Custom, Excise & Service Tax Tribunal
Commissioner Of Central Excise, Nagpur vs M/S Manigarh Cement Works on 3 November, 2009
IN THE CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI Appeal No. E/516/08 (Arising out Order-in-Appeal No. AKD/43/NGP/2008 dated 14.3.2008 passed by the Commissioner of Central Excise (Appeals), Nagpur) For approval and signature: Honble Mr. P.G. Chacko, Member (Judicial) ====================================================
1. Whether Press Reporters may be allowed to see No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the Yes CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy Seen
of the Order?
4. Whether Order is to be circulated to the Departmental Yes
authorities?
Commissioner of Central Excise, Nagpur
Appellant
Vs.
M/s Manigarh Cement Works
Respondent
Appearance:
Shri S.M. Vaidya, JDR or the appellant
Shri J.C. Patel, Advocate for the respondent
CORAM:
Honble Mr. P.G. Chacko, Member (Judicial)
Date of hearing : 03.11.2009
Date of decision : 03.11.2009
O R D E R No:..
This appeal filed by the department is directed against the order of the Commissioner (Appeals) permitting the respondent to avail themselves of the benefit of CENVAT credit on certain services recognised by the appellate authority as input services within the meaning of Section 2(l) of the CENVAT credit Rules, 2004. During the material period, the respondent had taken CENVAT credit of service tax paid on (a) construction of buildings (b) repairs and maintenance of such buildings (c) man-power recruitment (recruitment of security guards) and (d) cleaning services ? all these undertaken in a residential colony situated outside the factory premises. In adjudication of the relevant show-cause notice, the original authority held these services to be outside the purview of the definition of input service given under Rule 2(l) of the CENVAT Credit Rules and disallowed the credit in question to the respondent. But the appellate authority held otherwise and consequently the appeal filed by the respondent came to be allowed. In the present appeal, the department refers to the definition of input service and submits that none of the above services can be recognised as input service for want of nexus with the activities of manufacture and clearance of excisable goods. According to the appellant, only those services which are used in or in relation to the manufacture and/or clearance of excisable goods could be held to be input services. It is also submitted that the Tribunals decision dated 4.12.2007 which went in favour of the respondent in an earlier case involving identical issue has not been accepted by the department and that an appeal against the same is under consideration. Today, the ld. DR submits that the appeal filed by the department against the Tribunals order dated 4.12.2007 has since been admitted by the Honble High Court as Central Excise Appeal No. 22/2008. However, it is fairly conceded the Honble High Court has not stayed the operation of the Tribunals order dated 4.12.2007. Nevertheless, in an endeavour to amplify some of the grounds of this appeal, reference is made to the definition of input service and the DR also seeks to draw an analogy between it and the definition of input given under Rule 2(k) of the CENVAT Credit Rules. It is argued that, whether it be the definition of input or definition of input service, the items specified in the inclusive part of the definition should necessarily satisfy the essential legal requirements laid down in the main part of the definition so as to qualify as input service. In this context, reliance is placed on the Honble Supreme Courts decision in Maruti Suzuki Ltd. vs. CCE Delhi 2009 (240) ELT 641 (SC). Relying on the apex Courts findings contained in paragraph 9 to 14 of its judgement, ld. DR submits that the definition of input service given under Rule 2(l) has to be considered as a whole and that anything mentioned as input service in the inclusive part of the definition should necessarily satisfy the essential requirements of the main part of the definition. In other words, no service which does not satisfy the requirement of having been used in or in relation to the manufacture or clearance of final product, whether directly or indirectly, would qualify to be an input service. Ld. DR means to say that the mere mention of a service in the exclusive part of the definition would not per se entitle the service recipient to claim CENVAT credit.
2. On the other hand, ld. counsel for the respondent seeks to distinguish the case of Maruti Suzuki from the instant case. He points out that, in the case of Maruti Suzuki, the apex court split the definition of input into three parts, viz. the main part, the inclusive part and the place of use. Ld. counsel submits that the main part and the inclusive part of the definition of input were held to be qualified by the place of use. On the other hand, according to the ld. counsel, in a case involving interpretation of the definition of input service, the place of use is irrelevant. It is pointed out that many of the services specified in the inclusive part of the definition of input service are services rendered outside the factory. Secondly, it is submitted that the nexus to be established between the main and inclusive parts of the definition of inputs service is much broader when compared to the nexus between the corresponding parts of the definition of input. By way of illustration, the ld. counsel refers to instances of use given in the definition of input service. The main part of the definition contains the expression used in or in relation to the manufacture of final product. The inclusive part of the definition contains expressions like used in relation to setting up, modernisation etc. and used in relation to activities relating to business. According to the ld. counsel, in the inclusive part of definition of input service, any expression of the kind in or in relation to the manufacture of final products is conspicuously absent and expressions like in relation to setting up, and in relation to activities relating to business are significantly present and therefore it is not necessary to show any nexus between any of the services mentioned in the inclusive part of the definition and the manufacture/ clearance of final products referred to in the main part. It is argued that the inclusive part should be independently considered. Ld. counsel argues that every activity or group of activities mentioned in the inclusive part of the definition should stand on its own legs, unaffected or unqualified by anything contained in the main part of the definition. It is in this context that the ld. counsel has referred to the Honble High Courts judgement in Coca Cola India P. Ltd. vs. CCE Pune 2009 (242) ELT 168 (Bom). In the cited case, the Honble High Court was considering the definition of input service. It was held that this definition could be divided into 5 parts/limbs and that each limb of the definition could be considered as an independent benefit. It was further held that, if an assessee could satisfy any one of the five limbs of the above definition, credit of the service tax paid on the relevant input service would be available to him. The Honble High Court further clarified that it was not necessary for the assessee to satisfy other limbs of the definition. According to the ld. counsel, the order passed by this Tribunal in the respondents own case vide 2008 (9) STR 554 (Tri-Mum) (which is presently under challenge by the department before the Hon'ble High Court) is in conformity with the Hon'ble High Courts ruling in Coca Cola case. Contextually, the counsel has also relied on order no. A/55/09 dated 16.1.2009 passed by this bench in another earlier case of the same assessee, (appeal no. E/475/08), wherein the order dated 13.12.07 was followed as binding precedent.
3. I have given careful consideration to the submissions. The three services in question are a) construction service (b) repairs and maintenance service, (c) man-power recruitment service (d) cleaning service, all of which were provided by the respective service providers at the residential colony outside the respondents factory. Employees of the respondent reside in the said colony. Residential buildings were constructed, old residential buildings were repaired and maintained, security guards for the colony were recruited by a man-power recruiting agency and the residential premises were cleaned by another agency. The question is whether any or all of these services could be held to be input service within the ambit of the definition of input service given under Rule 2(l) of the CENVAT Credit Rules, 2004. This definition reads as under:-
(l) input service means any service,-
(i) used by a provider of taxable service for providing an output service; or
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, and includes services used in relation to setting up, modernisation, renovation or repairs of a factory, premises of provider of output service or any 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
4. The Hon'ble High Court, in the case of Coca Cola (supra), examined the scope of the above definition. It held that the definition could be divided into five categories and that each category/limb of the definition could be considered as an independent benefit or concession/exemption. Their Lordships clarified that, if an assessee could satisfy any one of the five categories/limbs, credit of the service tax paid on the relevant services would be available to him. The assessee need not satisfy the other limb(s) of the definition. According to the ld. counsel, the question whether CENVAT credit of service tax paid on the aforesaid four services rendered at the residential colony outside the factory is admissible to the respondent is squarely covered by the Hon'ble High Courts decision, in their favour. On the other hand, ld. DR has heavily relied on the Honble Supreme courts decision in Maruti Suzuki case. According to him, the Hon'ble Supreme Courts decision impliedly overrules the High Courts decision. I agree. In the case of Maruti Suzuki, the Supreme court was considering the definition of input given under the CENVAT Credit Rules. The definition reads as under:-
(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;
Their Lordships considered the above definition to be divisible into three parts: 1) specific part( main or substantive part); 2) inclusive part; 3) place of use. Further discussion relevant to the instant case can be had from para 14 of the judgment and the same reads as under:-
It may, however, be noted that in the definition of input the expression used in or in relation to the manufacture of final products is not a standalone item. It has to be read in entirety and when so read it reads as used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not. These words whether directly or indirectly and whether contained in the final product or not indicates the intention of the legislature. What the legislature intends to say is that even if the use of input (like electricity) in the manufacturing process is not direct but indirect still such an item would stand covered by the definition of input. In the past, there was a controversy as to what is the meaning of the word input conceptually. It was argued by the Department in a number of cases that if the identity of the input is not contained in the final product then such an item would not qualify as input. In order to get over this controversy in the above definition of input, the Legislature has clarified that even if an item is not contained in the final product still it would be classifiable as an input under the above definition. In other words, it has been clarified by the definition of input that the following considerations will not be relevant:
(a) use of input in the manufacturing process be it direct or indirect;
(b) even if the input is not contained in the final product, it would still be covered by the definition.
These considerations have been made irrelevant by the use of the expression goods used in or in relation to the manufacture of final products which, as stated above, is the crucial requirement of the definition of input. Moreover, the said expression, viz, used in or in relation to the manufacture of final products in the specific/substantive part of the definition is so wide that it would cover innumerable items as input and to avoid such contingency the Legislature has incorporated the inclusive part after the substantive part qualified by the place of use. For example, one of the categories mentioned in the inclusive part is used as packing material. Packing material by itself would not suffice till it is proved that the item is used in the course of manufacture of final product. Mere fact that the item is a packing material whose value is included in the assessable value of final product will not entitle the manufacturer to take credit. Oils and lubricants mentioned in the definition are required for smooth running of machines, hence they are included as they are used in relation to manufacture of final product. The intention of the Legislature is that inputs falling in the inclusive part must have nexus with the manufacture of the final product. (emphasis supplied) The above judgment of the Supreme court hands down an important ruling, which it is to the effect that, where the inclusive part of a definition provides a list of items, any such item should also satisfy the quintessential ingredients of the main part of the definition. In other words, the definition has to be considered in its entirety. The inclusive part is not independent of the main part. It is not a stand-alone provision. This ruling is applicable to input service, given the definition of this expression under Rule 2(l) of the CENVAT credit Rules. There is nothing in this definition to indicate that the legislative intent behind it is different from the one underlying the definition of input. Accordingly, I hold that any service which is apparently covered by the parameters of the inclusive part of the definition of input service should also satisfy the quintessential requirements of the main part of the definition and, accordingly, any person claiming the benefit of CENVAT credit on input service in terms of the inclusive part of the definition of input service should establish that such service was used, directly or indirectly, in or in relation to the manufacture of his final products or the clearance of such products from his factory.
5. I am not impressed with the way the ld. counsel has sought to distinguish Maruti Suzuki case from Coca Cola case. He argued that the apex Courts decision relating to input could not be applied to input service. This argument is not acceptable, given the definition of input and input service. Whether it be input or input service, the main part of the definition contains the quintessential ingredients and the inclusive part provides a non-exhaustive list of items each of which should satisfy the requirements of the main part. Ld. counsel has pointed out that, in the case of input, place of use is a third part of the definition, which is conspicuously absent in the definition of input service. It has been argued that an input service need not necessarily be rendered within the factory premises whereas an input should normally be used within the factory. Broadly, this distinction sounds valid. But, again, it doesnt offer an answer to the question whether the service (which is rendered within the factory or outside) satisfies other essential requirements laid down in the main part of the definition. Even if it be held that there is no place of use in relation to input service, the basic requirement remains to be that anything mentioned as an input service in the inclusive part of the definition should be shown to have been used in or in relation to the manufacture or clearance of final products, whether directly or indirectly.
6. In the earlier cases of the same assessee, coordinate benches held in their favour. According to the ld. counsel, the Hon'ble High Courts decision in Coca Cola case should be followed as binding precedent in this case. I find that the Hon'ble Supreme Courts ruling in Maruti Suzuki case is to the contra and the same is constitutionally binding on this Tribunal.
7. In the result, the view taken by the lower appellate authority by following an earlier decision of this Tribunal which is presently under challenge before the Hon'ble High Court cannot be accepted. On the other hand, the view taken by the Ld. DR on the strength of the Honble Supreme Courts ruling in Maruti Suzuki case should be followed. Accordingly, it is held that, as the respondent has not established nexus between any of the four services and the manufacture or clearance of excisable goods, the benefit of CENVAT credit in respect of such service cannot be allowed. It is ordered accordingly. However, I think, in a case of this nature, the assessee should not be penalised. This case involves rival interpretations of a provision of law. In typical cases of interpretative nature, penalties have been waived by this Tribunal. In this view of the matter, the order-in-original is sustained except in respect of penalty imposed by the original authority. The appeal is disposed of accordingly.
(Dictated in Court) (P.G. Chacko) Member (Judicial) SR ??
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