Custom, Excise & Service Tax Tribunal
Lenova India Private Limited vs Commissioner Of Gst&Central ... on 11 March, 2025
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL, CHENNAI
Excise Appeal No.40964 of 2016
(Arising out of Order-in-Original No. 12/2016 (C) dated 5.2.2016 passed by the
Commissioner of Central Excise, Puducherry)
With
Excise Appeal No.40761 of 2018
(Arising out of Order-in-Original No. 02/2018 (C) dated 31.1.2018 passed by the
Commissioner of Central Excise, Puducherry)
And
Excise Appeal No.41036 of 2019
(Arising out of Order-in-Original No. 01/2019 (C) dated 29.3.2019 passed by the
Commissioner of Central Excise, Puducherry)
M/s. Lenovo India Pvt. Ltd. Appellant
R.S. No. 19/1A, 2A, Edayarpalyam Village
Cuddalore Main Road, Thavalakuppam
Puducherry - 607 402.
Vs.
Commissioner of GST & Central Excise Respondent
No. 1, Goubert Avenue Puducherry - 605 001.
APPEARANCE:
Shri Raghavan Ramabhadran, Advocate for the Appellant Smt. O.M. Reena, Authorized Representative for the Respondent CORAM Hon'ble Shri P. Dinesha, Member (Judicial) Hon'ble Shri M. Ajit Kumar, Member (Technical) FINAL ORDER NOS. 40321 to 40323/2025 Date of Hearing : 06.01.2025 Date of Decision: 11.03.2025 Per M. Ajit Kumar, All these appeals involve a common issue; hence they were heard together and are disposed by this common order. 2
2. Brief facts of the case are that the appellant is a manufacturer of Portable Automatic Data Processing Machines and Data Processing Units. The appellant is availing CENVAT credit. On verification of documents, it was noticed that they had availed input service credit on ISD challans issued by their Head Office during the period from May 2011 to September 2013, August 2015 to August 2016 and January 2017 to June 2017. This included credit of service tax paid on the services viz. Business Auxiliary Services, Clubs and Association, Storing and Warehousing, Maintenance and Repair etc. Show Cause Notices were issued to the appellant for the said three periods holding that the services provided by them appear to be ineligible for availing CENVAT credit and hence the CENVAT credit availed along with interest merits recovery and for imposing penalties. After due process of law, the Ld. Commissioner partially allowed CENVAT credit and partially disallowed the credit in each of the appeals. Hence the appellant is before this Tribunal.
3. Shri Raghavan Ramabhadran, Ld. Advocate appeared for the appellant and Smt. O.M. Reena, Ld. Authorized Representative appeared for the respondent.
4. The Ld. Advocate for the appellant summarised the appeal-wise issues as in the table below.
Table
Particulars E/40964/2016 E/40761/2018 E/41036/2019
OIO No. 02/18 (C) OIO No. 01/2019
Order-in- OIO No. 12/2016
(C. Ex) dated (C) (C. Ex) dated
Original (C) dated 05.02.2016
31.01.2018 29.03.2019
reference
SCN No. 05/2017 (C) SCN No. 01/2019
Show Cause SCN No. 52/2014
dated 01.09.2017 (C) dated
Notice reference (C) dated 24.09.2014
16.01.2019
May 2011 to August 2015 to January 2017 to June
Period
September 2013 August 2016 2017
Period barred by May 2011 to July -- --
3
limitation 2013
Demand [INR] 3,44,71,959 7,47,80,185 5,80,09,152
Penalty [INR] 1,72,36,110 10,00,000 5,00,000
Demand for reversal of Cenvat Credit of service tax paid on input Issue services used by Manufacturing unit The Ld. Advocate stated that the appellant is a unit of Lenovo. The appellant receives certain input services directly and also takes credit of service tax distributed to the appellant on the basis of ISD invoices by its head office. He submitted a summary of the dispute related to the input credit taken, in a tabular form which is reproduced below;
Particulars of Sl. Period Facts pertaining to the service received Service ▪ The Appellant enters into Annual Maintenance Contracts (henceforth: 'AMC') with Authorized service partners (i.e., IBM) Management, for maintenance of products sold to their Maintenance or customers. The authorized service partners May 2011 to i. Repair Services raise service invoices on Lenovo (the June 2017 (INR Appellant's Corporate office) regardless of 15,89,96,452/-) where the AMC services are rendered.
▪ Service Tax is paid by Lenovo on the service invoices raised by authorized service partners.
▪ The Appellant entered into agreements with dealers, for promoting sales in Tier 2 and 3 cities where the Appellant does not undertake Business direct sales.
May 2013 to
Auxiliary ▪ In consideration of the services provided by
ii. September
Services the dealers, a fixed amount or a percentage of
2013
(INR 78,80,689/-) the sale of Lenovo products effected is paid
to such dealers. The dealers discharge service tax on the consideration received from the Appellant.
The Appellant had received services from abroad Import of in the form of market research data and charges May 2011 to Services and for accessing their databases and other iii. September Blanks professional Consultancy services in the areas of 2013 (INR 3,10,165/-) marketing to understand the market situation and to promote sales.
The Appellant has procured corporate May 2011 to Club and memberships with certain chambers and September Association associations such as the Council of Supply Chain 2013 and iv. Membership Management Professionals, the Bangalore August 2015 services Chamber of Industry and Commerce, etc. The to August (INR 69,397/-) Appellant had paid service tax paid on such 2016 membership which had been obtained.
The Appellant utilizes warehousing services for Storing and May 2011 to storing various documents related to the accounts Warehousing v. September of the Appellant Company and also other back-
Charges 2013 up files which are integral for carrying on the (INR 4,593/-) operations of the Appellant effectively 4 The Ld. Advocate stated that the undisputed and admitted facts in the present appeals are;
i) Credit pertaining to the appellant have been distributed in line with rules laid down under the CCR.
ii) AMC obligations or repair obligations qualify as common input services used in both manufacturing unit as well as in exempted service.
iii) The quantum and manner of credit availed is not disputed. It is not the case of Department that credit pertaining to exempted activities (trading) has been distributed to the manufacturing unit.
iv) Membership services have been availed with manufacturing association in order to know the latest developments in the industry.
The Ld. Advocate submitted the issues mentioned in the table above had already been settled by a large number of judgments as cited in their appeal and hence the impugned order may be set aside. From the averments made by revenue, there does not appear to be unanimity on the 'undisputed issues' as averred by the appellant, as is discussed below.
4.1 The Ld. AR responded as under to the various service-related issues stated in the impugned order.
• Warranty and AMC Services: The HO at Bangalore and branch offices purchased repair and maintenance services for both manufactured and traded goods, provided by M/s IBM India. While warranty-related services were eligible for input service credit, AMC obligations beyond the warranty period were not considered eligible for the manufacturing unit at Puducherry as per rule 2(l) of CCR 2004.
5• Business Auxiliary Service: Input service credit towards sales commission was initially disallowed but later accepted retrospectively for the period prior to 3/2/2016, based on a clarification issued by the board circular.
• Club and Association service: It is not related to Manufacturing activity hence not eligible as input service credit as per rule 2(l) of CCR 2004. It is specifically excluded vide amendment to CCR 2004.
• Import of Services and Blanks: There is no clarity on the nature of services and classification of services received from outside India and paid under RCM, hence credit is not allowed. • Extended Period Justification: The SCN alleged that M/s Lenovo took ineligible credit based on challans issued by their head office without declaring the input service credit details. Hence there was an intent to avail credit not available to them, justifying the invocation of the extended period under sec 11A (4) of C. EX Act 1944.
5. We have gone through the appeals and have heard the rival parties. Before examining the issues, it would be relevant to reproduce the definition of 'input service' as appearing at Rule 2(l) of the CENVAT Credit Rules, 2004 (CCR) at the relevant time;
(l) "input service" means any service -
(i) used by a provider of taxable service for providing an output
service, or
(ii) used by the manufacturer, whether directly or indirectly, in or
in relation to the manufacture of final products and clearance of final products upto the 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, 6 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"
The issues involved are discussed below.
5.1 AMC & Warranty Charges:
The Appellant has stated that the issue of annual maintenance service (Management, Maintenance or Repair Service) received from authorized service providers beyond the warranty period for their traded goods being an eligible input service under Section 2(l) of CCR 2004 has been settled in favour of the assessee. They have placed reliance on
a) Carrier Airconditioning & Refrigeration Ltd vs CCE Gurgaon 2016 (41) S.T.R. 1004 (Tri. - Del.),
b) M/s. Acer India Private Limited vs CCE 2023 (11) TMI 720-
CESTAT Chennai 5.2 We find that the Ld. Original Authority was of the view that AMC service rendered beyond the warranty period by sub-contractors has no nexus with the manufacturing activity, hence duty paid towards AMC by the sub-contractors was not an eligible input service for the manufacturing unit at Puducherry. The duty paid by sub-contractors would be eligible as input credit only for the Head office at Bangalore who had engaged the services of the sub-contractors to service the AMC and for which the HO had registered as (output) Service provider. However, due to a lack of separate charge/break up on warranty and AMC between the manufacturing unit and the HO, the appellant has not discharged the burden of having availed only eligible input services and hence the credit becomes ineligible as per Rule 7 of CCR 2004, at the manufacturing unit at Puducherry. To this the appellant has stated 7 that it is a settled principle that input service definition is inclusive and encompasses services used in or in relation to manufacture. They submitted that the definition of input service provided under Section 2(l) of CCR is only illustrative and not exhaustive. Any service that is used by the manufacturer whether directly, indirectly in or in relation to the manufacture of final products constitutes input service. Reliance was placed on the following decisions for the principle that any input services used in or in relation to manufacture activity would be considered as input service:
i. Commr of C. Ex., Bangalore-III vs Stanzen Toyotetsu India (P) Ltd 2011 (23) S.T.R. 444 (Kar.) ii. Wipro Ltd. vs Commissioner of C. Ex., Pondicherry 2018 (10) G.S.T.L. 172 (Mad.).
5.3 Two issues have been raised in the dispute. (i) The AMC services for traded goods rendered beyond the warranty period has no nexus with the manufacture activity, hence the input services credit availed by the manufacturing unit at Puducherry is not correct. (ii) Due to a lack of separate charge/break up on warranty and AMC between the manufacturing unit and the HO, credit becomes ineligible as per Rule 7 of CCR 2004.
5.4 It is agreeable, as claimed by the appellant, that the definition of input service provided under Section 2(l) of CCR is only illustrative and not exhaustive. Hence the general principle that input service definition has a "wide latitude" is accepted however it does not mean "wild latitude". A definition clause contained in an Act or Rule must derive its meaning from the text read in its context.
5.5 The Hon'ble Supreme Court in a catena of judgments has interpreted the phrase 'in or in relation to'. In CCE V/s Rajasthan 8 State Chemical Works [1999 (55) ELT 444 (SC)] and Union of India V/s Ahmedabad Electricity Co. Ltd [2003 (158) ELT 3 (SC)], it was held that services which are integrally connected with the process of manufacture without which such manufacture would be impossible or commercially inexpedient shall be covered within the definition of 'input service'. In J. K. Cotton & Wvg. Mills Ltd. [1997 (91) ELT 34 SC], "in the manufacture of goods" normally covers the entire process of conversion from raw materials to finished products. In the case of Commissioner Of C. EX., Nagpur Vs Ultratech Cement Ltd. [2010 (260) E.L.T. 369 (Bom.)], the Hon'ble Bombay High Court, has dealt with the scope of the said phrase and held as under :
"29. The expression "activities in relation to business" in the definition of "input service" postulates activities which are integrally connected with the business of the assessee. If the activity is not integrally connected with the business of the manufacture of final product, the service would not qualify to be a input service under Rule 2(l) of the 2004 Rules."
5.6 We find that the AMC may have a nexus to the sale of Office Machines (traded goods) but it is not integrally connected with the business of the manufacture of the appellants machines, up to the place of removal. Service Tax paid on AMC charges, does not represent tax paid on the input service in relation to its manufacturing unit as no such input service is availed by the manufacturing unit. Hence the cost of the input service does not form a part of the assessable value of the final product cleared from the manufacturing unit, to be eligible for the benefit of CENVAT Credit. Extending the credit of tax paid on a service, which is not a cost incurred by the manufacturing unit, and is rendered beyond the point of removal of the final product, would be contrary to the scheme of CENVAT Credit Rules. Looked at from another angle, CENVAT credit is not eligible on input services attributable to exempted 9 goods / trading activity and is a principle in built into the very structure of the CENVAT scheme. Goods after manufacture and clearance from the place of removal become traded goods, hence the responsibility is all the more on the appellant to prove the eligibility of the input service as credit for the manufacturing unit. The Ld. Original Authority has therefore rightly held that AMC is not an eligible input service for the manufacturing unit at Puducherry.
5.7 As regards the denial of credit due to a lack of separate charge/ break up of tax paid on warranty services for manufactured goods and AMC services for traded goods between the manufacturing unit and the HO, we find that the grant of tax credit impacts revenue collection, hence an assessee who claims a tax benefit must show not only eligibility but also that he adheres to the provisions of the said scheme. Entitlement means rights of certain benefits and privileges. This entitlement to credit follows from complying with the conditions and is subject to the restrictions contained in the Act and Rules. 5.8 In the case of Competent Authority Vs Barangore Jute Factory reported in (2005) 13 SCC 477, it has been held by the Hon'ble Apex Court that where statute requires an act to be done in a particular manner, the act has to be done in that manner alone. [Also see, A.K. Roy Vs State of Punjab - (1986) 4 SCC 326] and CIT Vs Anjum M.H. Ghaswala - (2002) 1 SCC 633]. The onus of proof while claiming the benefit of a scheme provision is on the assessee. It is for him to show that he is compliant to the same. In Martin Burn Ltd. Vs The Corporation of Calcutta, [AIR 1966 SC 529], the Apex Court, held;
'A result flowing from a statutory provision is never an evil. A Court has no power to ignore that provision to relieve what it considers a 10 distress resulting from its operation. A statute must of course be given effect to whether a Court likes the result or not.' [Also see: A.V. Fernandez Vs. The State of Kerala, AIR 1957 SC 657; Bengal Immunity Co. Ltd. Vs State of Bihar & Ors., AIR 1955 SC 661].
5.9 It is the appellants view that the Original Authority having upheld the manner of distribution, is incorrect in denying credit on Warranty and AMC services only for want of identification of the amounts pertaining to warranty and AMC separately. They have expressed difficulty in splitting the accounts for operational reasons. We feel that, difficulty in segregating the tax credits is a lame excuse. Accounting procedures have been able to track and segregate more complicated transactions. In any case as stated by the Apex Court in Martin Burn Ltd. (supra) hardship is not a ground for ignoring a provision of law. Moreover, we do not find that the Original Authority has categorically upheld the manner of distribution of credit by the ISD. 5.10 We find that as per the CENVAT scheme the eligibility for availing credit arises only if the input or service is related to the final product or service in terms of the definition of input service. Where the appellant is not able to segregate the ineligible credit he forfeits the right to utilise the credit so availed for setting it off against the duty payable. In the case of State of Karnataka Vs M/s. M K Agro Tech Private Limited [(2017) 16 SCC 210] the Hon'ble Supreme Court held that it is the legislature's domain as to how the tax credit is to be given and under what circumstances.
5.11 The principle that the burden of proof regarding the admissibility of CENVAT, falls on the recipient (appellant) is further made clear by Rule 9(5) of CCR, 2004. The appellant has failed to discharge this 11 burden and the manner of distribution of credit alone will not suffice. [See: Astha Enterprises Vs The State of Bihar [CWC No. 10395 of 2023, dated: 18/08/2023 / (MANU/BH/1034/2023)] and State of Karnataka Vs Ecom Gill Coffee Trading (P) Ltd. [2023 SCC OnLine SC 248]. In this case, credit has mindlessly been distributed to a manufacturing unit knowing full well that the input service has nothing to do with the manufacturing unit. The manner of availing credit is equally important so that there is no misuse of the scheme. An input credit does not become eligible because it meets the academic definition as per law. It becomes eligible when the facts and procedure adopted for availment of credit satisfy the requirements of law. In short 'eligible input credit', it is not merely a question of law. It is a question of fact and law that has to be answered by an assessee by demonstrating compliance.
5.12 The appellant has relied on the following judgments in their favour;
i) Carrier Airconditioning & Refrigeration Ltd vs CCE Gurgaon 2016 (41) S.T.R. 1004 (Tri. - Del.),
ii) M/s. Acer India Private Limited vs CCE 2023 (11) TMI 720- CESTAT Chennai 5.13 The appellant has stated that in Carrier Airconditioning (supra). The Tribunal at paragraph 8 has held that service of annual maintenance contractors received from sub-contractors is to be treated as "input service" and the assessee is eligible to avail CENVAT credit. We find that the reference to the case law is misleading. In the said case the dispute was whether the appellant would be eligible for CENVAT credit of the service tax paid on the business auxiliary service received by them from their subcontractors. There was no 12 dispute that the appellant during the period where paying service tax on their output service on repair and maintenance under AMC contract. The tribunal held that the service received by the appellant from their subcontractors of business auxiliary service was to be treated as 'input service' for the output service of repair and maintenance under AMC. In other words when the output service was not disputed to be repair and maintenance under AMC contract, business auxiliary service was recognised as an eligible 'input service'. In the present case the issue is that the manufacturing unit is not providing any output service of repair and maintenance under AMC and hence is not eligible for availing the tax paid on the services of the sub-contractors to their HO. The case is hence distinguished on facts and law. 5.14 In Acer India Private Limited (supra), the issue pertaining to warranty and AMC is discussed at para 17.2 and is reproduced below.
"17.2 The reason for denying the credit on warranty charges is that, the invoice does not separately show the service tax component. There can be no denial of the fact that service is involved while discharging warranty service. The warranty and AMC are provided by common service provider Authorised Sales Provider (ASPs) and would be an eligible input service."
While brevity is the ingredient of a good judgment the greatest hallmark is clarity and the citing of legal provisions which led to the decision. The decision above does not discuss the provisions and principles of law applicable in deciding the issue. It has hence to be treated as a decision depending upon the facts and circumstances of the particular case. The Hon'ble Supreme Court in its judgment in Secunderabad Club Vs CIT, [ Civil Appeal Nos. 5195-5201 of 2012, Dated: August 17, 2023] examined the issue of precedent and stated as under;
"14. . . . According to the well-settled theory of precedents, every 13 decision contains three basic ingredients:
(i) findings of material facts, direct and inferential. An inferential finding of fact is the inference which the Judge draws from the direct or perceptible facts;
(ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and
(iii) judgment based on the combined effect of (i) and (ii) above.
For the purposes of the parties themselves and their privies, ingredient (iii) is the material element in the decision, for, it determines finally their rights and liabilities in relation to the subject- matter of the action. It is the judgment that estops the parties from reopening the dispute. However, for the purpose of the doctrine of precedent, ingredient (ii) is the vital element in the decision. This is the ratio decidendi. It is not everything said by a judge when giving a judgment that constitutes a precedent. The only thing in a judge's decision binding a party is the principle upon which the case is decided and for this reason it is important to analyse a decision and isolate from it the ratio decidendi."
(emphasis added) The judgments bereft of a discussion on the provisions and principles of law involved hence does not serve as a precedent in this case. 5.15 The appellant has further referred to the case of Software development and installation charges ('ITSS') which was also common to both the Appellant (Pondicherry unit) and Lenovo (Bangalore unit). In impugned order No. 12/2016(C) dated 05.02.2016 the Adjudicating Authority came to the conclusion that the service is common to both Pondicherry unit and Bangalore unit and therefore credit cannot be denied so long as the proportionate distribution under Rule 7 of the CENVAT Credit Rules, 2004 has been followed. In the said case ITSS is an eligible credit for both manufacturing units and since there is no one to one correlation between the input and the final product the Ld. Adjudicating Authority has found the credits eligible. The facts are hence distinguished. This being so the judgments cited by the appellant do not come to their help.
5.16 We find that the appellant has failed to establish its case on this 14 issue and hence its appeals in this regard fails and the confirmation of demand relating to AMC and warranty charges [Management, Maintenance or Repair Services] with respect to the manufacture unit is sustained.
Business Auxillary Service:
Though the input service credit towards sales commission is disallowed stating that sale commission paid for the sale of product cannot be equated with sales promotion, it has been stated by the appellant that demand pertaining to BAS has been dropped for the subsequent period (i.e., August 2015 to August 2016) and an appeal has not been filed by the Department against that Order. Revenue has not contested this averment. I find that the order referred to is OIO No 02/2018(C)(CEX), dated: 31/01/2018. The issue is squarely covered by assessee's own identical case for the previous period, which has not been appealed against and hence the disputed issue has attained finality Import of Services and Blanks:
The services received from the Appellant from dealers situated outside India in the form of market research data and consultancy services has been held to be sales promotion activity and is covered under the inclusive part of the definition of "input service" as defined under Rule 2(l) of CCR 2004. Reliance in this regard is placed on Essar Steel India Ltd. vs Commissioner of C. Ex. & S.T., Surat-I 2016 (42) S.T.R. 869 (Tri. - Ahmd.). The service is hence eligible for input service credit.
Club and Association:
The appellant has submitted that the issue of availment of CENVAT credit on Service Tax paid on corporate membership with various 15 chambers and associations has been decided in favour of the assessee. Reliance is placed on the following decisions wherein CENVAT credit on membership obtained in chambers and association has been allowed: i. Reliance Industries Ltd. vs CCE & S.T., LTU, Mumbai 2016 (45) S.T.R. 383 (Tri. - Mumbai) ii. ITC Ltd vs Commissioner of Central Tax, Bangalore North 2022 (65) G.S.T.L. 358 (Tri. - Bang.).
and the demand raised is liable to be set aside. We find that while the legal issue is covered by the decisions cited, there is no averment of perceptible material facts, on how this service is received and put to actual use towards the output service in the appellant's case. However, this was not an issue raised by the Original Authority and hence the plea of the appellant is accordingly accepted here. Storing and warehousing:
The demand has been raised in the first SCN and not subsequently and the amount involved is very paltry. The credit is hence allowed. Extended Time Limit The Ld. Advocate further submits that a part of the demand is barred by limitation and extended period cannot be invoked in the present case as the credit availed is clearly disclosed in the ER-1 returns and the subject matter involves interpretation of law. We find that although there was no major interpretative issue involved regarding the issue of AMC it forms a part of many input services that were contested and where suppression was alleged in the SCNs. However, these services except the issue of AMC were finally decided in favour of the appellant. There does not appear to be any deliberate attempt to evade duty. Nothing has been shown from which an inference of guilty intention 16 can be discerned and hence the extended period cannot be invoked. The demand for the extended period does not survive and is set aside.
6. Having regard to the issues as discussed above the impugned orders are modified as above and the appeals are partly allowed. The appellant is eligible for consequential relief as per law. The appeals are disposed of accordingly.
(Order pronounced in open court on 11.03.2025) Sd/- Sd/-
(M. AJIT KUMAR) (P. DINESHA) Member (Technical) Member (Judicial) Rex