Custom, Excise & Service Tax Tribunal
M/S. Mahindra & Mahindra Ltd vs Cce, Hyderabad-I on 25 May, 2016
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL REGIONAL BENCH AT HYDERABAD Bench SMB Court I Appeal No.E/22719/2014 (Arising out of Order-in-Appeal No.02/2014-15(H-I) (D) CE dt. 30/06/2014 passed by CC,CE&ST(Appeals-I&III), Hyderabad) For approval and signature: Honble Ms. Sulekha Beevi, C.S., Member(Judicial) 1. Whether Press Reporters may be allowed to see 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 CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordship wish to see the fair copy of the Order? 4. Whether Order is to be circulated to the Departmental authorities? M/s. Mahindra & Mahindra Ltd. ..Appellant(s) Vs. CCE, Hyderabad-I ..Respondent(s)
Appearance Shri Karan Talwar and Shri G. Prahlad, Advocates for the appellant.
Shri Kamal Puggal, Assistant Commissioner(AR) for the respondent.
Coram:
Honble Ms. Sulekha Beevi, C.S., Member(Judicial) Date of Hearing:18/04/2016 Date of decision:.
FINAL ORDER No._______________________ [Order per: Sulekha Beevi, C.S.] The appellants are manufacturers of motor vehicles and components. They are availing CENVAT credit facility of duty paid on inputs, capital goods and input services. On verification of records it was found that during the period April 2011 to December 2012 appellants availed credit for an amount of Rs.1, 36,352/- on services like works contract service which according to department was not admissible. A show cause notice was issued to appellants and after due process of law, the original authority vide order dated 30.12.2013, allowed credit of Rs.1,24,954 ,disallowed credit of Rs.7,246 confirming demand and recovery of this amount along with interest besides imposing penalty of Rs.3623/. The department filed appeal before the Commissioner (Appeals) challenging the credit allowed for Rs.1,02,189/ by original authority. In appeal, the Commissioner (Appeals) vide order impugned herein held that appellant is not eligible for credit of Rs. 1,02,189/ and confirmed recovery of same along with interest and imposed penalty of Rs,51,095/. Being aggrieved the appellant has filed the present appeal.
2. The issue for consideration is whether appellant is eligible for credit on certain works contract service during the period April 2011 to December 2012.
3. On behalf of the appellant the learned counsel, Shri Karan Talwar explained the works carried out in the factory by appellant for which service tax was paid under the category of works contact service. It is submitted that in line with the business requirements, the appellant made certain changes in the production process, factory layout, and made improvements to the existing facilities to increase volume of production and also to improve quality of the product. Civil contractors were engaged to carry out certain works. The appellant availed credit of service tax paid for such works contact services. The credit has been disallowed by Commissioner (Appeals) on the ground that these services do not qualify as input services. That these services in regard to execution of works contract service is excluded as per the definition of input service and therefore credit is not admissible. During the period April 2011 to December 2012 they engaged civil contractors for carrying out works as under:-
a) Expansion of capacity of Effluent Treatment Plant(ETP) from existing 160KLD to 250 KLD; credit involved is Rs.37389/.
b) Epoxy coating to the floor /Flooring works; credit involved is Rs. 63,873/.
c) Fabrication of pipe lines, erection of cooling tower and laying foundation for new cooling tower; credit involved is Rs.927/-.
4. It is submitted that the original authority allowed credit on the service tax paid for works contract services of the above works observing that the works undertaken are utilized for renovation/ modernisation/repairs of existing factory and are necessary to enhance production capacity, introduction of new model/variant of motor vehicles. That original authority rightly held that these services are used for repairs, renovation or modernisation and would fall within the inclusive portion of the definition of input service and that they do not fall under the exclusive portion of the definition. In the appeal filed by department, the Commissioner (Appeals) held that these works fall within the exclusion portion of the definition.
5. The learned counsel drew attention to the definition of input service as it stood prior to 1.04.2011, and also after 1.4.2011 to 30.06.2012 and the definition w.e.f 01.07.2012. The definitions are noticed as under for better appreciation.
1. Definition of input service upto 31-3-2011 : Rule 2(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, 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.
After 01.04.2011 to 30.06.2012, the definition is as under-
Input service means any service-
(i) used by a provider of taxable service for providing an output service; or
(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal, and includes services used in relation to 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 up to the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation up to the place of removal;
but excludes services,-
(A) specified in sub clauses (p), (zn), (zzl), (zzm), (zzq), (zzzh) and (zzzza) of clause (105) of Section 65 of the Finance Act (hereinafter referred as special services), in so far as they are used for-
(a) construction of a building of a civil structure or a port thereof; or
(b) laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services; or (B) specified in sub clauses (d), (o), (zo) and (zzzj) of clause (105) of Section 65 of the Finance Act , in so far as they relate to a motor vehicle except when used for the provision of taxable services for which the credit on motor vehicle is available as capital goods; or (C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation and such as leave or home travel concession, when such services are used primarily for personal use or consumption of any employee.
6. The argument advanced for the appellant is that the works undertaken do not fall in the exclusion portion of the definition of input service.That prior to 01.04.2011 the inclusive portion of the definition of input service had the words setting up besides the words, modernisation, renovation or repairs of a factory. Accordingly, prior to 01.04.2011 credit was admissible on input services used for setting up / construction of new building of factory. By the amendment brought forth on 01.04.2011, the words setting up was deleted from the inclusive portion of the definition and an exclusion portion was newly introduced. It is submitted by the counsel for appellant that this exclusion portion is pari materia to the words setting up which was deleted from the definition. From 01.04.2011 upto 30.06.2012 the exclusion part dealt only with specified services as listed therein so far as they are used for construction of building or civil structure or part thereof or laying of foundation. That when credit became not admissible for services relating to setting up of factory, the exclusion portion to be in pari materia to this, is applicable only to services when they are used for construction of new building, new civil structure, laying of new foundation or support for capital goods. The inclusion part of the definition having retained the words modernisation, renovation, repair even after 01/04/2011, the construction works undertaken on an existing building ,civil structure or foundation etc; would be covered by the inclusive part of the definition itself. That such works therefore cannot fall in exclusion part of the definition. That such works would fall in the exclusion portion only if the construction works are in respect of new building, civil structure, foundation etc.
7. It is urged by counsel that after amendment w.e.f. 01.07.2012, the specified services mentioned in the exclusion part of the definition is confined to clause (b) of 66E of the Finance Act, 1994. This was due to introduction of negative list in 2012. In all other respects, the exclusion part of the definition remained the same. That therefore what is excluded, is the service portion in the execution of works contract and construction services, in so far as they are used for construction of new building or civil structure and laying of new foundation. That though the word new is not mentioned in the exclusion part of the definition, while reading the inclusive part of the definition together with the exclusion part, harmoniously, the only meaning that can be arrived is that the exclusion part refers to construction or execution of works contract service in regard to new building, new civil structure or new foundation only.
8. Again, since the inclusive part takes in services used in relation to modernisation, renovation or repairs of factory, if the exclusion part is interpreted in such a way so as to exclude every works contract services in regard to building, civil structure or part thereof, laying of foundation, making of support structures of capital goods etc; then it would make the inclusive part with regard to modernisation, renovation, or repairs of factory as redundant. The exclusion part has to be interpreted confining it to construction or execution of works contract in respect of new building or new civil structure or laying of new foundation. In the contrary, it would result in taking away what is given by the inclusive part of the definition. That by applying principle of harmonious construction ,when the words modernisation, renovation, repairs appearing in the inclusive part is read together with the exclusion part of the definition, what is excluded can be only works contract service with regard to new building, new civil structure, laying of new foundation etc.
9. The learned Counsel drew attention to the definition of works contract service contained in section 65(105) (zzzza), as it stood prior to 01.07.2012 and thereafter [Section 65B (54)]. The second sub clause of the definition (such contract is for the purpose of carrying out-) has five limbs. The first limb deals with erection, commissioning of plant, machinery, equipment etc. This limb is not included in the exclusion part of the definition of input service. A portion of second limb is included. That this portion is the definition of works contract service which is included in the definition of input service is construction of new building or a civil structure or part thereof. The third limb is regarding construction of new residential complex or part thereof. This again is not included. The learned counsel submitted that though the word new is not mentioned in the exclusion part of the definition of input service, this would go to show that exclusion part in the input service definition is only with regard to works contract service of new building or new civil structure or laying of new foundation and not any works contract service of existing building ,civil structure or foundation.
10. Another argument put forward by the counsel is that the works done by the appellant are merely works of upgradation of ETP, Flooring works and pipe erection and foundation works for cooling tower. The exclusion portion deals with service portion of works contract services of building, civil structure or part thereof, etc. That by applying the principle of noscitur a sociis, it can be seen that the works done by appellant do not fall in the category of works of building, civil structure or part thereof. That therefore the works do not fall in the exclusion portion and credit cannot be disallowed.
11. To press his arguments, various judgments were relied. The strong argument advanced is that if the works contract service mentioned in the exclusion part of the definition of input service if not confined to works undertaken for new building, new civil structure, or laying of new foundation, the words modernisation, renovation, repairs contained in the inclusion part would be nugatory. The counsel drew support from the dictum laid in the case of Borossil Glass Works Ltd. Employees Union Vs D.D. Bambode and othrs. [(2001) 1 SCC 350]. It was observed therein that It is a cardinal rule of interpretation that if two interpretations are possible, one of which leads to harmonious reading of entire provision and another which renders a portion nugatory, then the former interpretation is to be accepted. The Honble Apex Courts judgment in Tahsildar Singh & anr. Vs. State of U.P. was also referred by the counsel. In para 14 of the judgment the Honble Apex Court noted as follows:
14. . .. The cardinal rule of construction of the provisions of a section with a proviso is succinctly sated in Maxwells interpretation of Statutes, 10th Edn., at page 162 thus:
The proper course is to apply the broad general rule of construction, which is that a section or enactment must be construed as a whole, each portion throw in light if need be on the rest.
The true principle undoubtedly is, that the sound interpretation and meaning of the statute, on a view of the enacting clause, saving clause, and proviso, taken and construed together is to prevail.
12. It is also contended that CENVAT Credit Rules being beneficiary legislation, and objective being to extend CENVAT Credit, the appellant should be given the benefit of credit. The counsel drew support from the judgment laid in CCE, Rohtak Vs. J.B Fashions Ltd. [(2010)262 ELT122 (P&H)].
13. Sri. Karan Talwar appearing for the appellant lay thrust on para 35 to 38 in the case of Coca Cola India Ltd. Vs. CCE [2009-TIOL-449] to canvass the arguement that service tax in India is levied on destination cum consumption principle. That therefore the service tax paid on input service consumed by assessee which have formed part of price of product, if denied credit, would defeat the purpose of the legislation of CENVAT Credit. The judgment of the Tribunal in the case of Sri Chaithanya Educational Committee [SCEC] Vs CCE &ST, Guntur was quoted by the counsel. Para 80 of the judgment deals with interpretation of the definition of Commercial Training or Coaching Centre. It was observed that while interpreting the definition, the exclusion part must be strictly construed, what is being included in the definition cannot be excluded, unless it is specifically mentioned.
14. Refuting the above contentions put forward by appellant, the learned AR, Sri.V.K. Shastri, reiterated the findings in the impugned order. He submitted that the plain reading of the exclusion part of the definition makes it very clear as to what is excluded. It offers no ambiguity. The words in the exclusion portion being very clear, it cannot be said that only works contract services in regard to construction of new building, new civil structure, or laying new foundation alone is excluded. The service portion of works contract and construction services in so far as they are used for construction of building, civil structure or foundation whether new or existing is excluded. What is allowed is only service tax paid for services like modernisation, renovation and repair works which do not fall into the category of construction of building, civil structure or laying of foundation. That input service credit is not eligible for such construction services in respect of building, civil structure, laying foundation and that the authority below has rightly disallowed the credit.
15. I have given anxious consideration to the detailed arguments put forward by both sides. The disputed works are as follows: (a)Expansion of capacity of Effluent Treatment Plant(ETP) from existing 160KLD to 250 KLD; credit involved is Rs.37389/-, (b) Epoxy coating to the floor /Flooring works; credit involved is Rs. 63,873/- (c) Pipe & valve fittings, erection of cooling tower and foundation works; credit involved is Rs.927/-. Out of these, the first and second works on bare perusal, do not fall in the exclusion part of the definition of input service, as these works are not construction of building, civil structure or laying of foundation. The ETP was upgraded in order to meet the situation of improvements done to increase volume of production. So also flooring works were done inside the factory which will come within modernisation. The inclusive part of the definition as stated above includes services related to modernisation, renovation and repair of factory. These works in my opinion would fall within the work of modernisation, renovation and repair works and therefore are eligible for credit. I hold that appellant is eligible for credit of Rs. Rs.37,389/- & Rs. 63,873/-.
16. The issue remaining to be addressed is whether appellant is eligible for credit of Rs. 927/- being the service tax paid towards works contract service of fabrication of pipelines, erection of cooling tower and laying foundation. Though as per table contained in records this amount is seen clubbed with other amounts relating to works of fabrication of pipelines, fixing of valves of cooling tower, etc; the learned counsel for appellant asserted that out of Rs.2,912/-, an amount of Rs.927/- is with regard to service tax paid for works contract service of laying foundation for storage tank. The learned counsel has attempted to establish that the works contract service with regard to laying of foundation for storage tank would not fall within the exclusion portion of the definition of input service, as the work was not for laying new foundation but the work was for repair of existing foundation to erect the new cooling tower. I am not able to accept this contention. The exclusion portion expressly states that works contract service so far as they relate to construction of building, civil structure or part thereof, or laying of foundation or support for capital structures are not eligible for credit. The counsel has referred to the meaning of works contract service given in Section 65(105)(zzzza) to support his arguments. I am not able to persuade myself to accept this argument. The definition of input service is contained in CENVAT Credit Rules, 2004. The counsel attempts to draw support from the meaning of works contract service contained in the Finance Act, 1994. The exclusion portion of the definition of input service lends no ambiguity so as to borrow the meaning contained in another statute. I do not think that there is any need to resort to any external aid like referring to the meaning contained in another statute. What is intended to be excluded by the Parliament is the service portion of works contract services insofar as it relates to construction of building, civil structure or part thereof or laying foundation or works of support structure to capital goods. This cannot mean that such works are to be in respect of new building, new civil structure, new foundation etc., because the inclusive portion already contains the words, renovation, modernisation and repair. For eg.- If a building inside factory is totally demolished and a new building is constructed, the credit in my opinion would not be admissible. Though it may also be considered as renovation, the work being construction of a building, it is excluded. To illustrate further, if the doors and windows of a building are removed and replaced with new one, then such work would fall under modernisation, renovation repairs. When applying the principle of noscitur a sociis, as argued by the counsel, I believe that the above illustrations would satisfy.
17. Moreoever, if we look at the definition of input w.e.f. 01/04/2011 in Rule 2(k) of CENVAT Credit Rules, 2004, as per clause (B) of the definition it excludes, any goods used for construction or execution of works contract of a building or a civil structure or part thereof; laying of foundation or making of structure for support of capital goods. If the Parliament had intended to confine the exclusion only to new buildings, new civil structure, new foundation, new support for capital goods, then it ought to have used the word new as in the case of works contract service given in Section 65(105)(zzzza). The contention that services relating to setting up was excluded and therefore the exclusion confines only to new building, civil structure etc. does not appear to be the intention of the legislature. If that be so, the deletion of word setting up would have been adequate. The works contract service in relation to building, civil structure, laying of foundation etc. has been brought within the ambit of exclusion to exclude not only setting up but something more.
18. The first and primary rule of construction is that the intention of the Legislature must be found in the words used by Legislature itself. (New Piece Goods Bazar Co. Ltd. Vs. CIT, Bombay [AIR 1950 SC 165]) The question is not what may be supposed to have been intended but what has been said. In the case of British India General Insurance Co. Ltd. Vs. Captain Itbar Singh [AIR 1959 SC 1331], while holding that Section 96(2) of the Motor Vehicles Act, 1939, is exhaustive of defences open to an insurer, the Honble Apex court refused to add word also after the words on any of the following grounds and observed : Thus, the rules of interpretation, do not permit us to do unless section as it stands is meaningless or of doubtful meaning.
19. From the foregoing, I hold that appellant is eligible for credit of Rs.37,389/- (expansion of capacity of ETP) and Rs.63,873/- (flooring works). The credit availed on services used for laying foundation of tank/cooling tower is disallowed (Rs.927/-). The issue being an interpretational one, I find that no penalty can be imposed for irregular availment of credit towards works contract service of laying foundation.
20. In the result, the impugned order is set aside to the extent of disallowing credit of Rs.37,389/- + Rs.63,873/-. The disallowance of credit of Rs.927/- along with interest is sustained. The penalties imposed are set aside. The appeal is partly allowed in above terms with consequential reliefs, if any.
(Pronounced in open court on ..) SULEKHA BEEVI C.S. MEMBER(JUDICIAL) Raja.
2