondent- assessee cenvat credit on the ground that such service does not qualify within the definition of input service as per rule 2(1) of the Cenvat Credit Rules and any service tax paid for handling the cargo, according to the Revenue, is for clearance of the product beyond the place of removal and therefore, any such amount paid on service tax cannot be included in the definition of input service.
The question that begs the decision is as to whether cargo handling services can be said to have been used in or in relation to manufacture and clearance of final product upto the place of removal, which is port. Admittedly, there is no express inclusion of cargo handling service in the definition of 'input service'. However, in light of the decisions rendered in this area, such interpretation can be made holding that in case of export of final product, place of removal would be Page 12 of 14 O/TAXAP/22/2014 ORDER port of shipment and not factory gate and therefore, the manufacturer would be entitled to avail the amount claimed towards cargo handling as 'input service' under the Cenvat Credit Rules.
Admittedly, cargo handling services are utilized for the purpose of export of final product where the place of removal for the purpose of export shall necessarily have to be the port and therefore any service availed by the exporters until the goods left India from the port are the service used in relation to clearance of final products upto the place of removal. If at this stage, the definition of input service is recollected, it includes services used by the manufacturer directly or indirectly in or in relation to manufacture of the final product and in relation to clearance of final product from the place of removal. Definition of term 'input service' being very wide in its expression, wherein number of services used by manufacturer are included in the same, used directly or indirectly.
This Court in the case of Parth Poly Wooven Pvt. Ltd. (supra) has held that when the manufacturer transports his finished goods from the factory, without clearance to any other place such as, go-down, warehouse, etc. from where it would be ultimately removed, such service is covered in the expression "outward transportation up to the place of removal" since such place other than factory gate would be the place of removal. It had been in clear terms held that outward transport service used by the manufacturer for transportation of finished goods from the place of removal up to the premises of the purchaser is covered within the definition of 'input service' provided in rule 2(1) of the Cenvat Credit Rules. Taking this analogy further, the cargo handling service is availed essentially for the purpose of exporting the goods and in such case, the Page 13 of 14 O/TAXAP/22/2014 ORDER services of cargo handling used by the manufacturer for transportation of the finished goods from the place of removal shall have to be essentially the port from where goods are actually taken out of the country.
Both the authorities have rightly held that tax paid by the service providers under this category of cargo handling service, therefore, would be inclusive in the definition of 'input service'. There is no dispute on the part of the Revenue that such services were availed by the respondents in clearing the goods from the factory premises and for the purpose of export.
Accordingly, Tax Appeal is dismissed.
(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) vijayan Page 14 of 14