Custom, Excise & Service Tax Tribunal
M/S. Hinduja Global Solutions Ltd vs Commissioner Of Central Excise, ... on 19 January, 2016
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Appeal(s) Involved: ST/2338/2010-DB [Arising out of Order-in-Original No. 13/2010 dated 30/07/2010 passed by the Commissioner of Central Excise (Bangalore-II Commissionerate), Bangalore.] For approval and signature: HON'BLE SHRI M.V.RAVINDRAN, JUDICIAL MEMBER HON'BLE SHRI ASHOK K. ARYA, TECHNICAL MEMBER 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 Lordships wish to see the fair copy of the Order? 4 Whether Order is to be circulated to the Departmental authorities? M/s. HINDUJA GLOBAL SOLUTIONS LTD HGSL HOUSE, NO.614, VAJPAYEE NAGAR, BOMMANAHALLI, HOSUR ROAD, BANGLAORE -560068 Appellant(s) Versus Commissioner of Central Excise, Service Tax And Customs BANGALORE-II PB 5400 CR BUIDING, QUEENS ROAD, BANGALORE 560 001. KARNATAKA Respondent(s)
Appearance:
Mr. D. Arvind, CA New No.8, Old No.12, Rutland Gate, 5th Street, Off Khader Nawaz Khan Road, Chennai 600 006.
For the Appellant Mr. Mohd. Yusuf, Addl. Commissioner (AR) For the Respondent Date of Hearing: 19/01/2016 Date of Decision: 19/01/2016 CORAM:
HON'BLE SHRI M.V.RAVINDRAN, JUDICIAL MEMBER HON'BLE SHRI ASHOK K. ARYA, TECHNICAL MEMBER Final Order No. 20059 / 2016 Per : M.V.RAVINDRAN This appeal is directed against Order-in-Original No. 13/2010 dated 30/07/2010.
2. The relevant facts, after filtering our unnecessary details are during the period March 2006 to August 2006, appellant availed CENVAT credit of service tax paid on various services at their Head Office and subsequently distributed to the appellant herein. Appellant herein is provider of output services under the category of Manpower Recruitment and Supply Agency services, Business Auxiliary Services, Commercial Training or Coaching Services and Business Support Services and also are engaged in export of such services. In order expand the business, the appellants Head Office had generated funds, for financing the expansion by way of various sale of properties, shares, advisory services in respect of investment and divestment and syndication fee for loan from banks. On audit of the records of the appellant at Bangalore, the audit party came to an conclusion that availment of CENVAT credit of service tax paid on these services by Head Office and subsequently distribution to appellant as an Input Service Distributor (ISD) is not in accordance with law; accordingly show-cause notice was issued for demanding such credit availed along with interest and it was also proposed to impose penalties. Appellant contested the show-cause notice on merits as well as on limitation. The adjudicating authority after following due process of law did not agree with the contentions raised and confirmed demands with interest and imposed penalties.
3. Learned CA after taking us through the show-cause notice, the adjudication order and various other documents would submit that the appellant had embarked upon expansion of their business for which working capital is required and the financing is arranged by bank borrowings, issue of shares and disposal of their investments/assets. It is his submission that in order to raise the fresh capital, the appellant had disposed of their investments in various forms like shares, property. It is his submission that in order to raise such a capital and finance by disinvestments, they had to take the service providers to smoothly organize such disinvestment on which the service providers had discharged the service tax liability. It is his submission that this service tax paid by the service provider are in relation to the business activity of the appellant more specifically for an activity related to business of financing the expansion. He would then take us through the provisions of Rule 2(l) of the CENVAT Credit Rules. It is his submission that the definition clearly includes the activity for which the appellant has paid the service tax. It is his further submission that the adjudicating authority in the impugned order has also recorded a finding that the Head Office of the appellant who is registered as ISD had distributed the services subsequent to the Registration but the said services were received by them prior to their registration as ISD is also incorrect as the service which are rendered to the appellant is in respect of the entire business and correctly distributed to them. It is his further submission that the sales of investments have been granted and proceeds were used in the expansion of the appellants business is not disputed in the entire case records. He would then draw our attention to the expansion that took place of the appellants business in the form of revenue operations for the financial year 2006-07 to 2014-15. He would also submit that they have expanded their branches to various other cities and have increased from 8 branches to 26 branches. He relies upon the judgment of the Tribunal in the case GMR Industries: 2015 (38) S.T.R. 509 (Tri.-Bang.); Aditya Birla Nuvo Ltd.: 2009 (14) S.T.R. 304 (Tri.-Ahmd.) for the proposition that input services used for the business activity, CENVAT credit is available. He would also rely upon the decision of the Tribunal in the case of Precision Wire India Ltd. vs. CCE, Vapi: 2013 (32) S.T.R. 62 (Tri.-Bang.) for the proposition that invoices received prior to registration but distributed post registration, CENVAT credit needs to be allowed. On limitation, it is his submission that the CENVAT credit was availed in 2006 while show-cause notice is issued in 2009. He would submit that they had in their returns very clearly mentioned that these credits are availed on the basis of the invoices raised by their Head Office as an ISD. It is his further submission that the Department has not issued any show-cause notice to their Head Office seeking them to explain as to why such credit availed by them and distributed is not to be demanded. It is his submission that when the original CENVAT credit availed of the service tax paid by the Head Office is not contested, subsequent credit availed by them is correct.
4. Learned Departmental Representative on the other hand would draw our attention to the facts that the appellants are rendering the services to various clients in the category of Manpower Recruitment and Supply Agency services, Business Auxiliary Services, Commercial Training or Coaching Services and Business Support Services. It is his submission that the service tax paid by the service providers are not in respect of any of the services which are rendered by the appellant. He would draw our attention to the findings recorded by the adjudicating authority and submit that the appellant is unable to justify the availment of the CENVAT credit of the services that they were used for providing of an output services. It is his submission that the invoices against which the appellant availed the CENVAT credit was found to be in respect of invoices which were not connected to taxable output services; and not in relation to the output services provided. He would then submit that the input service credit distributed to the appellant were in respect of the sale of investment, acquisition of new company abroad and had no direct or indirect connection whatsoever to the output services. It is his further submission that the activities related to business of an franchise on which appellant availed credit claiming as financing services is incorrect as these activities are not in relation to the business and services provided by the appellant but are in respect of the investments made by the appellant.
5. We have considered the submissions made at length by both sides and perused the records.
5.1 The issue involved in this case is whether the appellant has correctly availed CENVAT credit or otherwise in respect of the service tax paid on the services received by their Head Office in respect of the disinvestments undertaken by them.
5.2 Undisputedly facts are that appellants are output service providers and discharging service tax liability; they had their Head Office at Mumbai and registered with the department as ISD; the CENVAT credit availed or service tax is discharged by the service providers. It is also undisputed that the appellant had raised the plea before the adjudicating authority that the services on which service tax is paid and CENVAT credit is availed is in respect of the expansion of the business undertaken by them.
5.3 On this factual matrix, we have to consider whether the availment of CENVAT credit by the appellant on the various services is correct or not. In order to appreciate the correct position of law, we have to reproduce the definition of the input services as per Rule 2(l) of the CENVAT Credit Rules, 2004 which reads as under:
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, 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;
It is seen from the records that the CENVAT Credit paid by the appellant is in respect of the service tax paid by various service providers who had rendered the services of raising the finance by pledging of the shares on behalf of the appellant for borrowing from IDFC Ltd.; advisory service provider in relation to divestment of stakes in Indus Ind Telecom Network Ltd.; advisory services provided for acquisition of shares in a company; advisory services provider for disinvestment of stakes owned by the appellant and its subsidiaries in various entities and syndication fee for arranging loan of Rs.200 crores to the appellant.
5.4 It can be seen from the above reproduced services which were received by the appellant were in respect of raising of finance for the expansion of the business of the appellant. This specific plea taken by the appellant before adjudicating authority has not been controverted in the impugned order which would mean that the adjudicating authority has accepted that the appellant had embarked upon the expansion of the business. It is to be recorded that for expanding any business, there is always requirement of working capital which needs to be raised by the assessee and in this case, it is undisputed that the appellant had raised such finances by divestment and disinvestment of the business interest they had in various entities.
5.5 The plain reading of the definition of input services (as hereinabove reproduced) indicate that the activities relating to business which is in the second portion of the definition includes the activity of financing which would mean that if an assessee pays service tax for the various services received by them for raising the finance, CENVAT credit can be availed. In our considered view, the CENVAT credit availed by the appellant or service tax paid cannot be disputed. In yet another angle, it has to be noted that the CENVAT credit which is availed by the appellant is in respect of the distribution of the service tax by their Head Office as input service distributor. We find nothing on record to indicate that Head Office of the appellant was issued a show-cause notice denying them such CENVAT credit. In the absence of any doubt raised as to the eligibility to avail the CENVAT credit at their Head Office, the recipient unit, cannot be asked to explain the nexus of such credit to the output service provided by them. In our considered view, and is undisputed that the amounts so raised by the appellant by disinvestment, investment, etc., were recorded in their financial account towards the expansion of the business activity undertaken by the appellant.
5.6 In our considered opinion, the expansion of the business activity is directly connected with the activity of the service provided by the appellant to their service recipient which is nothing but the correlation of the business undertaken by the appellant. We find that our above view that the services which are rendered for the business activities as per the definition of the input service under Rule 2(l) of CCR, 2004 has been fortified by the judgment of the Honble High Court of Bombay in the case of Deepak Fertilizers and Petrochemicals Corpn. Ltd. vs. CCE: 2013 (32) S.T.R. 532 (Bom.) and Commissioner vs. Ultractech Cement Ltd.: 2010 (260) E.L.T. 369 (Bom.). Relevant facts are reproduced below:
In the case of Deepak Fertilizers (supra):
5.?Now at the outset it must be noted that Rule 3(1) allows a manufacturer of final products to take credit inter alia of Service Tax which is paid on (i) any input or capital goods received in the factory of manufacturer of the final product; and (ii) any input service received by the manufacturer of the final product. The subordinate legislation in the present case makes a distinction between inputs or capital goods on the one hand and input services on the other. Clause (i) above provides that the Service Tax should be paid on any input or capital goods received in the factory of manufacture of the final product. Such a restriction, however, is not imposed in regard to input services since the only stipulation in clause (ii) is that the input services should be received by the manufacturer of the final product. Hence, even as a matter of first principle on a plain and literal construction of Rule 3(1) the Tribunal was not justified in holding that the appellant would not be entitled to avail of Cenvat credit in respect of services utilized in relation to ammonia storage tanks on the ground that they were situated outside the factory of production. The definition of the expression input service covers any services used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products. The words directly or indirectly and in or in relation to are words of width and amplitude. The subordinate legislation has advisedly used a broad and comprehensive expression while defining the expression input service. Rule 2(l) initially provides that input service means any services of the description falling in sub-clauses (i) and (ii). Rule 2(l) then provides an inclusive definition by enumerating certain specified services. Among those services are services pertaining to the procurement of inputs and inward transportation of inputs. The Tribunal, proceeded to interpret the inclusive part of the definition and held that the Legislature restricted the benefit of Cenvat credit for input services used in respect of inputs only to these two categories viz. for the procurement of inputs and for the inward transportation of inputs. This interpretation which has been placed by the Tribunal is ex facie contrary to the provisions contained in Rule 2(l). The first part of Rule 2(l) inter alia covers any services used by the manufacturer directly or indirectly, in or in relation to the manufacture of final products. The inclusive part of the definition enumerates certain specified categories of services. However, it would be farfetched to interpret Rule 2(l) to mean that only two categories of services in relation to inputs viz. for the procurement of inputs and for the inward transportation of inputs were intended to be brought within the purview of Rule 2(l). Rule 2(l) must be read in its entirety. The Tribunal has placed an interpretation which runs contrary to the plain and literal meaning of the words used in Rule 2(l). Moreover as we have noted earlier, whereas Rule 3(1) allows a manufacturer of final products to take credit of excise duty and Service Tax among others paid on any input or capital goods received in the factory of manufacturer of the final product, insofar as any input service is concerned, the only stipulation is that it should be received by the manufacturer of the final product. This must be read with the broad and comprehensive meaning of the expression input service in Rule 2(l).The input services in the present case were used by the appellant whether directly or indirectly, in or in relation to the manufacture of final products. The appellant, it is undisputed, manufactures dutiable final products and the storage and use of ammonia is an intrinsic part of that process.
In the case of Ultractech Cement:
27.?The definition of input service as per Rule 2(l) of 2004 Rules (insofar as it relates to the manufacture of final product is concerned), consists of three categories of services. The first category, covers services which are directly or indirectly used in or in relation to the manufacture of final products. The second category, covers the services which are used for clearance of the final products up to the place of removal. The third category, includes services namely;
(a) Services used in relation to setting up, modernization, renovation or repairs of a factory,
(b) Services used in an office relating to such factory,
(c) Services like advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs,
(d) Activities relating to business such as, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit relating, share registry and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal.
Thus, the definition of input service not only covers services, which fall in the substantial part, but also covers services, which are covered under the inclusive part of the definition.
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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.
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34.?Therefore, the definition of input service read as a whole makes it clear that the said definition not only covers services, which are used directly or indirectly in or in relation to the manufacture of final product, but also includes other services, which have direct nexus or which are integrally connected with the business of manufacturing the final product. In the facts of the present case, use of the outdoor catering services is integrally connected with the business of manufacturing cement and therefore, credit of service tax paid on outdoor catering services would be allowable.
In view of the foregoing, we find that the impugned order is incorrect and unsustainable.
5.7 As regards the dispute raised in the impugned order as to eligibility to avail the CENVAT credit on the invoices raised by the ISD for the services received prior to the registration of the Head Office as an Input Service Distributor, we find that the judgment of the Tribunal in the case of Precision Wire (supra) is directly on the point wherein it is held that such credit can be availed. Relevant portion of the judgment are as under:
7.?I find that factually there is no dispute regarding the receipt of input services at the head office. It is also undisputed that the said services can be distributed by the head office to the various factories and the appellants factory being one of them. It is also undisputed that the appellant is eligible to avail the Cenvat credit of such services which has been received by the head office and distributed to them. I find strong force in the contentions raised by the learned counsel that the judgment of this tribunal in the case of Jindal Photo Limited (supra) and Samita Conductors Limited - 2012 (278) E.L.T. 492 (Tri.-Ahmd.), will directly cover the issue in the case in hand.
8.?As regards the reliance placed by the learned Additional Commissioner (AR) on the Division Bench decision in the case of Hindustan Coca Cola and Beverages Pvt. Limited (supra), I find that the said order of the tribunal is an interim order while disposing the stay petition and it is not a final order. The orders which have been relied upon by the learned counsel as mentioned in hereinabove are the final orders and in respect of an identical issue.
9.?In my view, the ratio laid down by this Bench in the case of Jindal Photo Limited will cover the issue in favour of the appellant herein. Accordingly, in view of the foregoing, in the facts and circumstances of this case, I find that the impugned order is liable to be set aside and I do so.
10.?Impugned order is set aside and appeal is allowed. Since we have disposed of the appeal on the merits of the case, we are not recording any findings on various other submissions made by both sides including the question of limitation as raised.
6. The impugned order is set aside and the appeal is allowed with consequential relief, if any.
(Order pronounced in open court) ASHOK K. ARYA TECHNICAL MEMBER M.V.RAVINDRAN JUDICIAL MEMBER rv 15