Custom, Excise & Service Tax Tribunal
M/S Adani Port & Special Economic Zone ... vs Commissioner Of Service Tax, Ahmedabad on 15 December, 2015
In The Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench At Ahmedabad
Appeal No.ST/10386-10399,11301,11307,12537-12539/2014
[Arising out of OIO No.STC/41-43/COMMR/AHD/2013 dt.11.11.2013, OIO No.STC-44-47-COMMR-AHD-2013 dt.19.11.2013, OIO No.STC/56/ COMMR/AHD/2013 dt.24.12.2013, OIO No.AHM-SVTAX-000-COM-071-072-13-14 dt.28.03.2014 & OIO No.AHM-SVTAX-000-COM-073-13-14 dt.29.03.2014, passed by Commissioner of Service Tax, Ahmedabad]
1. M/s Adani Port & Special Economic Zone Ltd
2. M/s Adani Petronet Port Pvt.Ltd. Appellants
Vs
Commissioner of Service Tax, Ahmedabad Respondent
Represented by:
For Appellants: Shri V. S. Nankani, Sr.Advocate, Shri Aqueel Seerazi, Shri A.R. Choudhary, Shri Hardik Modh, Shri Amit Laddha - Advocates For Respondent: Dr. J. Nagori, Authorised Representative For approval and signature:
Honble Mr. P.K. Das, Member (Judicial) Honble Mr. P.M. Saleem, Member (Technical)
1. Whether Press Reporters may be allowed to see the No Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether their Lordships wish to see the fair copy of Seen the order?
4. Whether order is to be circulated to the Departmental Yes authorities?
CORAM:
HONBLE MR. P.K DAS, MEMBER (JUDICIAL) HONBLE MR. P.M. SALEEM, MEMBER (TECHNICAL) Date of Hearing: 25.06.2015 Date of Decision: 15.12.2015 Order No.A/11830-11848/2015, dt.15.12.2015 Per: P.K. Das A common issue is involved in these appeals and therefore all are taken up together for disposal.
2. The Appellants M/s. Adani Port And Special Economic Zone Limited (formerly known as Mundra Port and Special Economic Zone Limited), Mundra Port, Mundra, are holding Service Tax Registration Certificate No.AR/GIM/PS-01/2003-04, and providing Port Services, amongst others. The other Appellant, M/s Adani Petronet (Dahej) Port Pvt. Ltd, started construction of Dahej Port during the year 2007-08 holding Service Tax Registration Certificate No. AAECA 5046RST001 for providing Port services and others. The Appellants are Port registered under Indian Port Act, 1908 and it has been providing services in relation to Port. The Appellants operate Port and its services encompass entire arrangement of activities right from the berthing of ships to the storing of the goods and subsequent dispatch to customers. The Appellants are engaged in the business of running of private Ports. The Appellants do not carryout all the activities in the Port and have appointed various service providers for carrying out specific activities such as CHAs, Surveyors, Transporters etc. The Appellants provide the various taxable services as output services as under:-
(a) Port Service
(b) Other port service
(c) Storage and warehousing service
(d) Cargo handling service
(e) Goods transport agency service
(f) Management and consultancy services
(g) Consulting engineer service and Sponsorship services
3. The Appellants availed CENVAT Credit on inputs, capital goods and input services used in various output services. Show Cause Notices were issued to the Appellants, proposing to deny CENVAT credit on inputs, capital goods and input services. By the impugned orders, the adjudicating authority confirmed the demand of CENVAT credit alongwith interest and imposed penalties, on input, capital goods and input services, against which, the appellants filed these appeals.
4. Heard both the sides and perused the records.
5. Both the sides, in addition to their arguments, submitted the written submissions with compilation of case laws. Both sides framed the common issue, for denial of CENVAT Credit in three counts:-
(A) Inputs Cement and Steels.
(B) Other inputs and Capital Goods, (C) Input services.
The learned Advocate on behalf of the Appellant had summarized his submissions on each issue, as under:-
(A) Inputs Cement & Steels:-
(a) Cement and steels were used in construction of jetty and other building in the Port area. The Tribunal by Final Order No. A/2122/WZB/AHD/08 dated 08.05.2008/ 30.09.2008, in the appellant own case as reported in 2008-TIOL-1691-CESTAT-AHM / 2009 (13) 13 (STR) 178 (Tri. Ahmd.) held that Cement and Steels used in the construction of jetty and port building, are not eligible for CENVAT Credit. The Hon'ble Gujarat High Court set-aside the order of the Tribunal as reported in 2015-TIOL-1288-HC-AHM-ST (Mundra Port & SEZ Limited vs. Commissioner). The Hon'ble High Court held that the Explanation 2 as amended by Notification No.16/2009-C.E. (NT), dt.07.07.2009 in Rule 2(k) of the CENVAT Credit Rules 2004 is not clarificatory in nature and is not applicable in the case of the service provider. It is applicable only to manufacturer and factory and not to the service provider and in the present case, the Appellants are the service provider.
(b) This view is also followed by the Tribunal in the case of Grasim Industries Ltd Vs CCE 2015 (315) ELT 426 (Tri-Del) and in the case of Laxmi Enterprise Vs CCE 2014-TIOL-2042-CESTAT-AHM.
(c) CBCE vide Circular No.120/01/2010-ST, dt.19.01.2010, clarified that the terms used in and used for have to be interpreted in harmonious manner and given a wider scope to input service for provider of output service.
(d) The words for providing output service in Rule 2(l) are wide to cover all or any input without use of which, the output service cannot be rendered. The Honble Supreme Court in the case of State of Punjab & Another Vs British India Corporation Ltd (1964) 2 SCR 114 = AIR-1963-SC-1459 observed that the words like directly or indirectly wide and liberal meaning can be given to the words used for, depending upon the object and the purpose of the legislature.
(e) In the present case, jetty and other buildings situated within port area are the heart of the port service. None of the above, viz. port jetty, port building and store & warehouse building, can be said to be incidental to the taxable service rendered by the Appellant. In other words, all are part and parcel of Port service.
(f) The Larger Bench decision of the Tribunal in the case of Vandana Global Ltd as relied upon by the Adjudicating authority would not be applicable as held by the Honble Gujarat High Court in their own case. The Tribunal in the case of Bharti Airtel Ltd Vs CCE 2013 (29) STR 401 (Tri-Mum), has clearly held that Explanation 2 to the definition of input under Rule 2(k) of the said Rules, would not be applicable to service provider and would be applicable to manufacturer. The decision of the Honble Orissa High Court in the case of Jindal Stainless Ltd Vs UoI 2010 (257) ELT 401 (Ori.), as relied upon by the Adjudicating authority, is also not applicable, as in that case, the petitioner challenged the Circular F.No.267/1/2010-CX.8, dt.08.07.2010, issued by Government of India, which was issued based on the decision of the Larger Bench of the Tribunal in the case of Vandana Global Ltd (supa).
(g) The Appellants own case, as reported in 2009 (13) STR 178 (Tri-Ahmd) against the Appellant, cannot be relied upon as it was set-aside by the Honble Gujarat High as mentioned above.
(B) Other inputs and Capital Goods:-
(a) The Appellants reiterated the submissions as above. It has also stated that the CENVAT Credit on input used for repair and maintenance of the capital goods and used for providing output service, were allowed by the Tribunal as under:-
(i) Ambuja Cement Eastern Ltd Vs CCE 2010 (256) ELT 690 (HC)
(ii) UoI Vs Hindustan Zinc Ltd 2007 (214) ELT 541 (Raj.)
(iii) Birla Corporation Ltd Vs CCE 2002 (276) ELT 376 (T)
(b) Notification No.25/2007-ST, dt.22.05.2007 exempted commercial or industrial construction service provided by a person in relation to construction of port from the whole of the service tax leviable under Section 66. This exemption is applicable to the person who constructs port. In the present case, the Appellants are the provider of taxable port service. This issue has already been dealt with by Hon'ble High Court in their favour as stated above.
(c) The decision of the Tribunal in the case of Bharti Airtel Ltd Vs CCE 2013 (29) STR 401 as upheld by the Honble Bombay High Court as reported in 2014 (35) STR 865, relied upon by the Adjudicating authority, had also considered by the Tribunal in the case of M/s Reliance Infratel Ltd Vs CST 2015-TIOL-516-CESTAT-MUM. The Tribunal held that the CENVAT credit is available on Tower parts, without which the Business Support Service in the form of Passive Telecom Infrastructure could not have been provided.
(C) Input services:-
The Adjudicating authority denied the credit mainly on the ground that the Appellants had not provided documentary evidences to prove that the input services were used for providing output taxable services. In this context, the learned Advocate drew the attention of the Bench to the use of input service in detail, which was explained before the Adjudicating authority. The learned Advocate also demonstrated the Bench, some of the invoices of input service. The learned Advocate filed written submissions with statements and compilation of case laws.
6. The learned Authorised Representative on behalf of the Revenue submitted on all the issues as under:-
(A) For cement and steel:-
(i) This issue has already been decided by the Tribunal in the Appellants own case as reported in 2009 (13) STR 178 (Tri-Ahmd)/ 2008-TIOL-1691-CESTAT-AHM. However, he fairly concedes that this decision has been set aside by the Hon'ble High Court of Gujarat (supra).
(ii) The Tribunal in the case of Gujarat State Petronet Ltd (GSPL) Vs CCE Ahmedabad 2013 (32) STR 510 (Tri-Ahmd), denied the credit of pipes as capital goods, procured by the contractor for laying of pipeline system for GSPL.
(iii) Explanation 2 as amended in the definition of input vide notification dt.07.09.2009 held to be clarificatory as per the decision of the Larger Bench of the Tribunal in the case of Vandana Global Ltd 2010 (253) ELT 44o (Tri-LB).
(B) Other inputs and Capital Goods:-
(a) It is seen that many inputs were used for maintenance, repair of the machinery installed in the port area. The Honble Andhra Pradesh High Court in the case of Sree Rayalaseema Hi-Strength Hypo Ltd Vs CCE - 2012 (278) ELT 167 (AP), disallowed the CENVAT Credit on Welding Electrodes used for repairs of the capital goods.
(b) The term used directly or indirectly mentioned in Clause (i) of Rule 2(k) of CENVAT Credit Rules, 2004 do not find mention in Clause (ii). The Tribunal in the Appellants own case vide Order dt.30.09.2008, as referred above, had not given the benefit of input credit on cement and steel used in the manufacture of jetty as the jetty is used not for providing port service. (This decision is set aside by Hon'ble High Court of Gujarat as mentioned earlier).
(c) There are various inputs/capital goods used in the jetty and part of the jetty, the goods which are part and parcel of the jetty are not eligible for credit as the goods used for construction of jetty.
(C) Input services:-
(a) The Appellants had not justified as to how these services are related to their business before the Adjudicating authority. The Honble Mumbai High Court, in the case of Ultratech Cement Ltd reported in 2010 (260) ELT 369 (Bom.) has held that only the activities integrally connected to the business of the Assessee qualify as input services.
(b) The Honble Gujarat High Court in the case of Cadila Healthcare Ltd 2013 (30) STR 3 (Guj.) has held that any activity to qualify as an activity related to business has to be analogous to the illustrated activity mentioned in Rule 2(l) of CENVAT Credit Rules, 2004. In the present case, the Appellants failed to establish the nexus of the input service with the output service.
7. On the first issue, we find that the adjudicating authority observed that cement and steel are neither input nor capital goods as the same were used in construction of jetty and not used for providing output taxable service. The Tribunal in the Appellants own case vide Order No. A/2122/WZB/AHD/08 dated 08.05.2008/ 13.09.2008 in appeal No. ST/160/2007 (reported in 2008-TIOL-1891-CESTAT-AHM) disallowed the CENVAT credit on cement and steel. The Appellants filed appeal before the Hon'ble Gujarat High Court. By the judgment dated 29.04.2015 in Tax Appeal No. 15 of 2009 as reported in 2015-TIOL-1288-HC-AHM-ST (Mundra Port & Special Economic Zone Limited vs. CCE, Rajkot), the Hon'ble High Court allowed the appeal of the Appellant. The Appellant would be entitled to avail input credit on Cement and Steel. The relevant portions of the decision of the Hon'ble Gujarat High Court (2015-1288-HC-AHM-ST) are reproduced below:-
7. It is not disputed that jetty was constructed and input credit was claimed on cement and steel. The aforesaid definition of Rule 2(k) was applicable and Explanation 2 did not provide that cement and steel would not be eligible for input credit. According to learned counsel for the Appellant, the Appellant is not manufacturer and, therefore, the provisions Explanation 2 of Rule 2(k) would be applicable only to the factory and manufacturer. The Appellant is neither having any factory nor he is manufacturer. The Appellant is a service provider of port. We need not go into this question as to whether the Appellant is a factory or manufacturer or service provider in view of the fact that it is not disputed by Mr.Y.N.Ravani, learned counsel appearing for the revenue in this Tax Appeal that the Appellant provides service on port for which he is getting jetty constructed through the contractor and the Appellant has claimed input credit on cement and steel. The cement and steel were not included in Explanation 2 from 2004 upto March 2006. The Cenvet Credit Rules 2004 were amended in exercise of the powers conferred by section 37 of the Central Excise Act 1944 with effect from 7.7.2009, the date on which it was notified by the Central Government from the date of the notification. According to learned counsel for the Appellant, this amended definition would apply only to the factory or manufacturer and would not apply to the service provider. According to him, either before the amendment made in the year 2009 or thereafter, the Appellant was neither factory nor manufacturer and he has only constructed jetty by use of cement and steel for which he was entitled for input credit as jetty was constructed by the contractor, but the jetty is situated within the port area and the Appellant is a service provider. According to the Appellant, his case is squarely covered by the judgment of the Division Bench of the Andhra Pradesh High Court in Commissioner of Central Excise, Visakhapatnam-II Vs Sai Sahmita Storages (P) Limited, 2011(270) E.L.T. 33 (A.P.) - 2011-TIOL-863-HC-AP-CX wherein in paragraph 7, it has been clearly held that a plain reading of the definition of Rule 2(k) would demonstrate that all the goods used in relation to manufacturer of final product or for any other purpose used by a provider of taxable service for providing an output service are eligible for CENVAT credit. It is not in dispute that the Appellant is a taxable service provider on port under the category of port services. Therefore, the Appellant was entitled for input credit and the decision of the Division Bench of the Andhra Pradesh High Court squarely applies to the facts of the case and answered the question on which the appeal has been admitted.
8. Mr. Y.N. Ravani, learned counsel for the revenue has placed reliance on the decision of the Larger Bench of the Tribunal in Vandana Global Limited Vs Commissioner of Central Excise, Raipur, 2010 (253) E.L.T. 440 [2010-TIOL-624-CESTAT-DEL-LB]. We have carefully gone through the decision of the Larger Bench of the Tribunal. We do not find that amendment made in CENVAT Credit Rules 2004 which come into force on 7.7.2009 was clarificatory amendment as there is nothing to suggest in the Amending Act that amendment made in Explanation 2 was clarificatory in nature. Wherever the legislature wants to clarify the provision, it clearly mentions intention in the notification itself and seeks to clarify existing provision. Even, if the new provision is added then it will be new amendment and cannot be treated to be clarification of particular thing or goods and/or input and as such, the amendment could operate only prospectively. In our opinion, the view taken by the Tribunal is based on conjectures and surmises as the Larger Bench of the Tribunal used the expression that intention behind amendment was to clarify. The coverage under the input from where this intention has been gathered by the Tribunal has not been mentioned in the judgment. There is no material to support that there was any legislative intent to clarify any existing provision. For the same reason, as mentioned above, the decision of the Apex Court in Sangam Spinners Limited Vs Union of India and others, reported in (2011) 11 SCC 408 [2011-TIOL-31-SC-CX] would not be applicable to the facts of the instant case.
9. Mr. Ravani has also vehemently urged that since jetty was constructed by the Appellant through the contractor and construction of jetty is exempted and, therefore, input credit would not be available to the Appellant as construction of jetty is exempted service. The argument though attractive cannot be accepted. The jetty is constructed by the Appellant by purchasing iron, cement, grid etc. which are used in construction of jetty. The contractor has constructed jetty. There are two methods, one is that the Appellant would have given entire contract to the contractor for making jetty by giving material on his end and then make the payment, the other method was that the Appellant would have provided material to the contractor and labour contract would have been given. The Appellant claims that he has provided cement, steel etc. for which he was entitled for input credit and, therefore, in our opinion, the Appellant was entitled for input credit and it cannot be treated that since construction of jetty was exempted, the Appellant would not be entitled for input credit. The view taken contrary by the Tribunal deserves to be set aside.
8. The learned Authorised Representative for the Revenue submits that as per amendment to explanation 2 of the definition inputs under Rule 2(k) of the CENVAT Credit Rules, by Notification No. 16/2009-CE (NT) dated 07.07.2009, the Appellant is not eligible to avail CENVAT credit on cement and steel items after 07.07.2009. We reproduce below the Explanation 2 of Rule 2(k) of the CENVAT Credit Rules, as amended on 07.07.2009:-
Explanation 2. Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer [but shall not include cement, angles, channels, Centrally Twisted Deform bar (CTD) or Thermo Mechanically Treated bars (TMT) and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods. On plain reading of Explanation-2 of the definition of Input, as amended on 07.07.2009, we find that the said explanation would apply in respect of the goods used in the manufacture of capital goods, which are further used in the factory of the manufacturer. Thus, it is clear that input Cement and Steel used in the factory of manufacturer shall not be eligible input credit. This explanation is applicable only to the manufacturer and not the service provider. It is to be read strictly as per plain meaning of the statute. There is no indication in the Explanation that it would apply to the service provider. The Hon'ble Gujarat High Court in the appellants own case held that amendment in Explanation-2 in Notification No. 16/2009-CE (NT) (supra) was not clarificatory in nature and the amended definition will not be applicable to the service providers. So, the denial of input credit on Cement and Steel before and after amendment of Explanation 2 of definition Input, cannot be sustained.
9. With regard to the second issue, denial of CENVAT Credit on the other input/capital goods, the adjudicating authority observed that the inputs and capital goods were used in the construction of Port Jetty, Port buildings and Warehouse services, which are not output service i.e. Port services. It has also observed that inputs and capital goods were used for maintenance repair of machines used in the Port area and for other general use in the Port area. It is further observed that construction of Port is exempted service in view of the Notification No. 25/2007-ST dated 22.05.2007 and no CENVAT credit is eligible on exempted services. It has referred to the Tribunal decision in the case Bharti Airtel Limited vs. CCE, Pune III 2013 (29) STR 401 (Tri. Mum.).
10. As the case relates to the period from April 2005 to September 2011, we reproduce below the definition of Capital Goods, Input and Input Service under Rule 2 of Rules, 2004:-
(A) CENVAT CREDIT RULES (2007-2008) RULE 2. In these rules, unless the context otherwise requires, -
(a) capital goods means :-
(A) the following goods, namely :-
(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, 1[heading 6805, 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) components, spares and accessories of the goods specified at (i) and (ii);
(iv) moulds and dies, jigs and fixtures;
(v) refractories and refractory materials;
(vi) tubes and pipes and fittings thereof; and
(vii) storage tank, used (1) in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or (2) for providing output service;
(B) motor vehicle registered in the name of provider of output service for providing taxable service as specified in sub-clauses (f), (n), (o), (zr), (zzp), (zzt) and (zzw) of clause (105) of section 65 of the Finance Act; xxx xxxx xxxx
(k) input means
(i) all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting-oils, coolants, accessories of the final products cleared along with the final product; goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production;
(ii) all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service;
Explanation 1. - The light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol, shall not be treated as an input for any purpose whatsoever.
Explanation 2. - Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer;
(I) 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 from the place of removal, and includes services used 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;
(B) CENVAT CREDIT RULES (2009-2010) Rule 2. Definition
(k) input means
(i) all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting-oils, coolants, accessories of the final products cleared along with the final product; goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production;
(ii) all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service;
Explanation 1. - The light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol, shall not be treated as an input for any purpose whatsoever.
Explanation 2. - Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer but shall not include cement, angles, channels, Centrally Twisted Deform bar (CTD) or Thermo Mechanically Treated and other items used for construction of factory shed, building or laying of foundation or making of structures for support of capital goods;
[Note : Explanation 2 as above was amended by Notification No. 16/2009-Central Excise (NT) dated 07.07.2009]
11. On close reading of input definition under Rule 2(k) of the Rules as above, it is clear that Clause (i) covers all goods, except as specified, used in or in relation to the manufacture of final product. On the other hand, Clause (ii) in Rule 2(k) covers all goods except specified therein, used for providing any output service. In short, Clause (i) and (ii) are applicable for manufacturer and output service provider respectively. The present case relates to output service provider. There is no dispute that the appellants herein are not manufacturer and covered under Clause (ii) of input definition. The words all goods, if read with used for providing any output service in Clause (ii) of Rule 2(k) of Rules 2004, make it clear that any goods other than specified in the said Clause, used for providing any output service, would be treated as input and covered under the said definition. Further, the particular expression used for providing any output service in the said Clause (ii) in Rule 2(k) have widened the scope of definition of input in respect of output service. The definition of capital goods under Rule 2(a) of the Rules provides the goods, specified in sub-Clause (i) to (vii) of Clause (A) used for providing output service, would be treated as capital goods. Similarly, the definition of input service in Rule 2(l) of Rules 2004, is in two parts. Clause (i) and (ii) of Rule 2(l) cover the service provider and the manufacturer respectively. The present case relates to output service provider. The expression any service, if read with used by a provider of taxable service for providing an output service in Clause (i) of Rule 2(l) of the Rules, 2004 had widened the scope of input service in respect of output service provider. It is well settled that literal interpretation would prevail, where the plain words of statute are clear, unambiguous and not absurd or unjust. An attempt was made by the learned Authorised Representative for the Revenue, to read the above definitions in respect of output service provider with the help of words as referred in the context of manufacturer, supported by the earlier decision of the Tribunal in the appellants own case by Final Order dated 08.05.2008. The said decision cannot be sustained as the Hon'ble High Court set-aside the said decision. Further, when words of statute are clear and meaning is unambiguous, intention of statute gets irrelevant. In our view, the plain meaning of the statute should not be distorted by following the interpretation based on intention.
12. The above definitions have been examined by the Hon'ble High Courts and the Tribunal in various decisions. The Andhra Pradesh High Court in the case of CCE, Vishakhapatnam vs. Sai Samhita Storages (P) Limited 2011 (270) ELT 33 (AP) allowed CENVAT credit on cement and steel for construction of warehouse. It has been observed that the assessee could not provide storage and warehousing services without constructing by cement and steel and the Central Excise duty was paid on these items. The Hon'ble High Court, on plain reading of definition of input and input services under Rule 2(k) and 2(l) of the said Rules, observed that both the definitions would show that unless excluded all goods used in relation to manufacture of final products or for any other purpose used by a provider of taxable service for providing an output service are eligible for CENVAT credit. The relevant portion of the said decision is reproduced below:-
7.?..In Maruti Suzuki Limited vs. Commissioner of Central Excise, Delhi-III, (2009) 9 SCC 193 = 2009 (240) E.L.T. 641 (S.C.) the Supreme Court laid down as follows:-
9.?Coming to the statutory definition of the word input in Rule 2(g) in the CENVAT Credit Rules, 2002, it may be noted that the said definition of the word input can be divided into three parts, namely:
(i) specific part
(ii) inclusive part
(iii) place of use
10.?Coming to the specific part, one finds that the word input is defined to mean all goods, except light diesel oil, high speed diesel oil and petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not. The crucial requirement, therefore, is that all goods used in or in relation to the manufacture of final products qualify as input. This presupposes that the clement of manufacture must be present.
8.?Yet again considering the inclusive part of the definition of input, it was held as follows.
All these considerations become relevant only when they are read with the expression used in or in relation to the manufacture of final product in the substantive/specific part of the definition. In each case it has to be established that inputs mentioned in the inclusive part is used in or in relation to the manufacture of final product. It is the functional utility of the said item which would constitute the relevant consideration. Unless and until the said input is used in or in relation to the manufacture of final product within the factory of production, the said item would not become an eligible input. The said expression used in or in relation to the manufacture have many shades and would cover various situations based on the purpose for which the input is used. However, the specified input would become eligible for credit only when used in or in relation to the manufacture of final product. Hydrogen gas used in the manufacture of sodium cyanide is an eligible input, since it has a significant role to play in the manufacturing process and since the final product cannot emerge without the use of gas. Similarly, Heat Transfer Oil used as a heating medium in the manufacture of LAB is an eligible input since it has a persuasive role in the manufacturing process and without its use it is impossible to manufacture the final product. Therefore, none of the categories in the inclusive part of the definition would constitute relevant consideration per se. They become relevant only when the above crucial requirement of being used in or in relation to the manufacture stands complied with. In our view, one has to therefore read the definition in its entirety.
9.?There is no dispute, in these cases, that the assessee used cement and TMT bar for providing storage facility without which storage and warehousing services could not have been provided. Therefore the finding of the original authority as well as the appellate authority are clearly erroneous, which was correctly rectified by the CESTAT. In so far as the levy of penalty under Rule 15(2) of the Rules is concerned, unless and until there is a finding that there was suppression of fact, and irregular claim of CENVAT credit, the question of levying penalty under Rule 15(2) of the Rules docs not arise. In that view of the matter, the order levying penalty was rightly set aside by the CESTAT.
13. In the case of Reliance Infratel Ltd Vs CST, Mumbai-II 2015-TIOL-516-CESTAT-MUM, the Tribunal allowed the appeal of the Assessee. In that case, it has been alleged that the Assessee had wrongly availed and utilised CENVAT Credit on goods viz. Bracket, Mounting Pole, Mount Clamps, Cable, Pre-fabricated Buildings/Shelter/ Panel etc., claiming them as capital goods used in erection/fabrication of telecom tower fixed to earth and become an immovable property which are neither chargeable to excise duty nor payment of service tax. The Assessee paid service tax under the category of Business Support Service for providing passive telecom infrastructure by way of telecom tower to various cellular telecom operators. The Revenue strongly relied upon the decision of the Honble Bombay High Court in the case of Bharti Airtel Limited vs. CCE 2014-TIOL-1452-HC-MUM-ST. The Tribunal observed that the Honble Bombay High Court was examining the issue on a different platform of facts. Honble High Court was concerned with admissibility of Cenvat credit of duty paid on tower and parts for providing telecom services. The towers and parts were held to be immovable, hence not goods and not excisable and therefore, not considered as input for providing telecom service. But in the present case the question of nexus between tower parts and output service of telecommunication is not under consideration. In the case of Bharti Airtel Ltd. (supra), Cenvat credit was denied on inputs and capital goods used for providing the output service namely Telecommunication Service. The Tribunal observed as under:-
11.?We find that the appellant is solely emphasizing on the provisions of Rule 2(k)(ii) which defines input as under :
2(k) input means -
(i)?all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production;
(ii)?all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any out service.
Explanation 1 - The light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol, shall not be treated as an input for any purpose whatsoever.
Explanation 2 - Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacture; We note that the appellant is also not relying on Explanation 2. The contention of ld. Counsel is that all goods used for providing output service are eligible for Cenvat credit. There is no denying the fact that the resultant output service provided by them is a Passive Telecom Infrastructure i.e. Business Support Service. Therefore, there is direct nexus of the output services and the credit taken on the goods procured such as steel, racks, bolts, etc. which are excisable and were cleared under Central Excise invoices showing payment of Central Excise duty. The payment of Central Excise duty on these goods and their assessment has not been questioned at the end of the supplier. Without use of these duty paid towers/parts as inputs, the Business Support Service in the firm of Passive Telecom Infrastructure could not have been provided. The appellant availed credit under Rule 3(1)(i) which allows Cenvat credit on any inputs or capital goods received by the provider of output service. The appellant received inputs such as structural steel for providing Passive Telecom Infrastructure. In fact, in Rule 2(k)(ii) there is no restriction on the coverage of inputs except for oil and petrol. In the present case the inputs namely tower parts are cleared as goods from the supplier. Therefore, credit on them is admissible under Rule 2(k)(ii) for providing output service i.e. Business Support Service. The inputs are not immovable when they are purchased and then brought to the site for creation of towers. Merely because the tower parts, etc., are assembled together, it would be totally unreasonable to suggest that Cenvat credit on them is not admissible despite Rule 2(k)(ii). This Rule has to be interpreted as it stands. Reliance is placed on the High Court of H.P. judgment in case of Gujarat Ambuja Cement - 2008-TIOL-683-H.C.-H.P. = 2010 (256) E.L.T. 356 (H.P.) and the Tribunal decision in the case of Commissioner of Central Excise, Raigad v. JSW Ispat Steel Ltd. - 2013-TIOL-1758-CESTAT-MUM, in which it was held that Excise duty paid on parts of components would be admissible even if they are assembled into goods which are immovable or exempted. By analogy in the present case Cenvat credit would be admissible under Rule 2(k)(ii) ibid. Ld. AR contended that the appellant had claimed Cenvat credit on capital goods in their returns. We note that if law provides credit on inputs under Rule 2(k)(ii) they cannot be precluded from availing this statutory right. As analysed above, the facts and circumstances in this case are different and distinguishable. Therefore, we hold that the appellant is entitled to Cenvat credit. In turn, the question of penalties does not arise.
14. In the case of Laxmi Enterprise Vs CCE & ST, Vadodara- 2014-TIOL-2042-CESTAT-AHM, the Tribunal allowed appeal of the Assessee. In that case, the issue involved is whether the CENVAT Credit of capital goods, input and input services used for making immovable property, which is further used for renting of immovable property services will be admissible or not. The Tribunal allowed the appeal following the decision in the case of Navratna S.G. Highways Prop. Pvt. Ltd Vs CCE Ahmedabad 2012 (28) STR 166 (Tri-Ahmd).
15. In the case of Navratna S.G. Highways Prop. Pvt. Ltd Vs CST Ahmedabad 2012 (28) STR 166 (Tri-Ahmd), the Appellant was engaged in the business of constructing malls and renting of space in those malls in the market and also in the busines of providing space for Advertisement in the malls. The Tribunal observed as under:-
3.?We have considered the submissions made by both the sides. In this case, the appellant availed the following services during the construction of the mall and thereafter.
(i) Tours & Travel Agents Service
(ii) Consulting Architects Service
(iii) Consulting Engineers Service
(iv) Manpower Placement Agency Service
(v) Air Ticket Booking Agency Service
(vi) Security Agency Service
(vii) Technical Testing & Analysis Agency
(viii) Bank Charges
(ix) Professional fees against Environmental Clearance Certificate
(x) Event Management Service
(xi) Rent-a-cab Operator Service
(xii) Food Expenses
(xiii) Chartered Accountants Service
(xiv) Real Estate Agency Service
(xv) Advertising Agency Service (xvi) General Insurance Service (xvii) Construction Service (xviii) Repair and Maintenance Service (xix) Business Auxiliary Service (xx) Courier Service (xxi) Erection and Commissioning Service used for elevators and CCTV.
(xxii) Airtime Charges (xxiii) Caterer Service (xxiv) Import of Services (xxv) Telecommunication Service (xxvi) Design Service Agency Service 3.1?The Revenue has relied upon the definition of input services as given in Rule 2(l)(i) of CENVAT Credit Rules, 2004 which reads as under: Input services means any service used by a provider of taxable service for providing an output service. According to the Revenue in this case the services listed above have not been used for providing the service for the construction of the mall. Since mall is not an excisable product or is a service, credit is not admissible. As submitted by the learned counsel, the issue which was before the Honble High Court of Andhra Pradesh was similar to the present one. The Honble High Court of Andhra Pradesh considered the definition of the input and input service and took a view that using cement and TMT bars for construction of warehouse, the CENVAT credit on cement and TMT bars would be admissible. The Honble High Court observed as follows :
6.?The only allegation against the assessee is that they claimed CENVAT credit irregularly with reference to cement and TMT bars used in the construction of warehouses through which the storage and warehousing services are provided by the assessee. Section 65(102) of the Finance Act defines storage and warehousing as to include storage and warehousing services for goods including liquids and gases but does not include any service provided for storage of agricultural produce or in service provided by cold storage. As per Section 65(105)(zza), read with Section 66 of the Finance Act, there shall be levied tax on storage and warehousing services at 12% of the value of taxable service. The service tax payable is determined in accordance with Section 67(4) read with the Service Tax Rules, 1994 made in exercise of the powers under Section 94 of the Finance Act. There is no dispute that every provider of taxable service is entitled to claim CENVAT credit in relation to input service. Rule 2(k) and (l) of the Rules are relevant and they read as under.
2.?Definitions. -
(k)?input means -
all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production;
all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service;
Explanation 1. - The light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol, shall not be treated as an input for any purpose whatsoever.
Explanation 2. - Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer;
(l)?input service means any service, -
used by a provider of taxable service for providing an output service; or 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 place of removal, and includes services used 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.
7.?A plain reading of both the above definitions would show that, unless excluded, all goods used in relation to manufacture of final product or for any other purpose used by a provider of taxable service for providing an output service are eligible for CENVAT credit. In Maruti Suzuki Ltd. v. Commissioner of Central Excise, Delhi-III, (2009) 9 SCC 193 = 2009 (240) E.L.T. 641 (S.C.) the Supreme Court laid down as follows :
9.?Coming to the statutory definition of the word input in Rule 2(g) in the CENVAT Credit Rules, 2002, it may be noted that the said definition of the word input can be divided into three parts namely :
(i) specific part
(ii) inclusive part
(iii) place of use Coming to the specific part, one finds that the word input is defined to mean all goods, except light diesel oil, high speed diesel oil and petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not. The crucial requirement, therefore, is that all goods used in or in relation to the manufacture of final products qualify as input. This presupposes that the clement of manufacture must be present.
3.2?The definition of inputs is limited to the definition of input services as can be seen from the definition given above. Credit of duty paid on inputs is available when the inputs are used for providing an output service. Therefore, there is a need to say that the inputs have been used for providing an output service. In the case of input service, the definition includes input services used by a provider of taxable service for providing an output service. Therefore the definition of input and input service are pari materia as far as the service providers are concerned. That being the position, the decision of the Honble High Court of Andhra Pradesh would be applicable to the present case. In that case also, the Honble High Court took the view that without use of cement and TMT bars for construction of warehouse assessee could not have provided storage and warehousing service. In this case also, without utilizing the service, mall could not have been constructed and therefore the renting of immovable property would not have been possible. The issue involved is squarely covered by the decision of the Honble High Court of Andhra Pradesh. Since the service tax demand itself is not sustainable, the question of imposition of penalty does not arise. The appeal is allowed with consequential relief to the appellants.
16. In the present case, the main contention of the learned Authorised Representative is that the inputs and capital goods were used for construction of jetty, which has no nexus with Port service. Section 65 (82) of the Finance Act, 1994 defined port service. Port Service means any service provided or to be provided to any person, by a port or any person authorised by the port, in relation to goods or vessels, in any manner; Section 67 of the said Act, the value of any taxable service shall be the gross amount charged by the service provider for such service provided or to be provided by him.
17. The dictionary meaning of port is :-
Port. A harbour where ships load and unload cargo; any place where persons and cargo are allowed to enter a country and where customs officials are stationed. [Blacks Law Dictionary, 7th & 8th Eds.].
A place for the loading and unloading of the cargoes of vessels, and the collection of duties or customs upon imports and exports. [Blacks Law Dictionary, 5th Ed.].
A port is a place intended for loading or unloading goods; hence includes the natural shelter surrounding water, as also sheltered water produced by artificial jetties, etc. [The Baldhill CCANY, 42 F 2d 123, 125].
A port is a place where a vessel can lie in a position of more or less shelter from the elements, with a view to the loading or discharge of cargo. [Hunter v Northern Marine Insurance Co. Ltd. (1888)13 App Cas 717, 726, per Lord Herschell]. The word port must be construed in its usual and limited popular or commercial sense as a place where ships are in the habit of coming for the purpose of loading or unloading, embarking or disembarking. [The Mowe (1915) P 1, 15, per Evans].
The word jetty, menas as per Mitras Legal and Commercial Dictionary (6th Edition), Jetty. A pier or breakwater constructed to protect or defend a harbour, coast, etc.; a structure in a body of water serving to control or divert a current, protect a harbour or the like, or as a wharfor pier; a projection of stone or other material serving as a protection against the waves; a kind of pier for loading and unloading cargo from a vessel. Jetty is used for loading and unloading of goods. The definition of Port service under Section 65 (82) of the said Act, 1994 covers any service rendered by a port in any manner in relation to a vessel or goods. Thus, jetty is used within the port for loading and unloading of the goods from the vessel. Port cannot function without jetty. So, CENVAT credit on the inputs and capital goods used in the construction of jetty is eligible for output service namely port service. It is noticed from the above decisions that the test of input and capital goods in respect of output service is whether it is used for providing output service. In the present case, it is clearly evident that the inputs and capital goods were used in construction of jetty for rendering port service. There is no reason to deny CENVAT credit on such input and capital goods.
18. We find that the Notification No. 25/2007-ST (supra) exempts from payment of service tax on the Commercial or Industrial construction services. It would apply to a Commercial concern in relation to construction of Port or other Port provided service to any person exempted from the whole of service tax leviable thereon. In the present case, the Port was constructed by the contractor appointed by the Appellant for construction of Jetty, the exemption is applicable to the contractor. The contractors are not eligible to avail CENVAT credit. On the other hand, the appellant paid service tax on Port service. Hence, the Appellants are entitled to avail CENVAT credit on the inputs used for taxable output services, Port service. We find that the Honble Gujarat High Court in the Appellants own case, as stated above, held that Appellant is entitled for input credit and it cannot be denied since construction of jetty was exempted. So, the findings of the adjudicating authority on this issue, is not sustainable.
The learned Counsel has filed a list/statement of various inputs and capital goods used for providing port services vide Annexure B to the initial written submissions. The same is reproduced below, a perusal of which shows that these inputs and capital goods are necessary for providing the output service, and hence CENVAT Credit would be eligible on them.
Annexure B Adani Ports And Special Economic Zone Limited Statement of various Inputs & Capital goods used for providing Port services SN Input Items Uses of Inputs
1. Air Compressor Used as machinery in liquid processing plant.
2. ALIPHATIC ACRYLIC POLYURETHANE Conveyour belt system for fertilise cargo
3. Bitumen Used for open godown facility (cargo storage in open godown) and internal Road in port area.
4. BRG ROLL MTR, 22314 E,70 MM, 150 MM Material used for maintenance of RTGC Cranes at CT2
5. BRG ROLL MTRS, 2309/E, 45MM, 100MM Operation & Maintenance of crane
6. BUNK HOUSE, PREFABRICATED For security purpose
7. Cable, PVC Cable Used for bagging machine, power transmission, electrical tower in open area.
8. Cable Tray Cable lying tray (outside lying)
9. CAUSTIC SODA, MFR:GACL Used in Liquid Terminal Tank cleaning
10. CBL ELE ARM, 1.1 KV, APPEAL, XLPE, 4C, 12MM2 Cable for electrical work-Single Point Mooring (SPM)
11. CRANE, MOBILE TOWER, MM:MMTC 2418 Crane for material handling
12. ELECTRD WELD, E7018, 4MM, 450MM For general welding job in workshop
13. Electric Items Used at Tank farm, Backup yard CT-2, Godowns
14. ENCODER, PULSE, PN:HOG 10DN 10241, HUBNER Used at port inside Goliath Crane
15. Engine Oil Used in Crane, Excavators, Loaders, Hydra and equipments used for handling of cargo
16. Fan Used in Port officers in port Area and Blower fan for Boiler
17. FENDER, CELL, RUBBER, TY:DUAL, MM: HCF 1450H For jetty maintenance purpose
18. FILTER, PN:FS1275, MFR:FLEETGUARD Mobile Harbour Crane Engine Maintenance
19. FOAM MAKER WITH CHAMBER 450-900 LPM At Liquid Terminal and Terminal 0.1 for fire fighting
20. Forklifts Loading & unloading of steel plates, structural steel cargo
21. Galvanized Rope Used in cranes & Hydra used for handling of cargo
22. GEAR BOX, RATIO:70:1, SIZE:14IN SSM, ELECON Repairs & maintenance of gear box of crane
23. Grease Used in Crane, Excavators, Loaders, Hydra and equipments used for handling of cargo
24. GREASE, MULTIS-EP2,ELF For lubrication purpose in cranes for cargo handling
25. GREASE, SERVO GEM EP2 Operation & Maintenance in Mechanical Handling services dept.
26. GREASE, SERVO GEM EP2 Operation & Maintenance in Mechanical Handling services dept.
27. GSKT FLR, OIL PAPER, CL150, 3 MM, BIN For Hose connection at jetty as well as Liquid Tank Farm site
28. HDPE Pipes Used for covering electrical cables at jetty area and used for internal water supply
29. HOSE FIRE, 63 MM, 15M At Liquid Terminal and Terminal 01 for fire fighting
30. HOSE FLX W/O CONN, PTFE, 8IN, 6M Liquid Terminal Maint.Pipeline, valve assembly, pump assembly fitting use
31. HOSE UTIL, BIN, 6M Liquid Terminal Maint.Pipeline, valve assembly, pump assembly fitting use
32. M/s Pipe Used in Tank Farm, Container Terminal
33. OIL COOL, VALVOLINE, 15W40 Used in equipment like, Kalmar, JCB, Forklift, Crane, Hydra & Loaders
34. OIL LUBE, DTE-26, MOBIL Used in equipment like, Kalmar, JCB, Forklift, Crane, Hydra & Loaders
35. OIL LUBE, GADINIA 40, SHELL For lubrication purpose in Tugs (Marine)
36. OIL SEAL, 48MM, 70MM, 10 MM For equipments like crane, hydra and loaders
37. Paint For maintenance of Tug, Excavator, Crane, Tank Farm, Liquid Pipeline Used for erosion coatings.
38. PAINT, CONPLAST-W, MFR:FOSROC Port inside area Mpt jetty repair work
39. PAINT, ENAMEL, GREEN, 52140-40900 For painting job of Tugs & Dredgers
40. PAINT, EPOXY, INTERTHANE-410, MFR:AKZONOBLE For painting job-Single Point Mooring (SPM)
41. PIPE N-MET, PVC, 6KG/CM2,1-1/2 IN For liquid terminal operations purpose
42. Plastic Sheet Used for covering bulk cargo lying in open area/ godown i.e. Wheat, Fertilizer, Sugar, etc and covering open wagon of bulk fertilizer
43. PUMP WATER, PN-3800883, MFR:CUMMINS Engine spares Container Terminal Operations
44. ROPE WIRE, NYLN, 10 MM Used on Tugs for Heaving line for passing Towing rope & Mooring ro9pe
45. ROPE WIRE, SS, 8 MM Wire rope for crane use
46. ROPE, POLY PROPYLENE, 6 CIRCUMFERENCE Used for Tugs Mooring at Tug berth with the Help of rope
47. ROPE, SZ:12IN, 8-STRAND, HIGH STRENGTH Used for Tugs for Unberthing & berthing of ships Forward Towing Winch.
48. SEAL, O-RING, PN:3003140, MFR:CUMMINS For Excavator Maintenance for cargo handling
49. SHT PLT N-MET, LDPE, 20MX 1.8 MM For bottom spread in wagons
50. STAIR TREAD, 730 MM, SPAN X 250 MM WIDTH Conveyor structure for cargo handling
51. Steel pole Lighting in open area of port
52. TARPAULIN, HDPE, 60 X 60 FT, 200 GSM For Covering of cargo lying in Open and Close Godowns
53. TARPAULIN, HDPE, 60 X 60 FT, 200 GSM For cargo covering in open stake yard
54. THREAD CONE, PROPYLENE, 5000M, 2 PLY For bagging of fertilizer cargo
55. Transformer Transformer used in Tank farms, Container Terminal electrical supply
56. UPS, 120 KVA, MM:IP20 HIPLUSE, MFR:EMERSON UPS for Server
57. WEIGHBRIDGE, MOBILE, CAP:80-100MT, SZ:18 X M For weighment of cargo for handling operations
58. Wire Rope Used in Cranes & Hydra used for handling of cargo.
19. The third issue is denial of CENVAT Credit on input services. It has been alleged that the input services have no nexus with output service. It may be referred to show cause notice dt.23.04.2012 issued by the Commissioner of Service Tax, Ahmedabad to the Appellant M/s Adani Port & Special Economic Zone Ltd. In that show cause notice, it has been alleged that M/s APSEZ has availed CENVAT Credit on services Goods Transport Agency, Cargo Handling Services, Clearing & Forwarding Agent services, Manpower Recruitment & Supply Agency Service, Steamer Agent Services etc. These services have no relationship/nexus with the provisions of output service of Port service inasmuch as the said services had been directly provided to the cargo imported by others. Hence, it does not appear to be an input service within the meaning of Rule (l) of CENVAT Credit Rules, 2004.
20. The Adjudicating authority had denied CENVAT Credit on input service on the ground that the Appellant had not submitted any evidence for use of input service in the output service. In this context, the finding of the Adjudicating authority vide Order-in-Original No.STC /41 to 43/Commr./AHD/2011, dt.11.11.2011, may be referred. It has been observed that during the course of scrutiny of the records, it is noticed that the appellant had availed Cenvat Credit of duty of Central Excise and Service Tax on Capital Goods, Input/Input Services. The details of the CENVAT Credits with the particular heading have been mentioned in the said order. It has been further observed that as per Rule 3 of the said Rule 2004, the CENVAT Credit is available only on the inputs, capital goods, input Services as defined under Rule 2 of the Rule 2004 and the credit availed by the appellants on the said Goods and Services are not admissible to them, as it is not covered with the definition under Rule 2 of the said Rule. The Adjudicating Authority observed that the appellant had not submitted any evidences, which proves that these services were used for business and providing Output Service. It is further observed that the appellants had not submitted any details of bank charges and in absence of which the nexus of such bank charges to the Output Services cannot be established.
21. It is observed that what constitutes the Input Service has been considered by various Courts and this Tribunal in number of cases, by way of interpreting the definition of input services. The definition of input service has already been reproduced in Para 10 in this order. As per Clause (i) of Rule 2(l) of CENVAT Credit Rules, 2004, input service means any service used by a provider of taxable service for providing output service. The words any service and used for providing an output service in the input service definition, make it clear that the use of input service is depending on the scope of an output service. So, it is required to examine the scope of an output service for deciding the input service. In the present case, the main output service is Port service. The term Port Service has been defined to mean, any service rendered by a Port or other Port or any person authorized by such Port or other Port in any manner, in relation to a vessel or goods. In the case of Kandla Shipchandlers and Ship Repairers Association Vs UoI 2013 (29) STR 233 (Guj.), the Hon'ble Gujarat High Court observed that the term Port has been defined in an extensive manner. It includes within its sweep any service rendered in any manner in relation to a vessel or goods. The expressions in any manner and in relation to both tend to expand the scope of such service. The words in any manner would further go to show that the legislature intended to make the definition wide and inclusive and to include range of services which may be provided in relation to a vessel or goods.
22. The Hon'ble Supreme Court in the case of State of Punjab Vs Paper Mills Limited (supra), while dealing with the words used for the purpose of factory in Rule 18 of the Punjab Urban Immovable Property Tax Rules, 1941, observed that the use of buildings for providing such facilities and amenities which are necessary for maintaining a proper standard of efficiency of factory workers must also to be used for the purpose of factory. The allotment of the buildings for the use of the workers was made for the purpose, which was necessary for the efficiency of workmen. All such quarters is clearly necessary to the efficiency of the workmen and it must be held that the buildings were used for the purpose of factory. The Hon'ble Supreme Court dismissed the appeal filed by the Appellant. In the present case, considering the scope of an output service (i.e. Port Service), it may be construed that any service used in relation to Port service in any manner would cover under the definition of input service.
In the case of Sai Samhita Storages (P) Ltd (supra), the Hon'ble Andra Pradesh High Court observed that the definitions of Inputs and Input Services would show that, unless excluded, all goods used in relation to manufacture of final products or for any other purpose, used by a provider of taxable services for providing an output service are eligible for CENVAT Credit. The Tribunal held in the case of Navratna S.G. Highways Prop. Pvt. Ltd. (supra) that the definition of Input and Input services are pari materia as far as the service providers are concerned. In the case of Reliance Infratel Ltd (supra), the Tribunal held that the CENVAT Credit is eligible on goods viz. Brackets, Mounting Pole, Mount Clamps, Cable, Pre-fabricated Buildings/Shelters/Panels etc used in erection/fabrication of telecommunication tower fixed to earth, used for providing Business Support Service. In the case of the present appellants themselves (supra), the Hon'ble Gujarat High Court has held that credit of duty paid on cement and steel used for construction of Jetty used for providing Port services are eligible for credit. In another case of the present appellant 2011 (21) STR 361 (Guj.), the Hon'ble High Court of Gujarat upheld the decision of the Tribunal holding that they are entitled for CENVAT Credit of Service Tax paid on various services namely Mobile Phones, CHA Services, Rent-a-Cab Service, Surveyor Charges, Other input services (such as profession fees, construction, soil testing, labour charges etc), and duty paid on Air Conditioners.
From an analysis of the statutory provisions, definitions, and the decisions of the Hon'ble High Courts and the Tribunal, it is evident that any service used by a service provider for providing Port Service in any manner, is eligible for credit. The definition of Input service by way of means and includes also amplify the scope of the same. Further, the definition also mentions certain specific services. The definition also includes services used in relation to activities relating to business. These further enlarge the scope of the input services. The net result of such a wide definition as rightly held by the High Courts and Tribunal, is that any input service which has any nexus or is in relation to the output services in any manner whatsoever, or is in relation to the activities relating to business would be eligible for credit. Therefore, the appellants would be eligible to take credit on the input services where they are able to satisfy the above criteria.
23. The learned Advocate on behalf of the Appellants submits that in reply to show cause notice and during the course of hearing before the Adjudicating authority, they had explained the relationship/nexus between input service and output service. In this context, the learned Advocate drew the attention of the Bench to the relevant portion of the reply to show cause notice. He has also shown some of the specimen copies of the documents to substantiate that the Appellant had used the input service for providing output services. The Appellant submitted statement of various service utilised for providing of output service, which was explained before the adjudicating authority, as under:-
SN Nature of Services Usages / requirement of services 1 Advertising Agencys Services The Appellant availed the services from various service providers under this category for publication of quarterly, half yearly and annual financial results of the company as per statutory requirement under the Companies Act, 1956 and other laws. Further, various service providers provided services of publication of port related operational highlights and major achievements of The Appellant from time to time which would promote the brand of The Appellant and increase its business. The Appellant further engaged promotions and media agency for public relation and media release co-ordination and facilitation purpose. This service is specifically included in third part of the definition of Input Service defined under Rule 2(1) f the CENVAT Credit Rules 2004.2
Air Port Services The Appellant is having an airstrip at mundra, which facilitate its customers who are availing port service and other stake-holders for better connectivity with other parts of India and thus help in providing port service more efficiently. Airports Authority of India who is the only service provider under this category manages communication & navigation system and air traffic management to facilitate air operation smoothly. CENVAT Credit availed for the Airport service should also be allowed following the same logic as that of Rent a Cab Service which was allowed by the Honble Tribunals decision in the Appellants own case on the ground that transport of various personnel and other officials is necessary to provide authorized operation efficiently.3
Air Travel Agency The Appellant availed the services of air travel agencies for booking of air tickets for various executives, officers and directors for attending various business meetings and conferences related to port business operation and development purpose.4
Architect The Appellant availed the services of various architects for architectural, mechanical & electrical engineering related projects required fro port offices, building, sub-stations & warehouses.5
Banking & Financial Services The Appellant availed CENVAT Credit on service tax paid for various bank charges and finance charges related to day to day operations like opening of letter of credit (LC), buyers credit for bill acceptance, Letter of undertaking charges (for import of material), swift charges for fund transfer, LC commission and ECB (external commercial borrowings) related bank charges like upfront fees, commitment fees, agency fees, arrangement fees, process agent fees & legal fees for such payment.6
Business Auxiliary Services The Appellant has availed the following Business Auxiliary Services:
1. procurement of material to be used for providing port services;
2. payroll processing outsourcing i.e. services to facilitate the system of paying salary to the employees of The Appellant which is outsourced from a third party service provider by the Appellant
3. maintenance of photocopier machines used in the registered offices for carrying on the day to day operations;7
Business Support Services The Appellant outsourced the activity of storage of business documents including invoices for archival and retrieval purpose. This is needed for day to day operation of the port business by the Appellant.
8Cargo Handling Services The Appellant appointer and availed the services from various cargo handling agencies for loading and unloading of cargo within the port area, internal transportation of various cargo like fertilizers, minerals, met coke, steam coal, steel plates, steel pipe, steel coil, project cargo, timbers and clinkers from jetty to warehouse built in the port.
9Chartered Accountants Services The Appellant availed the services from the Chartered Accountants for carrying out audit of financial statements and others certifications like 15CB required for remittance of fund in case of import of services & materials required for operations and maintenance of port.
Service relating to auditing is specifically included in third part of the definition of Input Service defined under Rule 2(1) of the CENVAT Credit Rules 2004.
10Cleaning Activity Services The Appellant availed the services from various service providers who provided the services of house keeping in port area and port offices. Cleanliness port area required for sale port operation.
11Clearing & Forwarding Agents Services The Appellant availed the services of various clearing and forwarding agencies for custom clearance of various dry cargo and liquid cargo on behalf of various customers.
12Commercial Coaching & Training Services The Appellant availed the service from various service providers who organized various types of trainings to train mechanical and engineering technicians for better handling of tools, equipments, convey our belts, cranes used in the port and port systems. Further training were provided to non-technical staff for smooth functioning of port. Such training are needed to provide the port service efficiently. Service relating to coaching and training is specifically included in third part of the definition of Input Service defined under Rule 2(1) of the CENVAT Credit Rules 2004.
13Commercial or Industrial Construction Services The Appellant availed services of various service providers for civil construction of marine structures, port building, control room and warehouses used for providing the port service. The wares-houses, control rooms and port building are required for day to day functioning of the port.
14Consulting Engineers Services The Appellant availed project management consultancy services for construction projects and import of services (container terminal billing software) in relation to operation and maintenance of port. A modern port is required to offer a rich portfolio of services that requires a sophisticated billing system. Container Terminal Billing (CTB) module generates the detailed billing reports and relevant invoices concerning all activities of a container terminal. Further, Management consultancy service for Construction Project includes various services like sand blasting service, transfer of electrical towers, land levelling for various construction projects within port area needed for providing port service.
15Convention Service The Appellant availed the services of various service provider for organizing business/commercial convention and safety related convention required for port industry. These conventions are attended by the employees of the Appellant and required for proper understanding of the port and its safety related aspect which are discussed in this convention.
16Courier Services The Appellant availed courier agency services for communication and correspondence with various customer, vendors, bankers, government agencies and between the port and the Ahmedabad offices for sending various business letters and documents at various locations.
17Credit Rating Agency The Appellant availed services from Credit Rating Agencies for various fund raising and loan facilities which is needed or the day to day operation and expansion of the port/jetty. Credit rating is an essential requirement for availing any loan facilities as well as for raising fund from investors. Service relating to Credit Rating is specifically included in third part of the definition of Input Service defined under Rule 2(1) of the CENVAT Credit Rules 2004.
18Depository Services The shares and security offered by the Appellant has been listed company in National Stock Exchange (NSE) & Bombay Stock Exchange (BSE). The Company is required to tax depository services of NSE & BSE for securities related information and data required from time to time for publication to public and bankers.
19Cosmestic / International Journey by Air The Appellant availed Air travel services for travelling by air for various executives and directors for attending various business meeting and conferences related to port business operation and development purpose.
20Dredging Services Dredging is the prime activities needs to be carried out for construction & operation of Port. For keeping minimum draft level near jetty area, dredging in the sea is required to be carried out from time to time to keep minimum draft level.
21Erection, Commission-ing or Installation Services The Appellant availed services for erection, commissioning & Installation of various plants & machinery, equipment, tugs and cranes which enable the port to provide smooth and efficient movement and handling of cargo within the port area and it reduces the turnaround time for Import and Export of cargo and increases the efficiency of the port service.
22General Insurance Services The Appellant insured their various equipment, machineries, tugs, cranes taken including IAR policy (Industrial All Risk Cover). Such equipments are used for providing the port service. The Appellant has taken the insurance policy in order to safeguard assets and property of the company.
23Goods Transport Agency Services The Appellant availed the transportation services from various service providers for transport of various input, consumable and material required for day to day operation and maintenance of various plant & machinery as well port facilities.
24Information Technology Software Services For effectively running port operations, the port needs to rely upon various software for invoicing, accounting and operating soft-wares for handling cargo, vessels & container terminal efficiently and effectively. Therefore The Appellant availed the service from various service providers to develop, maintain and for up-gradation of various software related to invoicing and accounting needed fro day to day operation of the port. Service defined under Rule 2(1) of the CENVAT Credit Rules 2004 under the head of Computer Networking.
25Internet Services The Appellant availed the services of broadband connection for communicating with various customer, vendors, bankers, government agencies through e-mails and communication between port area and Ahmedabad office for efficient functioning of the port service provided by them. The Appellant also availed internet service for accessing online information related to port business development and for online banking purpose needed for payment for carrying the day to day operations in the port.
26Legal Consultancy Services The Appellant availed legal services from legal consultants/advocates who were engaged to assist in dealing with statutory compliances and tax related matter w.r.t. direct and indirect taxes in relation to the port services. Service relating to Legal Service is specifically included in third part of the definition of Input Service defined under Rule 2(1) of the CENVAT Credit Rules 2004.
27Maintenance & Repair Services The Appellant entered into contracts with various service provider agencies fro proving scheduled maintenance (i.e. yearly or monthly maintains as the case may be) as well as breakdown maintenance (maintenance/repair on breakdown of any machine) services to be carried out on various plant & machinery equipment used for providing the port service, tugs and cranes used for providing port service. Further repair and maintenance is also required of jetty, port offices and warehouses which are needed for the day to day operation to provide port service.
28Management Consultants Services The Appellant availed management consultantancy service from various service providers in the field of business management and project management for effective and efficient management of port operations and developments. The scope of services included within business management the services of consultancy services to define the desired process model for capital projects, review existing processes, establish gaps in coverage and content, design to be business processes, define functional requirements for IT enablement of designed business processes, program-manage implementation of designed business processes and provide subject matter expertise in program managing, IT implementation for capital project management. The above services are needed for efficient functioning of the port service. Project management includes the service of reviewing the business feasibility of any project/construction built within the port area and the impact it can have on the port service.
29Mandap Keeper Service The Appellant organized various functions in the port premises for port operation related activities like fire & safety day, addressing the meeting by chairman & CEO to port employees etc. Such functional are necessary for proper functioning of the company and to follow a proper decorum/chain of command among the employees.
30Manpower Recruitment & Supply Agency Services The port service industry being an labour intensive industry, The Appellant availed the services of various labour contractor to provide labours for cargo handling for bagging, piling, high heeping, internal movement, internal transportation of cargo within port. The Appellant further availed services of various service providers to assist in recruitment of personnel required for the company. Such services are needed for the day to day functioning of the port.
31On Line Information & Database Access The Appellant availed services from various service provider for providing online information and database access service in relation to handling of cargo within the port and various port operations. Such data base keep a record of the various vessels and cargo coming in and going out of the port at the daily basis which is needed for efficient functioning of the port. The service provider charges for maintaining and providing such database information on cargo and vessel to the the Appellant as and when required by them.
32Outdoor Catering Services Catering services was availed for The Appellants port staff and various port users like vendors, customers, port visitors at Mundra port offices.
33Passengers Embarking On Domestic Journey by Air The Appellant availed services for air travel of various executives and directors of the company for port business operation and development purpose.
34Pilotage Services The Appellant hired various professional pilot-ages for operations of vessels for berthing and de-berthing of vessels at Mundra port. Such services required for timely movement of vessels coming to Mundra port for import or export of cargo and thus required for providing port service.
35Port Services The Appellant hired services from various port services providers for providing port services at Mundra port for its own customers. The scope of the port services consisting of port and dock/jetty services, berthing, mooring, towage and anchorage in relation to vessels and goods in-loaded in the port area. In availing such port service, the service provider raises invoice to The Appellant and in turn The Appellant raises bill to its customer.
36Port Services (Marine Consultancy) Being port service provider, the Appellant hired the services from various port services provider for operations and maintenance of tug oats for vessel operations and movements. Tug boats used for berthing and de-berthing of vessels after loading and unloading of cargo from the vessels.
37Renting of Immovable Property Services The Appellant hired its registered office located in Ahmedabad on rent. Various internal departments like secretarial, finance, accounting, commercial, human resource, administration etc are being handled from the Registered office.
38Scientific & Technical Consultancy Services The Appellant availed scientific and technical services for scientific and technical assessment of various plant & machinery, equipments & cranes required for providing port services. Such types of services are required for carry out impact analysis of tide water on the marine structure. Such analysis will required for assessing draft level required for berthing and de-berthing of vessels throughout in a year.
39Secretarial Services The Appellant being listed company under National Stock exchange (NSE) & Bombay Stock Exchange (BSE), THE Company needs to comply with various regulatory agencies like SEBI, ROC & Stock Exchange rules & regulations as well as Companies Act. The Appellant has hired services from the Company Secretaries for secretarial audit and certification for compliances of all such acts, rules & regulations.
40Security Services The Appellant have hired services of various security services provider for protection of various movable and immovable assets and also for protection of plant & machinery situated at various locations within Mundra port. Being bonded custom port area, such services required to ensure safety of goods storage in the port and to ensure and avoid sabotage of property & asset of the port. Service relating to security is specifically included in third part of the definition of Input Service defined under Rule 2(1) of the CENVAT Credit Rules 2004.
41Share Registry Services The Appellant being listed company on National Stock Exchange (NSE) & Bombay Stock Exchange (BSE), needs to comply with various regulatory agencies like SEBI, ROC & Stock Exchange rules & regulations as well as Companies Act and for compliances of all such acts, rules ®ulations. For compliances, The Appellant has hired services of share registry services provider. Service relating to share registry is specifically included in third part of the definition of Input Service defined under Rule 2(1) of CENVAT Credit Rules 2004.
42Ship Management Services Being port services provider, the Appellant hired the services from various ship management services provider for operations of tug boats for vessel operations and movements. The service provider provided tug pilot to The Appellant who operates the tug for berthing and de-berthing o vessels after loading and unloading of cargo from the vessels.
43Site Formation Services The Appellant availed services for clearance and site formation of open yard godown required for storage of cargo like fertilisers, steel pipes & plates and minerals and therefore essential in providing port service.
44Sponsorship Services The Appellant provided sponsorship services to various types of Govt. and Semi-Govt. programmes related to port sector which is needed to promote the brand of the company.
45Stock Exchange Services The Appellant being listed company on National Stock Exchange (NSE) & Bombay Stock Exchange (BSE), need to comply with SEBI, ROC & Stock exchange regulations as well as Companies Act. For compliances, The Appellant has been listed on NSE and BSE and they need to pay annual listing fees to NSE & BSE.
46Storage & Warehouse Services The Appellant hired godowns for storage of cargo before export of cargo or before clearance of cargo after import. Storage and warehouses services is an integral port of providing cargo handling facilities to various customers availing port service as no port can operate without having a storage facility for storing cargo.
47Supply of Tangible Goods The Appellant hired tug boats for vessel operations and movements. Tug boats used for berthing and de-berthing of vessels after loading and unloading of cargo from the vessels. Further, some of cargo handling equipments like trailers, tractor, cairns and dumpers taken on hire for providing port services.
48Technical Inspection & Certification Services The Appellant has availed services for periodical survey, docking survey, air pollution preventive survey & annual survey of various tug Boats required for vessel operations and such technical and certification of tug boats required in compliance to marine safety rules and regulations.
49Technical Testing & Analysis Services The Appellant availed the services for technical testing of various hydraulic cranes for assessment of fitness and loading capacity which are required for handling of cargo within the port area.
50Transport of Goods by Coastal Shipping The Appellant availed the services from various service providers in respect of transportation of marine equipment from various locations to Mundra Port or visa versa.
51Works Contract Services The Appellant availed work contract services in relation to repair and maintenance of equipment and machineries like tug boats and cairns and other plant & machinery parts required for providing port services
24. The learned Advocate, by random sampling method, demonstrated from the Paper Book Volume 3 & 4 in respect of OIO dt.11.11.2013 and Show Cause Notice dt.14.10.2008 issued to APSEZ Ltd, to substantiate the relationship/nexus of input service and output service. In the case of APSEZ Ltd, the learned Advocate submitted a chart, listing all the input services under various categories. The first category includes Cargo Handling Service, Custom House Agents, Dredging Service, Manpower Recruitment and Supply Agency Services, Pilotage Services, Port Services, Port Services (Marine Consultancy), Storage and Warehousing Services, Supply of Tangible Goods and Surveyors Services which are all input services used directly for providing the output taxable service (direct nexus). It is observed that since all these input services have direct nexus to the output service, the appellants are eligible for taking credit of the same.
The second category of the services includes: Architect Services, Banking and Financial Services, Commercial or Industrial Construction Services, Construction Services, Consulting Engineers, Erection, Commissioning or Installation, General Insurance, Insurance Auxiliary Services, Insurance Services, Life Insurance Services, Maintenance and Repair Services, Management Consultant, Scientific and Technical Consultancy, Security Services, Technical Inspection and Certification and Technical Testing and Analysis which are covered under Rule 6(5) of the CENVAT Credit Rules, 2004. These services would be eligible for availing CENVAT Credit as the said input services are used for providing output services, and are also covered under Rule 6(5) of the CENVAT Credit Rules, 2004.
Third category includes Advertisement Agency, Banking and Financial Services, Chartered Accountant, Commercial Training and Coaching, Credit Rating Agency, Goods Transport Agency, Manpower Recruitment Agency, Market Research Agency Services, Scientific and Technical Consultancy, Security Services, Share Registry Services, Steamer Agents Services, Technical Inspection and Certification, Technical Testing and Analysis and Transport of Goods by Cruise Ship which falls under the inclusive part of the definition of input services, as defined under Rule 2(l) of CENVAT Credit Rules, 2004. Hence CENVAT Credit on these services also would be eligible.
The services mentioned under Category-IV are the services which the Appellants claimed to be in relation to business activities. It is observed that the Appellant have claimed under this category, the services of Air Travel Agency, Airport Services, Auth. Service Stations Services, Business Auxiliary Services, Business Exhibition Services, Business Support Services, Cable Operators Services, Cleaning Activity Services, Convention Service, Courier Services, Depository Services, Design Services, Erection, Commissioning or Installation, Event Management Service, General Insurance, Health Services, Information Technology Software Services, Insurance Auxiliary Service, Internet Service, Maintenance & Repair Services, Mandap Keeper, Membership of Clubs, Online Information & Database Access, Outdoor Catering Services, Pandal/Shamiana Services, Passenger Embarking For Foreign Travel, Photography Services, Rent-A-Cab Services, Renting of Immovable Property, Site Formation Services, Sponsorship Services, Stock Exchange Services, Survey & Map Making, Telephone Services, Work Contract Services. It is observed that except for Air Travel Agency, Airport Services, Mandap Keeper Services, Membership of Clubs, Passenger Embarking for Foreign Travel, and Sponsorship Services, all the other services will be eligible to be treated as input services used in relation to business activities. As regards, Air Travel Agency, Air Port Services, Mandap Keepr Services, Membership of Clubs, Passenger Embarking for Foreign Travel, Sponsorship Service, it is not clear from data to what extent they are in relation to the business activities / output service viz. Port service. Hence, it needs to be examined by the lower Adjudicating authority whether these services are eligible to be treated as input services for providing the output services viz. Port Service. However, all other services in this category would be clearly in relation to business activities, and hence would be eligible for CENVAT Credit.
Further, the Appellants have claimed under Category V, Architect Service, Company Secretary Service, Consulting Engineers Service, Legal Consultancy Service and Management Consultant Service as Professional Services used for providing output taxable service. It is observed that the Hon'ble High Court of Gujarat has held in their own case (supra) that profession fees will be input services. The inclusive part of definition also mentions similar services and says such as. It is, therefore, clear that these services will be eligible to be treated as input services, and credit of the same would be eligible.
The Appellant has listed under Category VI, Commercial or Industrial Construction Services and Construction Service. It is observed that in Appellants own case (supra), Hon'ble High Court of Gujarat has held that credit is available on construction of jetty for output service viz. Port Service. The Hon'ble High Court of Andhra Pradesh in Sai Samhita Storages case (supra) held that Construction of Warehouses is eligible for credit for output service, Storage and Warehousing services. Tribunal has also held in same vein the cases of Reliance Infratel Ltd (supra) and in the case of Navratna S.G. Highway (supra). Therefore, it is found that the Appellants are eligible for credit on these services also.
25. The learned Authorised Representative for the Revenue particularly referred the decision of the Hon'ble Bombay High Court in the case of Commissioner of Central Excise, Nagpur Vs Ultratech Cement Ltd 2010 (260) ELT 369 (Bom). The substantial question of law, in that case, was whether the CESTAT was correct in holding that the respondent is entitled to avail the CENVAT Credit on outdoor catering services provided in the factory for employees of the factory as a input service credit despite the fact that outdoor catering service does not fall under the ambit of the definition of Input service specified under Rule 2(l) of Cenvat Credit Rules, 2004, as the catering/canteen services are neither used in or in relation to the manufacture or clearance of final product nor can it be said, to be an activity relating to business. The Hon'ble High Court held that credit of Service Tax paid on Outdoor Catering Service is admissible as the use of Outdoor Catering Service having nexus or integral connection with manufacture of final product. Hence, this case law is more in favour of the Appellant than Revenue. In fact, the Hon'ble High Court of Bombay, in the said decision, discusses the terms such as and in relation to business activities in the definition of input services and has held that the definition of input service is very wide, and it seek to cover every conceivable service used in business of manufacture (or output service), and categories enunciated after expression such as in the definition of input service is not relating to particular class or category of services but to variety of services used in business of manufacturing final products (or output services), and such as in the said definition is only illustrative and not exhaustive. The learned Authorised Representative also relied upon the decision of the Hon'ble Gujarat High Court in the case of Commissioner of Central Excise, Ahmedabad-II Vs Cadila Healthcare Ltd 2013 (30) ELT STR 3 (Guj.). The question of law proposed before the Hon'ble High Court was whether the CESTAT was right in considering the services namely Technical Testing and Analysis Service, Technical Testing and Certification Service, Business Auxiliary Service (Service rendered by the Commission agent), Service rendered by clearing and Forwarding Agent, Courier Service, Commercial and Industrial Construction Service, Maintenance or Repair service, Interior Decorator Service, Management Consultancy Service, availed by the assessee, as eligible services for availing input service credit as defined under Rule 2(l) of the CCR, 2004? In that case, the assessee was engaged in the manufacture of P&P medicines. The Hon'ble High Court held that input service namely Technical Testing and Analysis is admissible for CENVAT Credit, as final product could be manufactured only upon approval of regulatory authority after technical testing and analysis. It is noted that the facts of the said case law is different from the present case, in so far as in the instant case, the Appellants are service provider and not manufacturer.
26. Normally, the Appellate authority should dispose of the appeal finally on the basis of available material, either by confirmation or setting aside or by modification of the order. In case, the Appellate authority had examined law in detail and had gone to the facts in depth on the basis of evidence on record, Appellate Authority should not remand the matter to the lower authority, unless absolutely necessary. The power of remand is to be exercised only sparingly. In the present case, we find that the allegation in the show cause notice is that there is no nexus/relationship between the input service and output service. The Appellant explained before the Adjudicating authority the relationship between such input service with output service, which was also placed before us as mentioned above. After going through the records and the statements filed by the appellants and the details of the Input Services as mentioned above, we are unable to accept the findings of the Adjudicating Authority.
In the case of APSEZ Ltd, the learned Advocate submitted the breakup of the denial of Cenvat Credit, precisely as under:-
SN Particulars Amount (in Rs) In %age
a) List of Input Services used directly for providing Output Taxable Service (Direct nexus) 71,62,93,242.00 61.72
b) Services fall under Rule 6(5) of Cenvat Credit Rules 2005 (Services before 1.4.2011) 31,16,94,922.00 26.86
c) List of Input Services fall under Third category of definition of Input Service defined under Rule 2(l) of the Rules (Inclusive Port) 8,03,69,472.00 6.92
d) Input Service used in relation to Business activities.
4,32,51,045.00 3.73
e) Professional Services used for providing Output Taxable Services.
77,94,706.00 0.67
f) Construction Services (Commercial or Industrial Construction Services) 11,95,733.00 0.10 TOTAL 1,16,05,99,139.00 The break-up of denial of Cenvat Credit as mentioned above in respect of Input Service used directly for providing Output Taxable Services would be 61.72% of the total demand. The nature of such services would clearly indicate that the said services must be used for providing Output Services, viz. Port Services. Further, services fall under Rule 6(5) of Cenvat Credit Rules 2004 (prior to 1.4.2011) would be 26.86% of the total demand. It is contended that the appellants earned income from Port Services and services were provided within SEZ. The appellant had been paying Service Tax on Port Services. Therefore, denial of CENVAT Credit on Input Services coming under this category is without any basis. The services covered in inclusive part of the Rule 2(l) of the Rules 2004 and eligible for credit would be 6.92% of the total demand. The next category of services in the table above, are the services used in relation to business activities which would be about 3.73% of the total demand. But, as regards some of the input services, namely, Air Travel Agency, Airport Service, Mandap Keeper Service, Membership of Clubs, Passenger Embarking for Foreign Travel, and Sponsorship service, it is not clear from data to what extent they are in relation to the business activities of output services viz. Port service. Hence, the issue of whether these six services can be treated as input services for providing output services namely Port services and whether the Appellant is eligible to avail CENVAT Credit of Service Tax paid on these six services have to be examined by the Adjudicating authority. However, as regards other services mentioned in this category, it is clearly evident from the record that the nexus of these Input Services with output service are covered in the inclusive part of the definition viz. services used in relation to business activities. The nexus of inputs Service used in the business related activities would be established by the narration of the services in their accounts. In any event, all the services were duly recorded in the books of accounts, which were audited under the companies Act and other authorities. Further, the services coming under Professional Services (0.67%) and Construction Services (0.10%) are evidently eligible for CENVAT Credit, as observed herein earlier.
27. In the case of Coca Cola India Pvt. Ltd Vs CCE, Pune-III 2009 (242) ELT 168 (Bom.), the question before the Honble Bombay Court was whether the services of Advertising and Marketing procured by the Appellant in respect of advertisements for aerated waters are covered by the definition of input services as defined in Rule 2(l) of the CENVAT Credit Rules, 2004, and the advertisement or sales promotion of aerated water undertaken by manufacturer of concentrate is covered by the inclusive part of the definition of input service contained in Rule 2(l) of the said Rules. In that case, the Honble High Court answered the question in favour of the Assessee. The Revenue contended that the Advertisement and Marketing in that case is not connected with the manufacturer of concentrate but with the sale of aerated water manufactured out of the concentrate by the Bottlers and not by Appellant. As such, this will not be covered by the definition of input service whether directly or indirectly in or in relation to manufacture of final product. The Honble High Court, after discussing the definition of input and input service had observed as under:-
25.?The expression Business is an integrated/continuous activity and is not confined restricted to mere manufacture of the product. Therefore, activities in relation to business can cover all the activities that are related to the functioning of a business. The term business therefore, in our opinion cannot be given a restricted definition to say that business of a manufacturer is to manufacture final products only. In a case like the present, business of assessee being an integrated activity comprising of manufacture of concentrate, entering into franchise agreement with bottlers permitting use of brand name by bottlers promotion of brand name, etc. the expression will have to be seen in that context See (i) Pepsi Foods Ltd. v. Collector - 1996 (82) E.L.T. 33, (ii) Pepsi Foods Ltd. v. Collector - 2003 (158) E.L.T. 552 (S.C.).
The Honble Supreme Court in State of Karnataka v. Shreyas Paper Pvt. Ltd. 2006 SCC affirmed the view taken by the Honble Karnataka High Court reported at 2001 (121) STC 738, which, inter alia, held as under :
Business comprises of the regular and systematic activity with an object of earning of profits. The machinery, plant, building and the land over which they have erected or constructed are only the tools of such business. Assets and liabilities including goodwill are the necessary ingredients to constitute a business, besides the stocks and other movable and immovable items connected with the said business.
In Mazgaon Dock Ltd. v. Commissioner of Income tax and Excess Profits Tax - AIR 1958 SC 861 the Honble Supreme Court held as follows :
14. The word business is, as has often been said, one of the wide import and in fiscal statutes, it must be construed in a broad rather than a restricted sense.
15. The word business connotes, it was observed by this court in Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax, 1955 1 SCR 952 some real, substantial and systematic or organised course of activity or conduct with a set purpose. The term business therefore, particularly in fiscal statutes, is of wide import.
26.?The definition of input service employs the phrase activity relating to business. The words relating to further widens the scope of the expression activities relating to business. This is in view of following observations of Supreme Court in Doypack Systems (P) Limited v. Union of India - 1988 (36) E.L.T. 201 (S.C.), interpreting the expression in relation to :
48.?The expression in relation to (so also pertaining to), is a very broad expression which pre-supposes another subject matter. These are words of comprehensiveness which might both have a direct significance as well as an indirect significance depending on the context, see State Wakf Board v. Abdul Aziz (A.I.R. 1968 Madras 79, 81 paragraphs 8 and 10, following and approving Nitai Charan Bagchi v. Suresh Chandra Paul (66 C.W.N. 767), Shyam Lal v. M. Shayamlal (AIR 1933 All. 649) and 76 Corpus Juris Secundum 621. Assuming that the investments in shares and in lands do not form part of the undertakings but are different subject matters, even then these would be brought within the purview of the vesting by reason of the above expressions. In this connection reference may be made to 76 Corpus Juris Secundum at pages 620 and 621 where it is stated that the term relate is also defined as meaning to bring into association or connection with. It has been clearly mentioned that relating to has been held to be equivalent to or synonymous with as to concerning with and pertaining to. The expression pertaining to is an expression of expansion and not of contraction.
The expression relating to thus widens the scope of the definition.
xxx xxx xxx
38.?Service tax therefore, paid on expenditure incurred by the assessee on advertisements sales promotion, market research will have to be allowed as input stage credit more particularly if the same forms a part of the price of final product of the assessee on which excise duty is paid. In other words, credit of input service must be allowed on expenditure incurred by the assessee which form a part of the assessable value of the final product. If the above is not done, as sought to be done by the department in the present case, it will defeat the very basis and genesis Cenvat i.e. value added tax.
xxx xxx xxx
43.?What follows from the above discussion is that the credit is availed on the tax paid on the input service, which is advertisement and not on the contents of the advertisement. Thus it is not necessary that the contents of the advertisement must be that of the final product manufactured by the person advertising, as long as the manufacturer can demonstrate that the advertisement services availed have an effect of or impact on the manufacture of the final product and establish the relationship between the input service and the manufacture of the final product. The manufacturer thereby can avail the credit of the service tax paid by him. Once the cost incurred by the service has to be added to the cost, and is so assessed, it is a recognition by Revenue of the advertisement services having a connection with the manufacture of the final product. This test will also apply in the case of sales promotion.
44.?Having thus arrived at the conclusion on the meaning of the expression of input services and that manufacturer can avail of the credit of the services tax paid by him for payment of CENVAT duty, the question referred for our consideration will have to be answered as under : Question (a) is answered in the affirmative in favour of the assessee and against Revenue and question (b) again answered in the affirmative in favour of the assessee and against revenue.
28. The other aspect of the present case is that the appellants have rendered services within Special Economic Zone (SEZ). In terms of Section Rule 6(6)(i) of the Cenvat Credit Rules, the appellant was not required to reverse the Cenvat Credit used in the Special Economic Zone (SEZ). The appellants would be eligible to avail Cenvat Credit as specified under Rule 6(5) of the Cenvat Credit Rules as the same have been used for providing output Services.
29. The Honble Bombay High Court in the case of M/s Coca Cola India Pvt Ltd (supra) particularly observed that once the cost incurred by the service provider has to be added to the cost and is so assessed, it is conceded by revenue, having connection with the Input Service and Taxable Output Service. In the present case, it is evident that the Central Excise Officers raised the demand after scrutiny of the records on the above Input Services. The various services as detailed mentioned in reply to the show cause notice are also placed before the Tribunal. The nexus between the Input and Output services is clearly evident from the records except for items namely Air Travel Agency, Airport Service, Mandap Keeper Service, Membership of Clubs, Passenger Embarking for Foreigner and Sponsorship Service which requires to be examined by the Adjudicating authority. So, there is no reason to deny CENVAT Credit on the input services except the items mentioned above. It is a case of eligibility of CENVAT Credit on input, input service and capital goods and most of the items are admissible and therefore, imposition of penalty is not warranted.
30. In view of the above discussions, the impugned orders are modified to the extent, denial of CENVAT Credit, except the input service credit as mentioned in Para 29 of this order, are set aside. The eligibility of the CENVAT Credit of the input services as mentioned at Para 29 of this order would be examined by the Adjudicating authority. Penalties are set aside. The appeals filed by the Appellants are disposed of in the above terms.
(Pronounced in Court on 15.12.2015)
(P.M. Saleem) (P.K. Das)
Member (Technical) Member (Judicial)
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