Custom, Excise & Service Tax Tribunal
M/S.Hindustan Zinc Ltd vs Cce, Jaipur on 4 March, 2014
IN THE CUSPTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, NEW DELHI, PRINCIPAL BENCH NEW DELHI
Date of Hearing/ Decision: 04.03.2014
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Whether Press Reporter may be allowed to see the Order for publication as per Rule 26 of the CESTAT (Procedure) Rules, 1982?
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Whether it should be released under Rule 26 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
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Whether their Lordships wish to see the fair copy of the Order?
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Whether Order is to be circulated to the Departmental authorities?
Excise Stay Applications Nos.59874-59876/2013 in
Appeals Nos.E/59254-59256/2013
(Arising out of Order-in-Appeal No.25-27/2013/C.Ex./JPR-II-Commr. Dated 9.5.2013 passed by the Commissioner of Central Excise , Jaipur)
M/s.Hindustan Zinc Ltd. Appellants
Vs.
CCE, Jaipur Respondent
Appearance: Rep. by Shri B.L. Narsimhan, Advocate for the appellant.
Rep. by Shri Amresh Jain, DR for the respondent.
CORAM : Honble Mr. Justice G.Raghuram, President Hon'ble Mr. Rakesh Kumar, Member (Technical) Final Orders Nos.51750-51752/2014 Dated:4.3.2014 Per Rakesh Kumar:
The facts leading to filing of these appeals along with stay petitions are, in brief, as under:-
1.1 The appellant are engaged in the manufacture of Zinc, Lead Ingots, Sulphuric Acid, etc. chargeable to central excise duty. They availed cenvat credit of central excise duty paid on inputs and capital goods and service tax paid on input services used in or in relation to the manufacture of their final products. The period of dispute in these appeals is from October, 2004 to December, 2008. Central Excise records maintained by the appellants were checked sometime in November, 2007 by the Audit party of C &AG. The Audit officers of the office of the C & AG were of the view that the appellant would not be eligible for cenvat credit of the service tax paid on the various insurance services availed by them for insurance of plant and machinery, marine insurance, insurance of cash in transit, vehicle and laptops as these services are not covered by the definition of input service, as given in Rule 2 (l) of the Cenvat Credit Rules, 2004. Based on this Audit objection, a show cause notice dated 30.01.2009 was issued to the appellant for recovery of allegedly wrongly availed cenvat credit amounting to Rs.3,05,98,072/- in respect of insurance services during the period from October, 2004 to December, 2007 along with interest thereon under Section 11 AB of the Central Excise Act, 1944 and also for imposition of penalty on the appellant under Rule 15 of the Cenvat Credit Rules read with Section 11 AC of the Central Excise Act, 1944 and also under Rule 25 of the Central Excise Rules, 2002. This show cause notice was issued by invoking extended period under proviso to Section 11 A(1) of the Central Excise Act, 1944 by alleging that the appellant with intent to evade duty by wrongly availing cenvat credit, had concealed the facts of availment of cenvat credit in respect of insurance service from the department. Subsequently, two more show cause notices dated 2.2.2009 and 17.07.2009 were issued for demand of allegedly wrongly availed cenvat credit amounting to Rs.10,95,676/- and Rs.10,90,055/- respectively for the period from Jan. 2008 to June, 2008 and July 2008 to December, 2008 respectively along with interest thereon under Section 11 AB and also for imposition of penalty. These show cause notices were also issued on the basis that the insurance services, as mentioned above, are not covered by the definition of input service and are not eligible for cenvat credit.
1.2 The show cause notices were adjudicated by the Commissioner of Central Excise, Jaipur-II by a common order-in-original dated 9.5.2013. Though in course of proceedings before the Commissioner , the appellant cited the judgement of the Larger Bench of the Tribunal in the case of CCE, Meerut-II Vs. GTC Industries Ltd. reported in 2008 (12)STR 468 (Tribunal-LB) wherein it was held that credit in respect of those taxable services is to be allowed which go to form part of the assessable value on which excise duty is charged and pleaded that the cost of insurance of plant and machinery is part of the assessable value of the goods on which excise duty has been paid and also cited judgement of the Tribunal in the case of Finolex Cables Ltd. reported in 2009 (14)STR 303 (Tribunal-Mumbai) and Millipore India Ltd. reported in 2009 (13) STR 616 (Tribunal-Bang.) wherein it was held that insurance services are eligible for cenvat credit and also the judgements of Honble Karnatak High Court in the cases of CCE, Bangalore Vs. Stanzen reported in 2011 (23)STR 444 (KAR) and CCE Vs. Micro Labs Ltd. reported in 2011 (24) STR 272 (KAR) wherein it was held that insurance services for group insurance of the employees under Section 38 of the Employees State Insurance Act, 1948 is an activity relating to business and eligible for cenvat credit, the Commissioner vide order-in-original dated 9.5.2013 confirmed the cenvat credit demands raised by the above three show cause notices along with interests and imposed penalty of equal amount on the appellant. The Commissioner confirmed the demands on the following grounds:-
(1) There was no intention of the legislature to allow the cenvat credit of service tax on insurance services, as if this had been so, the same would have been specified in the list of activities relating to business, though other services have been listed therein. This finds support from the amendment made in the definition of input service vide notification no.03/2011-CE (NT) dated 1.3.2011 with effect from 1.4.2011 by which the expression activities relating to business has been deleted. This amendment has to be treated as retrospective amendment, in view of the judgement of the Larger Bench of the Tribunal in the case of Vandana Globla Ltd. reported in 2010 (253) ELT 444 (Tribunal-LB), wherein the Tribunal while examining the scope of the amendment made in the definition of input by insertion of Explanation II to Rule 2 (K) of the Cenvat Credit Rules, 2004 vide notification no.16/2009-CE (NT) dated 7.7.2009, had observed that the amendment made under the notification dated 7.7.2009 was clarificatory in nature and the same would have been retrospective effect.
(2) Input Service must have nexus with process of manufacture and for determining the eligibility of service for cenvat credit, it must be shown that the service is used in or in relation to the manufacture of final products. The insurance services do not meet this test.
1.3 Against the above order of the Commissioner, these three appeals have been filed along with stay applications.
2. Though these appeals are listed for hearing of the stay applications, after hearing this matter for sometime, the Bench was of the view that these appeals can be taken-up for final disposal, as only a very short issue relating to eligibility for cenvat credit of the insurance services marine insurance, insurance of plant and machinery, employees group insurance, insurance of the vehicles and laptops of the company and insurance of the cash in transit, are involved. Accordingly, with consent of both the sides, matters were taken up for final disposal.
3. Head both the sides.
4. Shri B.L. Narsimhan, Advocate, the ld. Counsel for the appellant, pleaded that during the period of dispute, inclusive portion of the definition of input service covered activities relating to business, that interpreting this term in the definition of input service, Honble Bombay High Court in the case of CCE Vs. Ultra Tech Cement reported in 2010 (260) ELT 369 (Bombay) has held that this term has very vide scope so as to cover all the services used in the business of manufacturing of final products and that the said definition of input service is not restricted to the services used in or in relation to the manufacture of final products whether directly or indirectly, but covers any service used in relation to business of manufacturing of final products, that insurance of plant and machinery is integral part of the business of manufacturing of a final product as no businessman would start manufacturing operations without insuring his plant and machinery against loss due to any accident etc. or natural calamities, that insurance of plant and machinery was very much covered by the definition of input service during the period of dispute, that as regards Group Insurance of Employees, Honble Karnataka High Court in the cases of CCE, Bangalore-III Vs. Stenzen Toyotus India Pvt. Ltd. (supra) and CCE, Bangalore Vs. M/s.Millipore India Ltd. has held that Group Insurance of Employees against accident and medical problems is covered by the definition of input service, that insurance of vehicles and insurance of cash in transit is also eligible for cenvat credit in terms of the judgement of the Tribunal in the case of Idea Cellular Ltd. Vs. CCE, Meerut-I reported in 2011 (22) STR 450 (Tribunal-Delhi), that as regards Marine insurance/Transit insurance, in terms of the judgement of the Tribunal in the case of Monnet Ispat reported in 2010 (19) STR 417, the same is eligible for cenvat credit, that most of the judgements had been cited in course of proceedings before the Commissioner, but he has not considered the same and has confirmed the cenvat credit demand on the basis that the amendment to Rule 2 (l) w.e.f. 1.4.2011 by which the expression activities relating to business was deleted, is a retrospective amendment, that the reasons for treating this amendment as retrospective amendment as given by the Commissioner are absolutely incorrect, as just because the Larger Bench of Tribunal in the case Vandana Global Ltd. (supra) has held that amendment to Rule 2(K) of Cenvat Credit Rules, 2004 by adding Explanation II has to be treated as clarificatory in nature and would be applicable retrospectively, it cannot be concluded that the every amendment to Cenvat Credit Rules, 2004 is a retrospective amendment, that the finding that for a service to be covered by the definition of input service, it must have nexus with the manufacture of final product and that insurance services have no nexus with the final product is absolutely incorrect and contrary to the law laid down by Honble Bombay High Court in the case of Ultra Tech Cement Ltd. reported in 2010 (260) ELT 369 (para-37), wherein the Court has specifically rejected the Revenues contention that a service to qualify as an input service must be used in or in relation to the manufacture of final product and has held that any service used in relation to the business of manufacturing of the final product would be an eligible input service. He, therefore, pleaded that the impugned order is not sustainable.
5. Shri Amresh Jain, ld. Departmental Representative, defended the impugned order by reiterating the findings of the Commissioner (Appeals) and emphasized that the services of insurance of Plant and Machinery, Group Insurance of the Employees against accident/Medical problems, insurance of cash in transit, Marine Insurance and Insurance of Vehicles and Laptops has no nexus whatsoever with the manufacture of the final product and hence, the same would not be eligible for cenvat credit. He, therefore, pleaded that there is no infirmity in the impugned order.
6. We have considered the submissions from both the sides and perused the records.
7. The bulk of the amount of cenvat credit availed is of the service tax paid on the premium for the services of insurance of Plant and Machinery. The remaining amount of disputed cenvat credit is in respect of Marine Insurance, Employees Group Insurance, Insurance for Cash in Transit and Insurance of Vehicles and Laptops.
8. The period of dispute in these appeals is from October, 2004 to December, 2008. During this period, the definition of input service as given in Rule 2(l) of Cenvat Credit Rules, 2004 was as under:-
Input Service means any service used by a provider of taxable service for providing an output service, or;
used by the manufacturer, whether or 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 of 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 upon the place of removal;
With effect from 1.4.2011, the definition of input service was amended and the amended definition is 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 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 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, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal service, inward transportation of inputs or capital goods and outward transportation upto the place of removal; but excludes services:-
(A) specified in sub-calsues (p), (zn), (zzl), (zzm), (zzq), (zzzh) and (zzzza) of clause (105) of section 65 of the Finance Act (hereinafter referred as specified services), in so far as they are used for-
(a) construction of a building or a civil structure or a part thereof; or
(b) laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services; or (B) specified in sub-clauses (d), (o), (zo) and (zzzz) of clause (105) of section 65 of the Finance Act, in so far as they relate to a motor vehicle except when used for the provision of taxable services for which the credit on motor vehicle is available as capital goods; or (C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee;] Thus, the main difference between the definition of input service as it existed during the period prior to 1.4.2011 and it existed during the period w.e.f 1.4.2011 is that expression is activities relating to business in the inclusive portion has been deleted and some services have been specifically excluded from the purview of the term input service. However, the period of dispute in this case is the period prior to 1.4.2011. The Commissioner has disallowed the cenvat credit in respect of various insurance services on the two grounds
(a) A service for being qualified as input service in terms of its definition as given in Rule 2 (l) of the Cenvat Credit Rules, 2004 must have been used in or in relation to the manufacture of final product i.e. should have nexus with the manufacture of final products and insurance services, in question, do not have any nexus whatsoever with the manufacture of final product.
(b) Though the term activities relating to business has been deleted w.e.f. 1.4.2011, this amendment has to be treated as of clarificatory nature and accordingly, even for the period prior to 1.4.2011, the activities relating to business would not be covered by the definition of input services.
8.1 Coming first, to the finding of the Commissioner that a service for being cenvatable must have been used in or in relation to the manufacture of final product and that insurance services having no nexus whatsoever with the manufacture of final product are not eligible for cenvat credit, we find that this finding of the Commissioner is contrary to the law laid down by the Honble Bombay High Court in the case of CCE Vs. Ultra Tech Cement (supra), wherein the Honble Bombay High Court while considering the eligibility of outdoor catering service for cenvat credit, has in para-28, 29 and 30 held that
(a) the definition of input service is very vide and covers not only the services which are used directly or indirectly in or in relation to the manufacture of final products but also includes various services used in relation to the business of manufacture of final products, be it prior to manufacture of final products or after the manufacture of final products -- to put it differently, the definition of input service is not restricted to services used in or in relation to the manufacture of final products but extends to all services used in relation to the business of manufacture of final product;
(b) the expression activities relating to business in the definition of input service postulates activities which are integrally connected with the business of assessee and if an activity is not integrally connected with the business of the manufacture of final product, that service would not qualify to be an input service under Rule 2(l) of the Cenvat Credit Rules; and
(c) the expression activities relating to business in the inclusive portion of the input service widens the scope of input service so as to cover all services used in the business of manufacturing of final product and that the said definition is not restricted to the services enumerated in the main definition part of the input service and the Revenues contention that a service to qualify as input service must be used in or relation to the manufacture of final product is not correct, as any service used in or in relation to the business of manufacture of final products would be an eligible input service.
In this judgement, the Honble Bombay High Court also considered the Apex Courts jdugement in the case of Maruti Suzuki Ltd. reported in 2009 (240) ELT 641 (SC) and observed that Revenues contention based on this judgement of the Apex Court that input service in order to qualify for cenvat credit must be only those services which have nexus with the manufacture of final products is not correct, as unlike the definition of input which is restricted to the input used directly or indirectly in or in relation to the manufacture of final products, the definition of input service not only means service used directly or indirectly in or in relation to the manufacture of the final products but also includes services used in relation to business of manufacturing. In view of this judgement of the Honble Bombay High Court the Commissioners finding that an service for being cenvatable must be used in or in relation to the manufacture of final product whether directly or indirectly is not correct and any service having nexus with the business of manufacture which has been used by a manufacturer would qualify as an input service. Insurance of plant and machinery , goods in transit, cash in transit and insurance of vehicles and laptop is an integral part of manufacturing business, as no manufacturer would carry on manufacturing operations without insurance of plant & machinery, cash in transit, goods in transit, vehicles & computers, etc. against any loss due to accident, natural calamities, etc. In view of this, the services of plant and machinery, transit insurance of goods, insurance of cash in transit, laptop, etc. have to be treated as an activity related to the business and would be eligible for cenvat credit.
9. As regards, the Group Insurance of all Employees against sickness or accident, the same has been held as cenvatable by the judgements of Honble Karnataka High Court in the cases of Stanzen Toyotetsu India (P) Ltd. (supra), Micro Labs Ltd. and M/s.Millipore India Ltd. (supra). Moreover, Group insurance of the employees against accident or sickness is the requirement of Section 38 of the Employees State Insurance Act, 1948, which a manufacturer has to comply with and accordingly, this service would have to be treated as a service used in or in relation to the manufacture of final products whether directly or indirectly, as a manufacturer would not be allowed to carry on manufacturing operations unless he complies with the requirements of Section 38 of the Employees State Insurance Act, 1948.
10. Coming to the second ground on which the Commissioner has disallowed the cenvat credit in respect of the insurance services, the Commissioners view is that the amendment to Rule 2(l) of Cenvat Credit Rules, 2004 w.e.f. 1.4.2004 is a clarificatory amendment and hence, the amended provisions would have retrospective applications. The reasoning in this regard given by the Commissioner is the judgement of the Larger Bench of the Tribunal in the case of Vandana Global Ltd. (supra) wherein the Tribunal has held amendment to Rule 2 (k) of Cenvat Credit Rule, 2004 by adding Explanation-II to be of clarificatory nature. But the Tribunal in case of Vandana Global Ltd. (supra) had given detailed reasons explaining why the amendment to Rule 2 (k) has to be treated as of clarificatory nature while in this case, the Commissioner, other than citing the judgements of the Tribunal in the case of Vandana Global Ltd. (supra) and J & K Synthetics reported in 1996 (88) ELT 785 has not given any reason whatsoever as to how the deletion of the expression activities relating to business in Rule 2 (1) and its amendment w.e.f. 1.4.2011 has to be treated as of clarificatory nature and hence, having retrospective validity.
11. In view of the above discussion, we hold that the impugned order is not only sustainable but is an absurd order passed without any application of mind. What we find more disturbing is that though the judgment of Tribunal and High Court with regard to eligibility of various insurance service for Cenvat Credit:-
(a) Judgement of larger Bench of Tribunal in case of CCE Mumbai-iv Vs. GTC Industries Ltd. reported in 2008(12) STR-468 (Tri.LB) and Tribunals judgments in cases of Finolex Cable Ltd. Vs CCE reported in 2009(14) STR-303 (Tri. Mum.) and Multipex India Ltd. reported in 2009 (13) STR-616 (Tri. Bag.) with regard to legibility for cenvat credit of the Insurance of plant and machinery; and
(b) judgments of Honble Karnataka High Court in case of CCE Bangalore-III Vs. Stanzen Toyotetsu India (P) Ltd., reported in 2011(23) STR-444(Kar.) and CCE Bangalore Vs. Micro Labs Limited reported in 2011(24) STR-272 (Kar.), in respect of eligibility for cenvat credit of employees group insurance;
had been cited before the Commissioner (as mentioned in para 11 of the order-in-original), he has either ignored these judgments and not given any findings as to how these judgments are not applicable or has made observations contrary for the judgments of the Tribunal/High Court and has decided the question of eligibility of various insurance services for Cenvat credit on the basis of his own interpretation of Rule 2 (l) of Cenvat Credit Rules, 2004 observing that amendment to this rule w.e.f. 01.04.2011 is a retrospective amendment and the insurance services, in question, have no nexus with manufacture of final products. The conduct of the Learned Commissioner amounts to clear judicial indiscipline and irresponsible exercise of adjudication function. Such exercise of adjudication powers in blatant violation of Apex Courts judgment in case of Union of India Vs. Kamlakshi Finance Corporation Ltd., reported in 1991 (55) ELT-433 (SC) requires to be censured as, if allowed to go unchecked, would lead to collapse of entire dispute resolution mechanism. Such adjudication orders burden not only the Assessee who has to incur avoidable expenses on challenging such order before the Courts/Tribunal, but also impose clearly avoidable costs for the Government, as the Tribunals/Courts valuable time is also consumed in hearing appeals against such clearly erroneous and indisciplined orders, which should never have been passed.
12. In view of the above discussion, we set aside the impugned order and allow the appeals. We also impose costs of Rs.5,000/- on the Respondent which would be payable to appellant/assessee. The Registry is also directed to enclose a copy of this order to the Chairman, Central Board of Excise & Customs, for information and consideration.
[operative part already pronounced in open court] ( Justice G. Raghuram ) President ( Rakesh Kumar ) Member (Technical) Ckp.
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