Gujarat High Court
Commissioner vs Dynamic Industries ... on 25 July, 2014
Author: M.R.Shah
Bench: M.R. Shah, Sonia Gokani
O/TAXAP/912/2012 CAV JUDGEMNT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL NO. 912 of 2012
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE M.R. SHAH
and
HONOURABLE MS JUSTICE SONIA GOKANI
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1 Whether Reporters of Local Papers may be allowed to see
the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of law as
to the interpretation of the Constitution of India, 1950 or any
order made thereunder ?
5 Whether it is to be circulated to the civil judge ?
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COMMISSIONER....Appellant(s)
Versus
DYNAMIC INDUSTRIES LTD....Opponent(s)
================================================================
Appearance :
MR YN RAVANI, ADVOCATE for the Appellant(s) No. 1
MR ANAND NAINAWATI, ADVOCATE for the Opponent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE M.R. SHAH
and
HONOURABLE MS JUSTICE SONIA
GOKANI
Date : 25/07/2014
Page 1 of 58
O/TAXAP/912/2012 CAV JUDGEMNT
CAV JUDGEMNT
(PER : HONOURABLE MS JUSTICE SONIA GOKANI)
1. The Revenue has preferred present appeal under section 35(G) of the Central Excise Act, 1944 (hereinafter referred to as 'the Act') against the order dated July 06, 2012 passed by the Customs, Excise and Service Tax Appellate Tribunal, West Zonal Bench, Ahmedabad (hereinafter referred to as 'the Tribunal'), raising the following substantial question of law :
"Whether the Hon'ble Tribunal was correct in holding that Credit of Service tax paid on Customs House Agents Services, Shipping Agents and Container Services and Services of Overseas Commission is admissible to the manufacturer as "input Service Tax credit", by overlooking the Statutory provision of Rule 2(1) of the Cenvat Credit Rules, 2004 ?"
2. The facts in brief for deciding the matter are as under :
2.1 The respondent-assessee is M/s.Dynamic Industries Ltd., which is a manufacturer of dyes and intermediates falling under Chapters 29 and 32 of the schedule to Central Excise Tariff Act, 1985 and is registered with Central Excise.Page 2 of 58
O/TAXAP/912/2012 CAV JUDGEMNT 2.2 During the course of audit of the financial record
undertaken by the A.G. Audit Team, it was noticed that the respondent-assessee had taken Cenvat Credit of service tax paid on Custom House Agent Services, Shipping Agent and Container Service for export of finished goods and commission paid to overseas agents. The scrutiny of the record furnished by the respondent-assessee revealed that it had availed services such as Terminal Handling Charges, Documentation, Agency Charges, Transportation, Detention, Repo, Switching Charges, Pallatization Charges, Container Loading, Reposition Charges, Fuel Surcharge, Security Surcharge, etc. under the head of "Custom House Agents Service". The invoices issued by the different service providers indicated that they had charged service tax on Terminal Handling Charges, Documentation, Agency Charges, Transportation, Detention, Repo, Switching Charges, Pallatization Charges, Container Loading, Reposition Charges, Fuel Surcharge, Security Surcharge, etc. which are rendered at the port of export/ICD. It is averred by the Revenue that the said services had Page 3 of 58 O/TAXAP/912/2012 CAV JUDGEMNT been availed after the goods were cleared from the place of removal and they were not in relation to the manufacturing activities undertaken by the assessee and it is pertaining to the activities of clearance of goods from the place of removal. These services, according to the Revenue, do not get included in the definition of the term "input service" and as the total credit taken on these services was to the tune of Rs.3,20,933/- (along with education cess and special education cess) during the year 2006-07 and the sum of Rs.2,45,988/- during the year 2007-08. It is averred that the cenvat credit of total sum of Rs.5,66,921/-
wrongly availed by the respondent-assessee deserve to be recovered.
2.3 Likewise, it is also averred that the commission was paid to the overseas agent and the credit was availed on the service tax paid on the value of commission paid to the overseas agent under the Business Auxiliary category. It is, therefore, pleaded that the said services are not in relation to the manufacture and clearance of goods from the place of removal and Page 4 of 58 O/TAXAP/912/2012 CAV JUDGEMNT as the total credit taken on these services came to Rs.22,99,745/-, the recovery is made under the law. 2.4 Accordingly, a show cause notice was issued to the assessee by the Joint Commissioner, Central Excise, proposing the recovery of total sum of Rs.28,66,666/- for the period 2006-07 and 2007-08. It is averred in the show cause notice that the respondent-assessee has contravened the provision of Rules 2(1)(ii) and 9(2) read with Rule 3(1) of the Cenvat Credit Rules, 2004 (hereinafter referred to as 'the Rules'), which deserve to be recovered with interest by invoking extended period of limitation under the provisions of Rule 14 of the Rules read with the proviso to section 11A and section 11AB of the Act.
2.5 The adjudicating authority vide order dated March 24, 2010 confirmed the recovery of the said cenvat credit proposed in the show cause notice. 2.6 Aggrieved by the same, the respondent-assessee preferred an appeal against the said order-in-original before the Commissioner (Appeals-I), which also Page 5 of 58 O/TAXAP/912/2012 CAV JUDGEMNT upheld the said order-in-original vide order dated July 23, 2010.
2.7 The respondent-assessee preferred a second appeal before the Tribunal challenging the order of Commissioner (Appeals-I) and the Tribunal set aside the impugned order-in-appeal vide its order dated June 11, 2012.
2.8 This has been challenged in the present Tax Appeal proposing the aforementioned question of law for our consideration.
3. The issue thus pertains to availment of cenvat credit of service tax paid on Custom House Agent Service, Shipping Agent and Container Services and services of overseas commission. We have heard in extenso the learned counsel appearing for the Department Mr.Y.N. Ravani, who has vehemently argued that the facts are not in dispute as could be revealed from the letter of the respondent-assessee dated March 07, 2009 that they had availed the services of Terminal Handling Charges, Documentation, Agency Charges, Transportation, etc. under the head of "Custom House Agent Services". The Page 6 of 58 O/TAXAP/912/2012 CAV JUDGEMNT invoices raised by the various service providers clearly indicate that they have charged service tax on these services. However, such services since are rendered at the port of export after the goods have been cleared from the place of removal, the said services are not in relation to the manufacturing activities nor are they pertaining to the activities of clearance of goods from the place of removal. It is emphasised by the learned counsel for the Revenue that the term "input service" as given in Rule 2(1) of the Rules defines that any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from/ upto the place of removal, and includes services used in relation to setting up, modernisation etc., it is beyond dispute that these services were utilised after removal of the goods from the factory. Thus, it cannot be said that these services have been used by the respondent-assessee, directly or indirectly, in or in relation to the manufacture of final products or clearance of final products from/upto the place of removal, as the place of removal is a factory gate in the present case, as defined under section 4(3)(c) of the Act. He further argued that the respondent- Page 7 of 58
O/TAXAP/912/2012 CAV JUDGEMNT assessee had availed cenvat credit in Part 4 and Part 5 of the ER-1 Returns filed by it. On the basis of submissions of the respondent-assessee, it was not possible for the scrutinising officer to demarcate the nature of input service as Part 5 contains total of all input services. Only during the course of the audit, when the details were furnished, it was realised that the respondent-assessee had suppressed the vital facts and availed cenvat credit on the services which did not qualify as 'input services'. Therefore, the Revenue has rightly invoked the larger period of limitation in terms of provision of section 11A(1) of the Act. He further urged that the show cause notice can be issued invoking the extended period of five years from the relevant date in terms of provision of section 11A(1) of the Act.
3.1 In support of his aforementioned contentions, Mr.Ravani, learned counsel, has relied upon the following decisions :
(i) Maruti Suzuki Ltd. v. Commissioner of Central Excise, Delhi-III, reported in 2009(240) ELT 641 (SC).Page 8 of 58
O/TAXAP/912/2012 CAV JUDGEMNT
(ii) Ramala Sahkari Chini Mills Ltd. v.
Commissioner of Central Excise, Meerut-I,
reported in 2010 (260) ELT 321 (SC).
(iii) Decision rendered in the case of
Commissioner of Central Excise and Customs v.
M/s.Ultratech Cement Ltd. while dealing with Tax Appeal Nos.21 to 23 of 2011 (Gujarat High Court).
(iv) Commissioner of Central Excise and Customs v. Gujarat Heavy Chemical Ltd., reported in 2011(22) STR 610 (Guj.).
(v) Commissioner of Central Excise, Ahmedabad-II v. Cadila Healthcare Ltd., reported in 2013 (30) STR 3 (Guj.).
(vi) Commissioner of Central Excise, Nagpur v.
Ultratech Cement Ltd., reported in 2010 (260) ELT 369 (Bom.).
Page 9 of 58
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(vii) Commissioner of Central Excise and Customs v.
Parth Poly Wooven Pvt. Ltd., reported in 2012 (25) STR 4 (Guj.).
(viii) Deepak Fertilizers and Petrochemicals Corporation Ltd. v. C.C.E., Belapur, reported in 2013(288) ELT 316 (Tri. Mumbai).
4. For and on behalf of the respondent-assessee, the learned counsel Mr.Anand Nainavati fervently argued that the definition of 'input services' did not undergo a change upto Marh 31, 2011. He urged that the respondent- assessee had availed the cenvat credit on all the services in respect of input services for furnished goods which were exported. It is argued that the Tribunal had taken a view that where exports are FOB (Free on Board) basis, the place of removal has to be taken as the port and, therefore, the services availed till the goods reached the port would be admissible and without the assistance of the overseas agents, manufactured goods could not be sold. Therefore, the services of overseas agents had to be treated as one relating to manufacture. Page 10 of 58
O/TAXAP/912/2012 CAV JUDGEMNT 4.1 He also urged that the credit of service tax paid as
commission to agent was held admissible in the case of Lanco Industries Ltd. v. Commissioner of C.Ex., Tirupathi, reported in 2010(17) STR 350 (Tri. Bang.) and, therefore, the credit of services of overseas commission agent cannot be denied. He placed reliance on various authorities to bring home the point that the claim of the respondent-assessee is eligible for the benefit of service tax credit taken by it. 4.2 The learned advocate also further urged that invocation of extended period of recovery is wholly impermissible inasmuch as the issue is in the realm of debate and there is not an iota of evidence to indicate suppression on the part of the respondent-assessee. He also urged that the Tribunal has specifically assigned reasons as to why it allowed the appeal of the respondent-assessee. When no substantial question of law arises, no interference is desirable. He sought to rely upon the definition of 'business auxiliary service' given under sections 93 and 94 of the Finance Act as also on a speech delivered in the year 2004 by Page 11 of 58 O/TAXAP/912/2012 CAV JUDGEMNT the Finance Minister, Government of India as aids of interpretation.
4.3 The learned counsel for the respondent-assessee further submitted that the first part of Rule 2(l) of the Rules covers the services used by manufacturer directly or indirectly in or in relation to manufacture of final products. He urged that the Tribunal has placed an interpretation which is in consonance with the purposive meaning of words and such words need to be read with a broad meaning of expression 'input services' used in Rule 2(l) of the Rules. He also relied upon the decision in the case of Cadila Healthcare Ltd. (supra) particularly considering the category of commission paid to foreign agents.
4.4 Yet another decision sought to be relied upon by the learned counsel for the respondent-assessee is rendered in the case of Doypack System Pvt. Ltd. v. Union of India, reported in 1988 (36) ELT 201 (SC).
4.5 The learned counsel for the respondent-assessee also has taken support of the circular dated April 29, Page 12 of 58 O/TAXAP/912/2012 CAV JUDGEMNT 2011 passed by the Department of Revenue, Ministry of Finance, where certain clarifications were made with regard to Cenvat Credit Rules, 2004. The relevant issue in tabular form reads as under :
5 Is the credit of The definition of input services allows all Business Auxiliary credit on services used for clearance of Service (BAS) on final products upto the place of removal. account of sales Moreover activity of sale promotion is commission now specifically allowed and on many occasions disallowed after the the remuneration for same is linked to deletion of actual sale. Reading the provisions expression "activities harmoniously it is clarified that credit is related to business"? admissible on the services of sale of dutiable goods on commission basis.
5. Upon thus hearing both the sides and on close perusal of the material on record, at the outset the definition of 'input service' which is enumerated in Rule 2(i) of the Rules requires reproduction, which reads as under :
"2(l) 'Input Services' 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 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 Page 13 of 58 O/TAXAP/912/2012 CAV JUDGEMNT 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, 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 up to the place of removal;"
6. From the definition of 'input service' the meaning to be culled out is that any service to be qualified for input service, should have been used by manufacturer directly or indirectly for manufacturing of final products in or in relation to the manufacture of final product or even in the clearance of final product upto the place of removal.
Therefore, it is to be examined as to whether (i) Custom House Agent Services (ii) Shipping Agents and Container Services and (iii) Service of Overseas Commission, availed by the respondent-assessee can be said to have been used for manufacture of the final product or in relation to the manufacture of the final product or even in the absence of final produce upto the place of removal and, therefore, whether the 'input Page 14 of 58 O/TAXAP/912/2012 CAV JUDGEMNT service' tax credit can be made available to the manufacturer who claimed the credit of service tax paid on these services.
7. Examining the judicial pronouncements on the subject, the Supreme Court in the case of Maruti Suzuki Ltd. (supra) was dealing with the inputs used as fuel in electricity generation, reversal of credit sought on inputs used in electricity wheeled out to sister units, vendors, joint ventures. The Apex Court held that when a captive arrangement is made for carrying out manufacturing activity, electricity generation also forms a part of manufacturing activity and input used is "input used in manufacture" of final product. It was further held that the electricity if cleared to grid for distribution or to joint ventures, etc., "process and use test" fails and, therefore, the nexus between the process and use gets disconnected and in such scenario, the electricity generated cannot be said to be "used in or in relation to manufacture of final product, within the factory." Therefore, the cenvat credit was held not eligible on inputs utilised in generation of excess electricity cleared for a contractual rate or cleared in favour of grid. In other Page 15 of 58 O/TAXAP/912/2012 CAV JUDGEMNT words, the assessee was found entitled to credit on the eligible inputs utilised in the generation of electricity to the extent to which they were using the produced electricity within their factory (for captive consumption). However, the assessee was not held entitled to the cenvat credit to the extent of excess electricity cleared at the contractual rates in favour of joint ventures, vendors, etc., which was sold at a price.
The Apex Court also held that unless and until the said input is used in or in relation to the manufacture of final product within the factory of production, the said item would not be termed as an eligible input. It also held that the said expression "used in or in relation to the manufacture" has many shades and would cover various situations based on the purpose for which the input is used and this specified input would become eligible for credit only when used in or in relation to the manufacture of final product.
7.1 The Apex Court in the case of Ramala Sahkari Chini Mills Ltd. (supra) held quoting the decision in the case of Maruti Suzuki Ltd. (supra) that all the Page 16 of 58 O/TAXAP/912/2012 CAV JUDGEMNT three components of definition viz. (i) specific part, (ii) inclusive part and (iii) place of use, require to be satisfied while claiming credit as inputs. The goods to fall under 'inputs' as per said decision must be (i) used in or in relation to manufacture of final product whether directly or indirectly, and whether contained in final product or not; (ii) covered within six enumerated categories in Rule 2(g) of the Cenvat Credit Rules, 2002, and (iii) used within factory of production. The Apex Court held that the said ruling confined the goods only to inclusive part of definition, that is to the six specified categories, which was prima facie restricting definition of inputs to six categories, which was not the intention of the legislature and, therefore, it held that the interpretation of such term in the case of Maruti Suzuki Ltd. (supra) requires reconsideration by the Larger Bench. It reiteratively held that generally word 'include' should be given wider interpretation. By employing such word, legislature intends to bring in, by legal fiction, something within accepted connotation of substantive part. Regard must be had to context in which the word 'includes' appears to determine whether such word Page 17 of 58 O/TAXAP/912/2012 CAV JUDGEMNT has enlarging effect. Thus, the decision of the Apex Court in the case of Maruti Suzuki Ltd. (supra) has been referred to the Larger Bench by the above cited decision.
7.2 In the case of Gujarat Heavy Chemicals (supra), the question was of giving credit in respect of security service provided at residential quarters maintained for workers by the manufacturer. This service was stated by the assessee as used directly or indirectly in or in relation to manufacture. The manufacturer provided the residential quarters voluntarily and further provided security service in such residential quarters voluntarily. There was no connection found direct or indirect in relation to manufacture. This Court applied the ratio of the Apex Court in the case of Maruti Suzuki Ltd. (supra) although the decision has been referred to the Larger Bench, on the ground that such ratio still holds the field. It was held therein that the credit was not available to the assessee as there was no connection with the activity of manufacturing of final product, direct or indirect. It would be profitable Page 18 of 58 O/TAXAP/912/2012 CAV JUDGEMNT to reproduce the relevant paragraphs of the said decision as under :
"10. Definition of input service is expressed in the form of 'means' and 'includes'. 'Means' part of the definition contains, inter alia, service used by the manufacturer whether directly or indirectly or in relation to the manufacture of final products and clearance of final products from the place of removal. This definition, of course, is worded to include variety of services used not only for, but in relation to manufacture of final products and also for clearance of final products upto the place of removal. This Court in Tax Appeal No.419 of 2010 and connected matters decided on 6th April 2011 held that the said definition is exhaustive in nature.
11. Despite such wide connotation of the term 'input service' as defined in rule 2(l) of the Cenvat Rules, the question is whether the present case would be covered in the said definition. Facts are short and not in dispute. Respondent assessee, manufacturer of soda ash, has provided residential quarters for its workers. In such residential quarters, the assessee also provided security services. Can such security services be stated to be service used by the manufacturer directly or indirectly in or in relation to the manufacture of final product ? Our answer has to be in the negative. We do not see any connection between the security service Page 19 of 58 O/TAXAP/912/2012 CAV JUDGEMNT provided by the manufacturer in the residential quarters maintained for the workers as having any direct or indirect relation in the activity of manufacture of the final product. This is also the view of the Bombay High Court in the case of Manikgarh Cement (supra).
12. We may notice that the Apex Court in the case of Maruti Suzuki Ltd. (supra) was of the opinion that the electricity generated by the assessee and cleared to grid for distribution would not be part of manufacturing activity and be categorized as input used in manufacture of final product. We are conscious that the said decision of the Apex court is referred to Larger Bench. However, at this stage, the ratio laid down therein prevails.
13. In the case of Ultra Tech Cement Ltd. (supra), on which counsel for the respondent has placed heavy reliance, the Bombay High Court was considering outdoor catering service provided by the employer for its employees. It was a case wherein to provide for the canteen facilities to the workers was mandatory and failure to do so would entail penal consequences. It was on this background, the Bombay High Court held that outdoor catering services provided by the manufacturer to its workers would be covered within provisions of rule 2(l) of the Rules. In the present case, the act of providing residential quarters by the manufacturer to its employees was Page 20 of 58 O/TAXAP/912/2012 CAV JUDGEMNT voluntary. Providing further security service in such residential quarters was also an act voluntary in nature. Independently, we find that such activity cannot be termed within the sweep of expression of 'input service' as provided in rule 2(l) of the Rules."
7.3 The decision rendered by this Court in the case of Commissioner of Central Excise and Customs v. M/s.Ultratech Cement Ltd., rendered while dealing with Tax Appeal Nos.21 to 23 of 2011, this Court substantially decided whether the service tax credits on services of insurance of the vehicles used for residents of residential colony and nor for the business purpose, are admissible, when such services are not related directly or indirectly to the manufacture of final product, as input service defined under Rule 2(1) of the Cenvat Credit Rules, 2004. Reliance was placed on the decision rendered in the case of Gujarat Heavy Chemicals Ltd. (supra). The Tribunal favoured the assessee's version. Therefore, the Revenue challenged it in the form of Tax Appeal before this Court. Such Tax Appeal was allowed and as the issue raised was closely connected to the controversy in the case of Page 21 of 58 O/TAXAP/912/2012 CAV JUDGEMNT Gujarat Heavy Chemicals Ltd. (supra), this Court held thus :
"To our mind, though there is somewhat difference in the nature of services involved in the present appeals, in so far as all material aspects are concerned, the entire issue has been discussed threadbare and decided in the above-mentioned judgment in the case of Gujarat Heavy Chemicals Ltd. As already noted, in the case of Gujarat Heavy Chemicals Ltd., the Court was considering the eligibility of the manufacturer to avail Cenvat credit on the service tax credit on security services in residential colony of the Company. In the present case, the issue presented before us pertains to service tax credit on insurance of the vehicles. We may notice that such vehicles are used only for the residents of the colony and not for the business purpose of the Company. Such being the facts, decision of this Court in the the case of Gujarat Heavy Chemicals Ltd. (supra) would conclude the issue.
In the result, following the ratio of the decision in the case of Gujarat Heavy Chemicals Ltd. (supra), we hold that the assessee would not be entitled to Cenvat credit on service tax paid on such services. The decision of the Tribunal is therefore, reversed. To the above extent, all the tax appeals are allowed."Page 22 of 58
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7.4 This Court in the case of Cadila Healthcare Ltd.
(supra) was considering the services namely
Technical Testing and Analysis service, Technical Testing and Certification service, Business Auxiliary service (service rendered by the Commission Agent), service rendered by Clearing and Forwarding Agent, Courier service, Commercial and Industrial Construction service, Maintenance or repair service, Interior Decorator service, Management Consultancy service, availed by the assessee as eligible services for availing input service credit as defined under Rule 2(l) of the Rules. Upon exhaustive discussion on each of the above mentioned services, the Court partly allowed the appeal, whereby the following services were held to be input services as envisaged under Rule 2(l) of the Rules and the assessee was held entitled to avail cenvat credit in relation to the service tax paid in relation to those services, which were held to be input services :
(i) Technical Testing and Analysis Service.
(ii)Commission paid to the foreign agent.
(iii) Clearing and Forwarding Service.Page 23 of 58
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(iv) Technical Inspection and Certification.
7.5 The Bombay High Court in the case of Ultratech Cement Ltd. (supra) was considering the entitlement of the assessee to avail the cenvat credit of outdoor catering service provided in the factory for employees of the factory as input service credit. The assessee in the above cited case had availed the credit of service tax paid on outdoor catering service and utilised the same in paying excise duty i.e. cenvat credit on clearance of cement manufactured by the assessee. The Department was of the opinion that the outdoor catering was not the input service under Rule 2(l) of the Rules and, therefore, it was not entitled to the service tax paid on the outdoor catering service. The assessee's contention was that the Factories Act, 1948 makes it mandatory for the employer to provide for catering service to the employees working in the plant and administrative office of the assessee-company and since for compliance of the said statutory requirement, the assessee had engaged the services of a caterer and the costs of the food was reimbursed by the assessee to the employees, it was entitled to Page 24 of 58 O/TAXAP/912/2012 CAV JUDGEMNT take credit of the said service tax and utilise the same in terms of cenvat credit on the cement manufactured by the assessee. The Bombay High Court discussing various decisions, as also the provisions of law, has considered as to whether the outdoor catering service is covered under the inclusive part of the definition of the 'input service'. Such question of law framed by the Revenue was held in favour of the assessee and against the Revenue. By holding that "the definition of the 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."
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O/TAXAP/912/2012 CAV JUDGEMNT 7.6 This Court in the case of Parth Poly Wooven Pvt.
Ltd. (supra) had an occasion consider the question whether the assessee was justified in availing the cenvat credit on the service tax paid on the Goods Transport Agency service on outward transportation of the goods beyond the place of removal. Here it would be profitable to reproduce the relevant paragraphs of the said decision as under :
"14. We need to interpret the above statutory provisions to be able to decide the issues arising before us. Central provision of law which calls for interpretation is the term 'input service' as defined in Cenvat Credit Rules 2004. This provision in identical, situation came up for consideration before Larger Bench of the Tribunal in the case of ABB Ltd v. Commissioner of C.Ex. & S.T., (2009) S.T.R. 23 (Tri.-LB). The Tribunal refused to give a restrictive meaning to the definition and observed that such term has to be interpreted in light of the requirement of the business and it cannot be read restrictively so as to confine only upto the factory or upto the depot of the manufacturers.
15. We are informed that the said decision was carried in appeal by the Revenue. The Karnataka High Court, however, has confirmed the view of the Page 26 of 58 O/TAXAP/912/2012 CAV JUDGEMNT Tribunal. Copy of the judgment, however, is not yet available and therefore not placed before us.
16. If we peruse the definition of the term 'input service' closely, we find that the same is expressed in the form of 'means and includes'. Legislature often uses expression, means, includes and sometimes means and includes; each having different connotation, different purpose and different meaning to be conveyed.
17. It is by now well settled that when a word is defined to mean such and such, the definition is, prima facie, restrictive, whereas where the word is defined to include something, the definition is prima facie expansive. On the other hand, when the Legislature uses the expression 'means and includes', the definition is meant to be exhaustive. Such principles, however, are subject to exceptions.
17.1 In the case of V.F. & G. Insurance Co. v. M/s. Fraser & Ross, AIR 1960 SC 971, the Apex Court observed that when expression "means' is used, generally the definition is exhaustive.
17.2 In th case of State of Bombay v. Hospital Mazdoor Sabha, AIR 1960 SC 610, it was observed that "it is obvious that the words used in an inclusive definition denote extension and cannot be treated as restricted in any sense" ...... "Where we are dealing with an inclusive definition it would be Page 27 of 58 O/TAXAP/912/2012 CAV JUDGEMNT inappropriate to put a restrictive interpretation upon terms of wider denotation".
17.3 In the case of Ramanlal Bhailal Patel v. State of Gujarat, AIR 2008 SC 1246 the Apex Court found that 'person' is defined in an inclusive definition. It was observed that in such a case, the use of word 'includes' indicates an intention to enlarge the meaning of the word used in the Statute.
17.4 In the case of Bharat Cooperative Bank (Mumbai) Ltd. v. Coop. Bank Employees Union, AIR 2007 SC 2320, the Apex Court observed as follows:
"On the other hand, when the word "includes" is used in the definition, the legislature does not intend to restrict the definition; makes the definition enumerative but not exhaustive. That is to say, the term defined will retain its ordinary meaning but its scope would be extended to bring within it matters, which in its ordinary meaning may or may not comprise. Therefore, the use of the word "means" followed by the word "includes" in Section 2(bb) of the ID Act is clearly indicative of the legislative intent to make the definition exhaustiveand would cover only those banking companies which fall within the purview of the definition and no other."
17.5 In the case of P.Kasilingam v. P.S.G. College of Technology, AIR 1995 SC 1395, wherein the Apex Page 28 of 58 O/TAXAP/912/2012 CAV JUDGEMNT Court brought out the difference in the expression 'means and includes' in the definition clause observing that :
"It has been urged that in Rule 2(b) the expression "means and includes" has been used which indicates that the definition is inclusive in nature and also covers categories which are not expressly mentioned therein. We are unable to agree. A particular expression is often defined by the Legislature by using the word 'means' or the word 'includes'. Sometimes the words 'means and includes' are used. The use of the word 'means' indicates that "definition is a hard and fast definition, and no other meaning can be assigned to the expression than is put down in definition."
(See : Gough v. Gough, (1891) 2 QB 665; Punjab Land Development and Reclamation Corpn. Ltd. v. Presiding Officer, Labour Court, (1990) 3 SCC 682, at p.717. The word 'includes' when used, enlarges the meaning of the expression defined so as to comprehend not only such things as they signify according to their natural import but also those things which the clause declares that they shall include. The words 'means and includes', on the other hand, indicate "an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions." (See : Dilworth v. Commissioner of Stamps, 1899 AC 99 at pp. 105-106 (Lord Watson); Mahalakshmi Oil Mills v. State of Andhra Pradesh, Page 29 of 58 O/TAXAP/912/2012 CAV JUDGEMNT (1989) 1 SCC 164, at p. 169 : (AIR 1989 SC 335 at p. 339). The use of the words 'means and includes' in Rule 2(b) would, therefore, suggest that the definition of "college" is intended to be exhaustive and not extensive and would cover only the educational institutions falling in the categories specified in Rule 2(b) and other educational institutions are not comprehended."
17.6 In the case of M/s.Black Diamond Beverages v. Commercial Tax Officer, Calcutta, AIR 1997 SC 3550, wherein, interpreting the definition of 'sale price' the Apex Court observed as under:
"7. It is clear that the definition of 'sale price' in Section 2(d) uses the words 'means' and 'includes'. The first part of the definition defines the meaning of the word 'sale price' and must, in our view, be given its ordinary, popular or natural meaning. The interpretation thereof is in no way controlled or affected by the second part which 'includes' certain other things in the definition. This is a well-settled principle of construction. Craies on Statute Law (7th Edn. 1.214) says :
"An interpretation clause which extends the meaning of a word does not take away its ordinary meaning . . . . . . Lord Selborne said in Robinson v. Barton Eccles Local Board, (1883) 8 App Case 798 (801): An interpretation clause of this kind is not meant to prevent the word receiving its ordinary, Page 30 of 58 O/TAXAP/912/2012 CAV JUDGEMNT popular, and natural sense whenever that would be properly applicable, but to enable the word as used in the Act .... to be applied to something to which it would not ordinarily be applicable."
Therefore, the inclusive part of the definition cannot prevent the main provision from receiving its natural meaning."
17.7.In the case of M/s.Mahalakshmi Oil Mills v. State of Andhra Pradesh, AIR 1989 SC 335, the Apex Court accepted the contention of the State that the definition which consisted of two separate parts of means and also what it includes is meant to be exhaustive.
17.8.In the case of Jagir Singh v. State of Bihar, (1976) 2 SCC 942, the Apex Court was interpreting the term 'owner' as defined in different State Acts imposing tax on goods upon carriage by road. Term 'owner' in Bihar Act which was referred by the Apex Court for the purpose of judgment provided that 'owner' means the owner of a public service motor vehicle and includes the holder of a permit under the said Act in respect of a public service motor vehicle or any person for the time being in charge of such vehicle or responsible for the management of the place of business of such owner. The Apex Court discarded the interpretation offered by the petitioners whereby the petitioners who were the owners of the vehicles were contending that they Page 31 of 58 O/TAXAP/912/2012 CAV JUDGEMNT would not be liable to pay taxes. It was observed as under :
"19. The definition of "owner' repels the interpretation submitted by the petitioners that the definition means not only the owner who is the permit holder but also a booking agency who may be in charge of the vehicle without being a permit holder. The entire accent in the definition of owner is on the holder of a permit in respect of the public service motor vehicle. It is the permit which entitles the holder to ply the vehicle. It is because the vehicle is being plied that the passengers and consignors of goods carried by that vehicle become liable to pay not only fare and freight to the owner but also tax thereon to the owner. The words "or any person for the time being in charge of such vehicle or responsible for the management of the place of business of such owner" indicate that the permit holder will include any person who is in charge of such vehicle of the permit holder or any person who is responsible for the management of the place of business of such owner. The owner cannot escape the liability by stating that any person is for the time being in charge of such vehicles, and, therefore, such person is the owner and not the permit holder.
20. The general rule of construction is not only to look at the words but to look at the context, the collocation and the object of such words relating to Page 32 of 58 O/TAXAP/912/2012 CAV JUDGEMNT such matter and interpret the meaning according to what would appear to be the meaning intended to be conveyed by the use of the words under the circumstances. Sometimes definition clauses create qualification by expressions like "unless the context otherwise require"; or "unless the contrary intention appears"; or "if not inconsistent with the context or subjectmater". "Parliament would legislate to little purpose", said Lord Macnaghten in Netherseal Co. V. Bourne, (1889) 14 AC 228 , "if the objects of its care might supplement or undo the work of legislation by making a definition clauses of their own. People cannot escape from the obligation of a statute by putting a private interpretation on its language." The courts will always examine the real nature of the transaction by which it is sought to evade the tax. (underlined supplied)"
18. Bearing in mind the above judicial pronouncements, if we revert back to the definition of the term 'input service', as already noticed, it is coined in the phraseology of "means and includes". Portion of the definition which goes with the expression means, is any service used by the manufacturer whether directly or indirectly in or in relation to the manufacture of final products and clearance of final products from the place of removal. This definition itself is wide in its expression and includes large number of services used by the manufacturer. Such service may have been used either directly or even indirectly. To Page 33 of 58 O/TAXAP/912/2012 CAV JUDGEMNT qualify for input service, such service should have been used for the manufacture of the final products or in relation to manufacture of final produce or even in clearance of the final product from the place of removal. The expression 'in relation to manufacture' is wider than 'for the purpose of manufacture'. The words 'and clearance of the final products from the place of removal' are also significant. Means part of the definition has not limited the services only upto the place of removal, but covers services used by the manufacturer for the clearance of the final products even from the place of removal. It can thus be seen that main body of the definition of term 'input service' is wide and expansive and covers variety of services utilized by the manufacture. By no stretch of imagination can it be stated that outward transportation service would not be a service used by the manufacturer for clearance of final products from the place of removal.
19. When we hold that outward transportation would be an input service as covered in the expression 'means' part of the definition, it would be difficult to exclude such service on the basis of any interpretation that may be offered of the later portion of the definition which is couched in the expression 'includes'. As already observed, it is held in several decisions that the expression 'includes' cannot be used to oust any activity from the main body of the definition if it is otherwise Page 34 of 58 O/TAXAP/912/2012 CAV JUDGEMNT covered by the expression 'means'. In other words, the expression 'includes' followed by 'means' in any definition is generally understood to be expanding the definition of the term to make it exhaustive, but in no manner can the expression 'includes' be utilized to limit the scope of definition provided in the main body of the definition. To our mind this was also not the intention of the Legislature in the present case.
20. There, of course, are certain areas which still remain to be cleared. It was vehemently contended before us by the counsel for the Revenue that later portion of the definition which provides for the inclusion clause limits the outward transportation service up to the place of removal. That being so, according to them, the outward transport service utilized by the manufacturer beyond the place of removal would not qualify as an input service within the definition of rule 2(l). We may only notice two things in this regard. Firstly, in our view, when we find that outward transport service is covered by the main body of the definition which provides for means part, as specifically including any service directly or indirectly in or in relation to manufacture of final product or clearance of final product from the place of removal, no interpretation of the later part of the definition would permit us to exclude such a service form the sweep of the definition. Secondly, we notice that the definition of the term 'input service' came to be amended with effect Page 35 of 58 O/TAXAP/912/2012 CAV JUDGEMNT from 1.4.08 and instead of words "clearance of final products from the place of removal", the words "clearance of final products upto the place of removal" came to be substituted. What would be the position if the case had arisen after 1.4.08 is a situation we are not confronted with. We, therefore, refrain from making any observations in this regard. We, however, cannot help noticing the change in the statutory provisions which is at the heart of the entire controversy. In so far as the cases on hand are concerned, the statutory provisions cover the service used by the manufacturer in relation to the manufacture of the final products or even the clearance of final products from the place of removal.
21. We must, however, for our curiosity reconcile the expression "from the place of removal"
occurring in the earlier part of the definition with words 'upto the place of removal" used in inclusive part of the definition. Counsel for the assessees submitted that when a manufacturer transports his finished products from the factory without clearance to any other place, such as godown, warehouse etc. from where it would be ultimately removed, such service is covered in the expression 'outward transportation up to the place of removal"
since such place other than factory gate would be the place of removal. We do appreciate that this could be one of the areas of the application of the expression 'outward transportation upto the place Page 36 of 58 O/TAXAP/912/2012 CAV JUDGEMNT of removal'. We are unable to see whether this could be the sole reason for using such expression by the Legislature.
22. Be that as it may, we are of the opinion that the outward transport service used by the manufactures for transportation of finished goods from the place of removal upto the premises of the purchaser is covered within the definition of "input service" provided in rule 2(l) of the Cenvat Credit Rules, 2004.
23. We answer the question accordingly in favour of the assessee and against the revenue."
7.7 In the case of Deepak Fertilizers & Petrochemicals Corpn. Ltd. (supra), the Revenue denied the credit of service tax paid by the assessee on Consulting Engineers Services, Technical Inspector and Certification Services, Construction Service, erection, commissioning and installation service on the ground that these services used in installation of storage tank which is a immovable property and is outside factory premises, are not eligible for service tax credit. The Tribunal upheld the version of the Revenue and dismissed the appeal. The Bombay High Court has ruled in favour of the assessee and against Page 37 of 58 O/TAXAP/912/2012 CAV JUDGEMNT the Revenue and some of the vital findings deserve reproduction hereinbelow :
"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 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 Page 38 of 58 O/TAXAP/912/2012 CAV JUDGEMNT 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 clause (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 Page 39 of 58 O/TAXAP/912/2012 CAV JUDGEMNT 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 manufacture 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."
8. In the case of Doypack System Pvt. Ltd. (supra), the Apex Court considered at length the object of interpretation of a statute is to discover the intention of the Parliament as expressed in it, considering it as a whole and in its context; and the words used in the statute, if are plain and unambiguous, they must be applied as they stand. It further held as under :
"37. In our opinion Sections 3 and 4 of the Act interpreted either on their own language or along Page 40 of 58 O/TAXAP/912/2012 CAV JUDGEMNT with sections 7 and 8, are not ambiguous; so documents are not relevant. It was further urged, that even if to consture the language is not clear and there is need to resort to aids of construction, it is clear that such aids can be either internal or external. Internal aids of construction are definitions, exceptions, explanations, fictions, deeming provisions, headings, marginal notes, preamble, provisos, punctuations, saving clauses, non-obstante clauses etc. The notings in the files of various officials do not fall in the category of internal aids for consideration. Dictionaries, earlier acts, history of legislation, Parliamentary history, parliamentary proceedings, state of law as it existed when the Act was passed, the mischief sought to be suppressed and the remedy sought to be advanced by the Act are external aids. .. .."
9. The decision of the Bombay High Court in the case of Coca Cola India Pvt. Ltd. v. C.C.E., Pune-III, reported in 2009(15) STR 657 (Bom.), was the case where the credit was availed on the tax paid on the input service which was advertisement and not on the contents of the advertisement. The Court held that as long as the manufacturer can demonstrate that the advertisement services availed have an effect of or impact on the manufacture of the final product and establish the relationship between the input service and the Page 41 of 58 O/TAXAP/912/2012 CAV JUDGEMNT manufacture of the final product, the cost incurred by the service has to be added to the cost and is so assessed, it is a recognition by the Revenue of the advertisement services having a connection with the manufacture of the final product. The Court interpreted in paragraphs 23 and 24 the definition of input service, which reads as under :
"23. We now propose to consider some of the expressions used in the definition of input service. Firstly what does the expression means and includes mean. The definition of input service uses the term means and includes. These expression must be understood as now judicially recognized. In Regional Director V/s High Land Coffee Works 1991 (3) SCC 617, the Hon ble Supreme Court has held as under:
The word include in the statutory definition is generally used to enlarge the meaning of the preceding words and it is by way of extension, and not with restriction. The word include is ver y generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used, these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import but also those things which the interpretation clause declares that they shall include. [See ( i ) Stroud s Judicial Page 42 of 58 O/TAXAP/912/2012 CAV JUDGEMNT Dictionary , 5th edn. Vol. 3, p. 1263 and ( ii ) C.I.T. v. Taj Mahal Hotel 1 , ( iii ) State of Bombay v. Hospital Mazdoor Sabha This has been reiterated in C.I.T. Vs. T.T.K. Health Care Ltd. (2007) 11 SCC 796. In M/s. Mahalakshmi Oil Mills Vs. State of Andhra Pradesh, AIR 1989 Supreme Court 335, the Court dealing with the expression means and includes observed as under :
As Lord Watson observed in Dilworth v. Commissioner of Stamps [1899] AC 99 the joint use of the words "mean and include" can have this effect. He said, in a passage quoted with approval in earlier decisions of this Court:
Section 2 is, beyond all question, an interpretation clauses, and must have been intended by the Legislature to be taken into account in construing the expression "charitable device or bequest," as it occurs in Section 3. It is not said in terms that "charitable bequest" shall mean one or other of the things which are enumerated, but that it shall "include" them. The word "include" is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import, but also those things which the interpretation clause declares that they shall include. But the word "include" is Page 43 of 58 O/TAXAP/912/2012 CAV JUDGEMNT susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that it was not merely employed for the purpose of adding to the natural significance of the words or expressions defined. It may be equivalent to "mean and include" and in that case it may afford an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions.(emphasis supplied) The Supreme Court in the case of Bharat Coop. Bank (Mumbai) Ltd. Versus Coop. Bank Employees Union (2007) 4 SCC 685 observed as under :
It is trite to say that when in the definition clause given in any statute the word "means" is used, what follows is intended to speak exhaustively. When the phrase "means" is used in the definition, to borrow the words of Lord Esher M.R. In Gough v. Gough (1891) 2 Q.B. 665 it is a "hard and fast"
definition and no meaning other than that which is put in the definition can be assigned to the same. (Also see: P. Kasilingam and Ors. v. P.S.G. College of Technology and Ors. On the other hand, when the word "includes" is used in the definition, the legislature does not intend to restrict the definition; makes the definition enumerative but not exhaustive. That is to say, the term defined will retain its ordinary meaning but its scope would be extended to bring within it matters, which in its Page 44 of 58 O/TAXAP/912/2012 CAV JUDGEMNT ordinary meaning may or may not comprise. Therefore, the use of the word "means" followed by the word "includes" in Section 2(bb) of the ID Act is clearly indicative of the legislative intent to make the definition exhaustive and would cover only those banking companies which fall within the purview of the definition and no other. Considering these judicial pronouncements, it is clear that the expression means and includes is exhaustive. By the word includes services which may otherwise have not come within the ambit of the definition clause are included and by the words means these are made exhaustive.
24. The next expression to be considered from the definition is such as . A few dictionary meanings of the term such as are reproduced Concise Oxford Dictionary, Such as means for example or of a kind that; Chambers Dictionary, Such as means for example: In Good Year India Ltd V/s Collector of Customs 1997 (95) ELT 450 the Supreme Court observed as under:
The words such as stainless steel, nickel monel, incoloy, hastelloy in sub-heading (2) are only illustrative of the various metals from which valves can be made but the said description is not exhaustive of the metals. The words such as therefore are illustrative and not exhaustive. In the context of business, these are services, related to Page 45 of 58 O/TAXAP/912/2012 CAV JUDGEMNT the business. They may not be exhaustive, but are illustrative."
10. Reverting to the facts of the instant case in light of the law discussed hereinabove, as noted hereinabove, the Tribunal has taken a stand that where the exports are Free on Board (FOB) basis, the place of removal has to be taken as port and, therefore, services availed by the respondent-assessee till the goods reach the port would be admissible. The manufactured goods since cannot be sold without the assistance of clearing agents, such input service on commission also has been considered necessary and, therefore, any CENVAT credit availed by the petitioner, according to the Tribunal, relating to the clearance of finished goods upto the place of removal, which is the port in the present case, would fall under the criteria and such amount shall be admissible.
No restrictive meaning could be given to the definition of "input service" in wake of use of words "means and includes" as interpreted time and again by the Apex Court and this Court in the case of Parth Poly Wooven Pvt. Ltd. (supra), as also by the Bombay Page 46 of 58 O/TAXAP/912/2012 CAV JUDGEMNT High Court in the case of Coca Cola India Pvt. Ltd. (supra).
5. This Court in Tax Appeal No.22 of 2014 rendered on January 31, 2014 in the case of Central Excise v. Inductotherm India P. Ltd., was dealing with the cargo handling service and the issue was whether the service of tax paid on cargo handling service was admissible to the manufacturer as "input service tax credit". Relying on various judicial pronouncements, it was held and observed thus :
"The question that begs the decision is as to whether cargo handling services can be said to have been used in or in relation to manufacture and clearance of final product upto the place of removal, which is port. Admittedly, there is no express inclusion of cargo handling service in the definition of 'input service'. However, in light of the decisions rendered in this area, such interpretation can be made holding that in case of export of final product, place of removal would be port of shipment and not factory gate and therefore, the manufacturer would be entitled to avail the amount claimed towards cargo handling as 'input service' under the Cenvat Credit Rules.Page 47 of 58
O/TAXAP/912/2012 CAV JUDGEMNT Admittedly, cargo handling services are utilized for the purpose of export of final product where the place of removal for the purpose of export shall necessarily have to be the port and therefore any service availed by the exporters until the goods left India from the port are the service used in relation to clearance of final products upto the place of removal. If at this stage, the definition of input service is recollected, it includes services used by the manufacturer directly or indirectly in or in relation to manufacture of the final product and in relation to clearance of final product from the place of removal. Definition of term 'input service' being very wide in its expression, wherein number of services used by manufacturer are included in the same, used directly or indirectly.
This Court in the case of Parth Poly Wooven Pvt. Ltd. (supra) has held that when the manufacturer transports his finished goods from the factory, without clearance to any other place such as, go-down, warehouse, etc. from where it would be ultimately removed, such service is covered in the expression "outward transportation up to the place of removal" since such place other than factory gate would be the place of removal. It had been in clear terms held that outward transport service used by the Page 48 of 58 O/TAXAP/912/2012 CAV JUDGEMNT manufacturer for transportation of finished goods from the place of removal up to the premises of the purchaser is covered within the definition of 'input service' provided in rule 2(1) of the Cenvat Credit Rules. Taking this analogy further, the cargo handling service is availed essentially for the purpose of exporting the goods and in such case, the services of cargo handling used by the manufacturer for transportation of the finished goods from the place of removal shall have to be essentially the port from where goods are actually taken out of the country.
Both the authorities have rightly held that tax paid by the service providers under this category of cargo handling service, therefore, would be inclusive in the definition of 'input service'. There is no dispute on the part of the Revenue that such services were availed by the respondents in clearing the goods from the factory premises and for the purpose of export. "
6. As in the case of cargo handling service, in case of all three services in relation to which substantial question of law has been framed, there is no specific inclusion of such services in the definition of "input service". For the purpose of export of final products, the place of removal as held in the decision reproduced hereinabove, is held to Page 49 of 58 O/TAXAP/912/2012 CAV JUDGEMNT be a port of shipment and not the factory gate and, therefore, the manufacturer would be entitled to avail the input services extended towards the custom house agent service, shipping agent service, container service\ and overseas commission service. It is not in dispute that these services are utilised for the purpose of export of final products and the exporters cannot do business without these services. Any service availed by the exporters until the goods left India from the port are the service used in relation to clearance of final products upto the place of removal.
7. Remembering the definition of "input service", any service 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, which in the present case, is a port of shipment, these services would be included in the term "input service". The Revenue at no point of time has disputed the factum that the services in relation to which the CENVAT credit is claimed by the manufacturer- respondent, were availed for the purpose of clearing the goods for the purpose of export.
Page 50 of 58
O/TAXAP/912/2012 CAV JUDGEMNT
8. We notice that the nature of services used in the present case are somewhat different. However, in some of the concluded matters, the question was with respect to service tax paid on outward transportation of goods. Any service used by the manufacturer directly or indirectly in relation to manufacture of final products and clearing of final products upto the place of removal would certainly be covered within the expression as held hereinabove. In the present case, the place of removal would be the port.
9. We notice that in Cadila Healthcare (supra), this Court as referred to hereinabove has dealt with the courier service and the question was that the courier when collects the parcel from the factory gate for further transportation, whether it would fall within the ambit of the term input service as defined under Rule 2(l) of the Rules and such issue is answered in favour of the assessee and against the Revenue. Relevant also will be to refer to the decision of the Cadila Healthcare (supra) and particularly, the clearing and forwarding services. Such services provided by the Clearing and Forwarding Agents in different States in India for activities relating to sale of goods in domestic market. Page 51 of 58
O/TAXAP/912/2012 CAV JUDGEMNT According to the Revenue, such service would commence only after clearance of final products and the service tax paid in respect thereof was not in relation to manufacture of final product. According to the Tribunal, the Clearing and Forwarding Agents had a definite role to play in promotion of sales by storing goods and supplying the same to customers and, thereby it promotes the sales. In such backdrop of facts, this Court held that the C&F carries out all activities right from promotion of sales to its storage and delivery to the customers. Referring to the expression "upto the place of removal" as defined under sub-clause (iii) of clause (c) of sub-section (3) of section 4 of the Act, the Court held thus :
"5.4 xxx xxx xxx
(vi) Thus, the clearing and forwarding agent is an agent of the principal. The goods stored by him after clearance from the factory would therefore, be stored on behalf of the principal, and as such the place where such goods are stored by the C & F agent would fall within the purview of sub-clause
(iii) of clause (c) of section 4(3) of the Act and as such would be the place of removal. Viewed from that light the services rendered by the C & F agent of clearing the goods from the factory premises, storing the same and delivering the same to the Page 52 of 58 O/TAXAP/912/2012 CAV JUDGEMNT customer would fall within the ambit of rule 2(l) of the Rules as it stood prior to its amendment with effect from 1.4.2008, namely clearance of final products from the place of removal. However, this court is not in agreement with the view adopted by the Tribunal that such services would amount to sales promotion and is, therefore, an input service.
For the reasons stated while discussing the issue as regards service commission paid to foreign agent, the services rendered by the C & F agents cannot be said to be in the nature of sales promotion. This issue stands answered accordingly, in favour of the assessee and against the revenue."
10. Considering the role of Customs House Agent and Shipping Agent for rendering Customs House Agent Service and Shipping Agents and Container Services, the decision of this Court referred to in the case of Clearing and Forwarding Agent would apply and the definition of "input service" would also cover both these services, considering the nature of services rendered by them and the place of removal being the point in this case, the answer shall favour the Revenue.
11. With regard to the commission paid to the overseas agents and service tax paid on the value of commission paid to the overseas agents under the business auxiliary Page 53 of 58 O/TAXAP/912/2012 CAV JUDGEMNT category, under the definition of "business auxiliary service" which is a taxable service, the services are provided by the Commission Agent. The assessee took CENVAT credit of service tax paid on commission paid to the overseas agents for the goods exported. The eligible category of service for availing the credit is that the service should be used directly or indirectly in the manufacture or clearance of final product, as neither for the purpose of sales promotion, the service of overseas commission agent has been used. The denial in the case of Cadila Healthcare (supra) to the commission paid to the overseas agents shall apply to this category of service, where the service is rendered for overseas commission. This is required to be answered in favour of the Revenue and against the assessee.
"5.2 xxx xxx xxx
(ix) As regards the contention that in any event the service rendered by a commission agent is a service received in relation to the assessee's activity relating to business, it may be noted that the includes part of the definition of 'input service' includes "activities relating to the business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and Page 54 of 58 O/TAXAP/912/2012 CAV JUDGEMNT security". The words "activities relating to business" are followed by the words "such as".
Therefore, the words "such as" must be given some meaning. In Royal Hatcheries (P) Ltd. v. State of A.P., 1994 Supp (1) SCC 429, the Supreme Court held that the words "such as" indicate that what are mentioned thereafter are only illustrative and not exhaustive. Thus, the activities that follow the words "such as" are illustrative of the activities relating to business which are included in the definition of input service and are not exhaustive. Therefore, activities relating to business could also be other than the activities mentioned in the sub- rule. However, that does not mean that every activity related to the business of the assessee would fall within the inclusive part of the definition. For an activity related to the business, it has to be an activity which is analogous to the activities mentioned after the words "such as". What follows the words "such as" is "accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security". Thus, what is required to be examined is as to whether the service rendered by commission agents can be said to be an activity which is analogous to any of the said activities. The activity of commission agent, therefore, should bear some similarity to the illustrative activities. In the opinion of this court, none of the illustrative activities, viz., "accounting, auditing, financing, recruitment and quality control, Page 55 of 58 O/TAXAP/912/2012 CAV JUDGEMNT coaching and training, computer networking, credit rating, share registry, and security" is in any manner similar to the services rendered by commission agents nor are the same in any manner related to such services. Under the circumstances, though the business activities mentioned in the definition are not exhaustive, the service rendered by the commission agents not being analogous to the activities mentioned in the definition, would not fall within the ambit of the expression "activities relating to business". Consequently, CENVAT credit would not be admissible in respect of the commission paid to foreign agents."
12. Accordingly, the substantial question of law raised in respect of the following three categories of services i.e.
(i) Customs House Agents Services, (ii) Shipping Agents and Container Services and (iii) Services of Overseas Commission, is answered partly in favour of the assessee so far as aforesaid category Nos.(i) and (ii) are concerned. Insofar as category No.(iii) i.e. Services of Overseas Commission, is concerned, the same is answered in favour of the Revenue and against the assessee. So far as present appeal is concerned, after extending the period of limitation under the proviso to sections 11A and 11AB of the Act, the show cause notice is issued by the Joint Commissioner, Central Excise, upon Page 56 of 58 O/TAXAP/912/2012 CAV JUDGEMNT the respondent-assessee on the ground of contravention of provisions of Rules 2(1)(ii) and 9(2) read with Rule 3(1) of the Rules. Admittedly, the respondent-assessee had shown availment of CENVAT credit in Part IV and V of ER-1 returns filed by it. The appellant-Department has sought to justify its action by submitting that during the course of audit by the Office of the Accountant General, when a detailed examination of the material was done, it was realised that the respondent-assessee had availed CENVAT credit on the services of all the three categories. The respondent-assessee has rightly pointed out that all the service providers charge the service tax on all the three services and such services since were rendered at the port of export, which was the place of removal, the services were in relation to manufacturing activities as far as the first two services are concerned. However, insofar as the third service where this Court has held in favour of the Revenue and against the respondent- assessee, we are of the opinion that the extended period of limitation would not be available to the Revenue in absence of any material to indicate suppression on the part of the respondent-assessee. It is not in dispute that there was no suppression nor any misrepresentation in Page 57 of 58 O/TAXAP/912/2012 CAV JUDGEMNT respect of CENVAT credit availed by the respondent- assessee in respect of these services.
13. Resultantly, the question of law is answered in the above manner. Appeal is disposed of accordingly. There shall be, however, no order as to costs.
(M.R.SHAH, J.) (MS SONIA GOKANI, J.) Aakar Page 58 of 58