Custom, Excise & Service Tax Tribunal
Reliance Industries Ltd vs Commissioner Of Ce & St (Ltu) on 26 August, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI COURT No. I Appeal No. ST/42 to 49/11 (Arising out of Order-in-Appeal No. RT/56-62/LTU/MUM/2010 dated 3.11.2010 passed by Commissioner of Central Excise and Service Tax (Appeals), Mumbai) For approval and signature: Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical) ================================================
1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the : No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Seen of the Order?
4. Whether Order is to be circulated to the Departmental : Yes authorities?
Reliance Industries Ltd.
Appellant Vs. Commissioner of CE & ST (LTU) Mumbai Respondent Appearance:
Shri J.C. Patel, Advocate, Shri Vipin Kumar Jain, Advocate Shri Vishal Agarwal, Advocate for appellant Shri R.K. Das, Dy. Commr (AR) for respondent CORAM:
Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical) Date of Hearing: 26.08.2015 Date of Decision: ORDER NO..
Per: M.V. Ravindran All these appeals are disposed of by a common order as they raise the same question of law and facts.
2. The relevant facts that arise for consideration are during the period July 2006 to December 2009, various factories of the appellant had availed CENVAT credit in respect of services like construction service, repairs and maintenance service, security service, manpower recruitment and supply service, works contract service etc. It was noticed by the lower authorities that these services on which credit was availed of service tax paid were received in their residential township constructed for the employees. Coming into such a conclusion that the appellant had availed ineligible CENVAT credit, various show-cause notices were issued proposing to recover the ineligible credit along with interest and for imposing penalties. Appellant contested the show-cause notices on merits and also on limitation. Adjudicating authority did not agree with the contentions raised and confirmed the demands raised along with the interest and also imposed penalties. Aggrieved by such an order an appeal was preferred. The first appellate authority after following due process of law, rejected the same.
3. Learned Counsel appearing on behalf of the appellant would take us through the entire case records and both the orders of the lower authorities. It is his submission that undoubtedly the CENVAT credit availed by the appellant on the service tax paid is in respect of the services rendered at residential complex/township of the factories. It is his further submission that these residential complex/townships were attached with the factories and the said factories are situated at remote area. To ensure smooth functioning of factories, they were required to provide residential premises/quarters to the employees and such quarters were constructed and maintained by the Company and the cost was debited to their profit and loss account as expenses. Further he explained the difference between the definition of input and input services and stated that in case of input services related to business activity, it would be eligible for CENVAT credit on any services which is in relation to their business activity. Learned Counsel also submitted that the records of the accounts of the appellant were audited and the Cost Accountant certificate pertaining to Vodadara, Dahej, Patalganga, Allahabad and Nagothane manufacturing Division was indicating that all the expenses incurred for construction of township close to their factory premises are considered as cost of production of the finished goods and the same formed a part of cost of production in cost audit reports. He would submit that Cost Accountants certificate was produced before the adjudicating authority as also before the first appellate authority and both the lower authorities have not disputed the said Cost Accountants certificate nor the authorities contradicted the said certificate in any way. He would submit that the Hon'ble High Court in the case of Coca Cola India Pvt. Ltd. 2009 (15) STR 657 (Bom), in paragraph 34, 38 and 43, has specifically laid down the law that any expenditure incurred by an assessee and if it forms a part of the price of the final product of the assessee on which excise duty is paid, CENVAT credit must be allowed on the said service tax, if the manufacturer can demonstrate that the said expenses is in relation to the manufacture of final product. He would submit that the adjudicating authority has relied upon the judgement of the Honble High Court of Bombay in the case of CCE vs. Manikgarh Cement 2010 (20) STR 456 (Bom) for the proposition that input service which are utilized for repair, maintenance and civil construction used in residential colony is not eligible to be availed as CENVAT credit. He would submit that the Honble High Court in that case has not recorded any finding of fact which would indicate that the cost of the construction and maintenance of residential colony was debited as expense and forms a part of cost or price of the finished goods. He would submit that the ratio of the judgement in the case of Manikgarh Cement (supra) would apply in particular fact of that case and cannot be applied or relied upon in support of a proposition that it did not decide. He would also submit that the Honble Supreme Court in the case of Ispat Industries - 2006 (202) ELT 561 (S.C.) has held so. He also relied upon the judgement of the Apex Court in the case of Mittal Engineering Works (P) Ltd. - 1996 (88) ELT 622 (S.C.) for the same proposition.
4. Learned D.R. after taking us through the order-in-appeal would submit that appellant is not denying that the CENVAT credit availed is in respect of the services which were rendered at the residential colony/township attached to the factories. He would submit that the Honble Bombay High Court in the case of Manikgarh Cement (supra) was specifically looking on the very same issue. He would draw our attention to the paragraph 8 of the said judgement and submit that the Honble High Court has held that establishing residential colony for the employees can be a welfare activity undertaken while carrying out the business and such expenditure may be allowed under Income Tax Act. However, to qualify as input service the activity must have nexus with business with the assessee and expression relating to business in Rule 2(l) of Cenvat Credit Rules, 2004 refers to activities which are integrally related to business activity of the assessee and not welfare activities. He would submit that the Honble High Court has applied the ratio as laid down by the Honble Apex Court in the case of Maruti Suzuki Ltd. - 2009 (240) ELT 641 (S.C.).
5. In a rejoinder learned Counsel submit that the judgement of the Honble Apex Court in the case of Maruti Suzuki Ltd (supra) has referred the matter to the Larger bench of the Apex Court and the decision is not yet delivered.
6. We have considered the submissions made at length by both sides and perused the records.
7. The issue involved in this case is regarding availment of CENVAT credit of the service tax paid on various services which were undoubtedly utilized for residential colony/township of the appellant factories. It is the case of the Revenue that such credit is incorrectly availed while the assessees claim is that having included expenses in the cost of production they are entitled to avail CENVAT credit. Undisputed facts are that appellant has various factories which are situated in remote areas. In order to run the factories smoothly, without any stoppages, they had constructed township/residential colonies near factory premises and accommodated the employees working in such factories. It is a fact, that appellant had produced Cost Accountants certificate indicating that the expenses incurred for setting up of the township/colony and various expenses incurred for maintenance and upkeep of such factory was charged to balance sheet/profit and loss account as expenses and the said expenses were considered as cost of production was produced before the adjudicating authority, as well as the first appellate authority and both the lower authorities did not controvert the said certificate in any way nor both the lower authorities have directed for special audit of the records of the appellant as provided under Section 14AA of the Central Excise Act, 1944.
7.1 On such background we find that the expenses which were incurred by the appellant for setting up of the township/colony for their employees is expenses which is in relation to the business activity of the appellant which is manufacturing final products i.e. petroleum products. It is also noted that while arriving at the price of the finished goods manufactured in these factory premises appellant had considered the expenses incurred towards the residential township/colony as expenses and included the same while arriving at the cost of production of the final products manufactured in those factory premises. It would mean that setting up of residential colony/township is in relation to the business activity of the appellant which is manufacturing of petroleum products and clearing the same on payment of excise duty. The Central Excise duty paid by the appellant on their finished goods is on advalorem which has been arrived at after considering all the expenses that had gone into manufacturing of the finished goods which included the cost of setting up of township and the residential colony.
7.2 At this juncture we would like to record a little history as to the levy of Central Excise and the reasons for extending credit of Central Excise duty.
7.3 The duty of excise leviable under Section 3 of the Central Excise Act, 1944 on all excisable goods produced or manufactured in India is statutorily called the Central Value Added Tax. The fact that Central Excise duty leviable under concept of value added tax has also been recognised by the Apex Court in a judgement in the case of All India Federation of Tax Practitioners vs Union of India 2007 (7) SCC 527.
7.4 In line with this concept of excise duty being leviable on the value addition alone the concept of Modvat/Cenvat credit was introduced. Initially in the year 1986 credit was allowed on inputs which were used in our in relation to manufacture of the final products; thereafter in the year 1994, credit was allowed on capital goods which were used in the factory of production of the excisable goods and thereafter in the year 2004 and thereafter in the year 2004 credit was allowed on inputs and input services used in or in relation to manufacture of the final products. It can be clearly seen from the legislative pattern that the intention of the legislature is to provide for credit in respect of the inputs, capital goods and input services which are used in or in relation for manufacture of the final products and that duty is paid only on the value addition which takes place. This intent of the legislature clearly comes out in a press note dated 12.8.2004 which was issued by the Ministry of Finance when the draft Cenvat Credit Rules, was circulated for inviting comments from trade and industry. The said press note categorically stated that in principle credit of Tax on those taxable services would be allowed that go to form a part of the assessable value on which excise duty is charged. This press note has been taken cognizance of by the Honble High Court in the case of Coca Cola India Pvt Ltd vs CCE 2009 (242) ELT 168 when this Honble High Court held that the burden of service tax or duty should be borne by the ultimate consumer and not by any intermediary i.e. manufacturer or service provider. In order the avoid the cascading effect benefit of cenvat credit on input stage of goods and services must be allowed, more particularly, if the same form part of cost of the final product on which excise duty is paid, in other words credit on input must be allowed on the expenditure incurred by the assessee which form a part of the assessable value of the final product. In coming to this conclusion the Honble High Court not only took cognizance of press note dated 12.8.2004 issued by the Ministry of Finance but also CBEC Circular No.80/10/2004-ST dated 17.9.2004 and circular No.56/5/2003-ST dated 25.4.2003 wherein it was clarified that service tax like Cenvat is basically a value added tax which is operated through a credit mechanism. The Honble Court also took cognizance of the findings of the Apex Court in the case of All India Federation of Tax Practitioners, wherein it was held that excise duty is a tax on value addition on goods. The Court also took cognizance of the guidelines issued by the OECD as per which Value added taxes or taxes on consumption, was paid ultimately by the final consumer and that the same functions on the principle that the business should not bear the burden of taxes and that since there are mechanism and place that allow for a refund of tax levied on the intermediary transaction between firms. The system is based on tax collection in a stage process, with successive tax payers entitled to deduct input tax on purchases and account for output, tax on sales. Each business in the supply chain takes part in the process of controlling and collecting the tax, remitting the proportion of tax corresponding to its margin i.e. on the difference between the VAT paid out to the suppliers and the VAT charged to the customers. The relevant findings of the Honble High Court are extracted herein below for ease of reference.
12.?Chapter V of the Finance Act, 1994 referred to Service Tax. It defined assessee to mean a person responsible for collecting the service tax. Under the Act, service tax was defined to mean tax chargeable under Chapter V. Under the Act, taxable service was defined to mean any service provided by a stock-broker to an investor in connection with the sale or purchase of securities listed on a recognized stock exchange; services rendered to a subscriber by the telegraph authority; and services rendered by an insurer to a policy holder. Under the Act, it was clarified that words and expressions not defined in Chapter V but used therein shall bear the same meaning as given in the Central Excise Act, 1944. Section 66 stated that service tax shall be levied at the rate of five per cent of the value of taxable services provided to any person by the service provider who was responsible for collecting the service tax. It was similar to Section 3 of Central Excise Act, 1944. Section 67 dealt with valuation of taxable services. Section 68 dealt with collection and recovery of service tax. Section 71 dealt with assessment. Section 72 dealt with best judgment assessment. Section 73 dealt with value of taxable services escaping assessment. Section 83 inter alia stated that Section 9C, 9D, 11B etc. of the Central Excise Act shall apply also to collection and recovery of service tax. Further, it may be stated that the administration of service tax is given to the authorities under the Central Excise Act.
Relevant Provisions of the Constitution of India :
14.?The relevant provisions of the Constitution of India are as follows :
Article 246. Subject-matter of laws made by Parliament and by the Legislatures of States. (1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the Union List.
xxx Article 265. Taxes not to be imposed save by authority of law. No tax shall be levied or collected except by authority of law.
xxx Article 268A. Service tax levied by Union and collected and appropriated by the Union and the States. (1) Taxes on services shall be levied by the Government of India and such tax shall be collected and appropriated by the Government of India and the States in the manner provided in clause (2).
(2)?The proceeds in any financial year of any such tax levied in accordance with the provisions of clause (1) shall be
(a) collected by the Government of India and the States;
(b) appropriated by the Government of India and the States, in accordance with such principles of collection and appropriation as may be formulated by Parliament by law.
Article 269. Taxes levied and collected by the Union but assigned to the States. (1) Taxes on the sales or purchase of goods and taxes on the consignment of goods shall be levied and collected by the Government of India but shall be assigned and shall be deemed to have been assigned to the States on or after the 1st day of April, 1996 in the manner provided in clause (2).
Explanation. For the purposes of this clause, -
(a) the expression taxes on the sale or purchase of goods shall mean taxes on sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce;
(b) the expression taxes on the consignment of goods shall mean taxes on the consignment of goods (whether the consignment is to the person making it or to any other person), where such consignment takes place in the course of inter-State trade or commerce.
(2) The net proceeds in any financial year of any such tax, except in so far as those proceeds represent proceeds attributable to Union territories, shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which that tax is leviable in that year, and shall be distributed among those States in accordance with such principles of distribution as may be formulated by Parliament by law.
(3) Parliament may by law formulate principles for determining when a sale or purchase of, or consignment of, goods takes place in the course of inter-State trade or commerce.
xxx Article 276. Taxes on professions, trades, callings and employments. (1) Notwithstanding anything in article 246, no law of the Legislature of a State relating to taxes for the benefit of the State or of a municipality, district board, local board or other local authority therein in respect of professions, trades, callings or employments shall be invalid on the ground that it relates to a tax on income. (2)?The total amount payable in respect of any one person to the State or to any one municipality, district board, local board or other local authority in the State by way of taxes on professions, trades, callings and employments shall not exceed two thousand and five hundred rupees per annum. (3)?The power of the Legislature of a State to make laws as aforesaid with respect to taxes on professions, trades, callings and employments shall not be construed as limiting in any way the power of Parliament to make laws with respect to taxes on income accruing from or arising out of professions, trades, callings and employments. Entry No. 92C of List I of the Seventh Schedule to the Constitution is as follows :
92C.?Taxes on services. Entry Nos. 53, 60 and 62 of List II of the Seventh Schedule to the Constitution are as follows :
53. Taxes on the consumption or sale of electricity. xxx 60. Taxes on professions, trades, callings and employments. xxx 62.?Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling. Entry 38 of List III of the Seventh Schedule to the Constitution is as follows :
38. Electricity. Arguments :
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31.?Learned counsel for the appellants in support of his argument that the words professions and services are synonymous for the purposes of deciding the question of legislative competence of the State Legislature under Entry 60 List II, placed heavy reliance on Article 276, which has been quoted hereinabove.
32.?Article 276 corresponds to Section 142A of the GOI Act, 1935. However, under a large number of laws enacted before the 1935 Act came into force, power was conferred on local Governments and local authorities to impose taxes on certain activities which broadly came under the Heads Taxes on professions, trades etc. on one hand and Taxes on income on the other hand. This resulted in the enactment of Section 142A by British Parliament, which saved the power conferred by pre-existing laws to impose tax on professions, callings etc. but limited the amount payable to a specified amount. At that time, it was Rs. 50.00, which was the tax payable on profession. That was in 1935. Article 276 was, therefore, preceded by Section 142A of the GOI Act, 1935. The limit has been subsequently enhanced. The States power to tax professions etc. is founded on Entry 60 of List II and the purpose of Article 276 is not to amend that power but to provide that such tax on professions, trades etc. shall not be invalidated on the ground that it relates to a tax on income. Once the State seeks to exercises its power under Entry 60 List II, it has to comply with the provisions of Article 276. Where, however, the exercise of power by the State overlaps with its power under some other Entry, then the limitation under Article 276(2) shall have no relevance. Thus, Article 276 will not apply to levy of tax on circumstances and property which is referable to Entry 49 and Entry 60 of List II and amongst other Items to Entry 58, taxes on cinematograph shows, taxes on entry of goods. A tax on profession can be imposed if a person carries out a profession whereas a tax on income can be imposed only if there is income. Therefore, a tax on profession is irrespective of the question of income. Article 276 enables the State Legislature to make laws for imposition of taxes on profession, for the benefit of the State, Municipality, District Board etc. by stating that such law shall not be invalid on the ground that it relates to a tax on income. There is a distinction between a tax on professions, trades, callings and employments and a tax on income arising out of such professions, trades etc. In the former case, it will have to be paid by any person practising that trade, profession etc., whether he derives any income from it or not. This is where the above example of pensioner becomes relevant. A pensioner does not carry out any profession, trade, business or calling. A tax on profession is not a tax on employment. At the time, the tax is levied, the pensioner is not in employment, but he receives an amount of pension that receipt constitutes his income though it might be for past services from an employment.
33.?As stated above, every Entry in the Lists has to be given a schematic interpretation. As stated above, Constitutional law is about concepts and principles. Some of these principles have evolved out of judicial decisions. The said test is also applicable to taxation laws. That is the reason why the Entries in the Lists have been divided into two Groups, one dealing with general subjects and other dealing with taxation. The entries dealing with taxation are distinct entries vis-a-vis the general entries. It is for this reason that the doctrine of pith and substance has an important role to play while deciding the scope of each of the entries in the three Lists in the Seventh Schedule to the Constitution. This doctrine of pith and substance flows from the words in Article 246(1), quoted above, namely, with respect to any of the matters enumerated in List I. The bottom line of the said doctrine is to look at the legislation as a whole and if it has a substantial connection with the Entry, the matter may be taken to be legislation on the topic. That is why due weightage should be given to the words with respect to in Article 246 as it brings in the doctrine of pith and substance for understanding the scope of legislative powers. Competence to legislate flows from Articles 245, 246 and the other Articles in Part XI. A legislation like Finance Act can be supported on the basis of a number of Entries. In the present case, we are concerned with the Constitutional status of the levy, namely, service tax. The nomenclature of a levy is not conclusive for deciding its true character and nature. For deciding the true character and nature of a particular levy, with reference to the legislative competence, the court has to look into the pith and substance of the legislation. The powers of Parliament and State Legislatures are subject to Constitutional limitations. Tax laws are governed by Part XII and Part XIII. Article 265 takes in Article 245 when it says that the tax shall be levied by the authority of law. To repeat, various entries in the Seventh Schedule show that the power to levy tax is treated as a distinct matter for the purpose of legislative competence. This is the underlying principle to differentiate between the two Groups of entries, namely, general entries and taxing entries. We are of the view that taxes on services is a different subject as compared to taxes on professions, trades, callings etc. Therefore, Entry 60 of List II and Entry 92C/97 of List I operate in different spheres.
(vi)?Discussions of Judgments cited on behalf of the appellants :
34.?In the case of Godfrey Phillips India Ltd. and Anr. v. State of U.P.and Ors. reported in (2005) 2 SCC 515 the assessees/appellants, who were either manufacturers, dealers or sellers of tobacco, had challenged the levy of luxury tax on tobacco and tobacco products by treating them as luxuries within the meaning of the word in Entry 62 of List II of the Seventh Schedule to the Constitution of India. Uttar Pradesh Tax on Luxuries Act, 1995 and certain other State enactments imposed luxury tax on tobacco by treating it as luxury within the meaning of the word in Entry 62 of List II. It was held by the Constitution Bench of this Court that the word luxuries in Entry 62, List II refers to activities of enjoyment, indulgence or pleasure and since none of the impugned enactments had sought to tax any activity and since the impugned enactments sought to tax goods as luxuries it was held that the said U.P. Tax on Luxuries Act, 1995, Andhra Pradesh Tax on Luxuries Act, 1987 and West Bengal Luxury Tax Act, 1994 were beyond the legislative competence of the State Legislature. In this connection, it was observed, vide para 57, by the Constitution Bench of this Court that a tax on a thing or goods can only be with reference to a taxable event but there is a distinction between such a tax and a tax on the taxable event. In the first case, the subject-matter of tax is the goods and the taxable event is within the incidence of the tax on the goods. In the second case, the taxable event is the subject-matter of tax itself. In our view, para 57 supports the reasoning given by us hereinabove. As stated above, service tax is a value added tax. Value addition is on account of the activity like planning, consultation, advising etc. It is an activity, which provides value addition as in the case of manufacturer of goods, which attracts service tax. In the present case, tax falls on the activity which is the subject-matter of service tax. In other words, we are substituting the word service in place of goods by applying the principle of equivalence. Under the Act, the Taxable Event is each exercise undertaken by the service-provider in giving advice on tax planning, auditing, costing etc.. It is the said principle of equivalence which equates service tax to the Central Excise Duty, one taxes the provision of services and other production of goods. See para 2.14 of the recommendations made by Tax Reforms Committee headed by Dr. Chelliah which has stated that from the economic point of view, there is little difference between the taxation of commodities and taxation of services.
35.?In the case of International Tourist Corporation and Ors. v. State of Haryana and Ors. reported in (1981) 2 SCC 318 the appellants were transport operators. The State of Haryana levied a tax on passengers and goods under the Haryana Passengers and Goods Taxation Act, 1952. The appellants questioned the vires of Section 3(3) insofar as the levy of tax on passengers and goods carrying by their vehicles plying along the National Highway. It was urged on behalf of the appellants that there was nothing in the Constitution to prevent Parliament from combining its power to legislate with respect to any matters enumerated in Entries 1 to 96 of List I with its power to legislate under Entry 97 of List I and, if so, then the power to legislate with respect to tax on passengers and goods carried on National Highway was within the exclusive legislative competence of Parliament and, therefore, Section 3(3) of Haryana Passengers and Goods Taxation Act, 1952 was beyond the legislative competence of the State Legislature. This argument was rejected by the Division Bench of this Court, which took the view that before exclusive legislative competence can be claimed for Parliament by resort to Entry 97 List I, the legislative competence of the State Legislature must be established. Entry 97 itself was specific. In that, a matter can be brought under that Entry only if it is not enumerated in Lists II or III, and in the case of a tax, if it is not mentioned in either of those Lists. We do not dispute the above proposition. That proposition is well settled. This Court is concerned with the application of the said principle in this case. In the present matter, as stated hereinabove, the State Legislature is empowered to levy tax on professions, trades, callings etc., as such and, therefore, the word services cannot be read as synonymous to the word profession in entry 60. Therefore, tax on services do not fall under Entry 60 List II. That, service tax would fall under Entry 92C/Entry 97 of List I.
36.?In the case of Sodan Singh and Ors. v. New Delhi Municipal Committee and Ors. reported in (1989) 4 SCC 155 the appellants claimed a right to engage in trading business on the pavements of Delhi city. In that context, it was held by the Constitution bench of this Court that, the guarantee under Article 19(1)(g) extends to practise any profession, or to carry on any occupation, trade or business. In that case, the word profession had been defined to mean an occupation carried on by virtue of specialized qualifications, personal qualifications, training or skill. We do not find any relevance of this judgment to the present case. As stated above, we are concerned with interpretation of legislative heads under the three Lists in the Seventh Schedule to the Constitution. As stated above, we have to go by the schematic interpretation of those entries. Moreover, we are concerned with a distinct taxing entries and not general entries. Hence, the judgment in the case of Sodan Singh (supra) has no application to the present case.
37.?In the case of Tamil Nadu Kalyana Mandapam Assn. v. Union of India and Ors. reported in (2004) 5 SCC 632 the Division Bench of this Court held that service tax is an indirect tax and is to be paid on all the services notified by the Government of India. It has been further held that the said tax is on service and not on the service-provider. In paragraph 58 it has been observed that under Article 246(1) of the Constitution, Parliament has exclusive powers to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule to the Constitution. As per Article 246(3), the State Government has exclusive powers to make laws with respect to matters enumerated in List II (State List). In the said judgment, it has been held that service tax is made by Parliament under Entry 97 of List I. In our view, therefore, the point in issue in the present case is squarely covered by the judgment of this Court in the case of Tamil Nadu Kalyana Mandapam (supra). Of course, in the present case, we are not concerned with the services rendered by a Mandap-keeper, who performs what is called as property based services. In this case, we are concerned with performance based services. However, both the categories fall within the ambit of the word services.
38.?In the case of Gujarat Ambuja Cements Ltd. and Anr. v. Union of India and Anr. reported in (2005) 4 SCC 214 it was held that service tax is not a tax on goods or on passengers but it was on the transportation itself and, therefore, it falls under residuary power of Parliament under Entry 97 of the Seventh Schedule to the Constitution. It was further held that service tax is not a levy on passengers or goods but on the event of service in connection with the carriage of goods and, therefore, it was not possible to hold that the Act was in pith and substance within the States exclusive powers under Entry 56 of List II. It was held that service tax came within Entry 97 of List I. In the present case, as stated above, we are concerned with Entry 60 of List II. As stated above, service tax is on performance based services itself. It is on professional advice, tax planning, auditing, costing etc. On each of the exercise undertaken tax becomes payable. Therefore, the above judgment has no application.
39.?In the case of Bharat Sanchar Nigam Ltd. and Anr. v. Union of India and Ors. reported in (2006) 3 SCC 1 the question which arose for determination before this Court was whether a telephone service (mobile or fixed) would attract liability to service tax. It was held that in order to attract the liability under the service tax there has to exist what is called as goods. Since goods in question consisted of electromagnetic waves or radio frequencies, which carries voice, messages or other data, a telephone service was nothing but a service. We are not concerned with such a controversy in the present case. In the present case, we are concerned with the legislative competence of Parliament to legislate in respect of service tax under Entry 97/92C of List I. In the present case, we are concerned with the period covered by the Finance Acts of 1994 and 1998. However, learned counsel for the appellants has relied upon para 82 of the said judgment in the case of Bharat Sanchar Nigam Ltd. (supra) in which it is observed that the residuary powers of Parliament under Entry 97 of List I cannot swamp away the legislative Entries in the State List. Entry 54, List II read with Article 366(29-A), therefore, cannot be whittle down by referring to the residuary provision. As stated above, we are concerned with the application of the above principles. In the present case, as stated above, we are concerned with the Constitutional status of the levy. As stated above, we have to examine the nature of the levy. We have done so and we have come to the conclusion that the word profession in Entry 60 List II cannot be made synonymous with the word service and, therefore, service tax would fall under the residuary Entry 97 read with Entry 92C after 2003. This position is also made clear by Article 268A, inserted by the Constitution (Eighty-eighth Amendment) Act, 2003. 7.5 The principle of law that the services which form a part of the assessable value on which excise duty is discharged, would be available as cenvat credit has also been accepted by the Honble Karnataka High Court in the Case of CCE vs Milipore India P Ltd reported on 2012 (26) STR 514 wherein, it was held that if service tax is paid in respect of any of the service which for a part of the cost of the final product, certainly the assesse would be entitled to cenvat credit of the tax so paid. In the Appellants own case this Tribunal has in its Order No. A/225/14/EB/C-II dated 3.3.2014 held that if the cost of various services availed if it forms part of the assessable value of the goods manufactured and sold by the Appellant, there was no reason to deny cenvat credit of the duty/taxes paid on various inputs/inputs services availed, for undertaking the business operations. The ratio laid down by the Honble Tribunal has been accepted by the revenue and no appeal has been field against the same.
7.6 Insofar as the present facts of the case is considered it is not in dispute that the credit of service tax has been availed on services such as security services, construction services, works contract services, maintenance and repair services, etc, which were received and used in the residential townships located near the plant site and that these costs formed a part of the assessable value on which excise duty was discharged.The Appellant has in its reply specifically contended that the factory township related expenses form a part of its cost of production as per CAS-4 and that it was accordingly eligible to avail credit of the tax paid. The submissions made by the Appellant in their reply, reads as under:
The fact that township related expenses are identically contended with eh manufacture of goods is also recognized by the principles of costing. As per Costing Standards-4, all non-monetary benefits extended to factory employees are regarded either as direct wages and salaries or else work overheads/production overheads or administrative overheads relating to production activity and form part of the cost of manufacture of final products. This contention of the Appellant had not been rebutted nor disputed by the Revenue either during the course of adjudication or at the appellate stage. There being no dispute that the factory township expenses incurred form a part of the cost of production and consequently applying the ratio laid down by the Honble Bombay High Court in the case of Coca Cola and that of the Karnataka High Court in the case of Milipore India Pvt Ltd., credit of the service tax paid on such services is admissible as the said services used by the manufacturer indirectly, in relation to manufacture of the final products. It is relevant to note here that factories are generally set up at remote locations which are several 100 kilometres away from big towns and cities. Given this fact most companies are compelled to create an integrated township with the factory, either in the same campus of the factory or at some distance so that they are able to attract and retain qualified professionals as also workmen at such remote locations. Without such townships, these companies would find it virtually impossible to conduct their business operations as they would not be able to arrange for the required personnel for undertaking the business operations. In fact in many locations where a factory is located in an extremely remote location such townships also have in house schools, hospitals, Mall, etc., and that there can be no doubt that such townships are set up in relation to the ultimate activity of manufacture as without such townships being in place, competent personnel will not available for operation of the manufacturing activity.
8. We find that the learned Counsel was correct in bringing to our notice that the Honble High Court of Bombay in the case of Coca Cola India Pvt. Ltd. (supra) in paragraphs No.34, 38 and 43 held as under:-
34.?It is therefore, clear that the burden of service tax must be borne by the ultimate consumer and not by any intermediary i.e. manufacturer or service provider. In order to avoid the cascading effect, the benefit of cenvat credit on input stage goods and services must be ordinarily allowed as long as a connection between the input stage goods and services is established. Conceptually as well as a matter of policy, any input service that forms a part of the value of the final product should be eligible for the benefit of Cenvat Credit.
Revenues contention, if accepted as in the present case, would go against the very core and genesis of Cenvat credit scheme. In our opinion, such an interpretation would be plainly unacceptable.
38.?Service tax therefore, paid on expenditure incurred by the assessee on advertisements sales promotion, market research will have to be allowed as input stage credit more particularly if the same forms a part of the price of final product of the assessee on which excise duty is paid. In other words, credit of input service must be allowed on expenditure incurred by the assessee which form a part of the assessable value of the final product. If the above is not done, as sought to be done by the department in the present case, it will defeat the very basis and genesis Cenvat i.e. value added tax.
43.?What follows from the above discussion is that the credit is availed on the tax paid on the input service, which is advertisement and not on the contents of the advertisement. Thus it is not necessary that the contents of the advertisement must be that of the final product manufactured by the person advertising, 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 manufacture of the final product. The manufacturer thereby can avail the credit of the service tax paid by him. Once the cost incurred by the service has to be added to the cost, and is so assessed, it is a recognition by Revenue of the advertisement services having a connection with the manufacture of the final product. This test will also apply in the case of sales promotion. 8.1 It can be seen from the above reproduced relevant paragraphs from the judgement of the Honble High Court the ratio is very clear in as much the CENVAT credit has to be allowed in respect of the service tax which has been paid and which forms a part of the value of the finished goods on which excise duty is charged.
8.2 The reliance placed by the learned D.R. in the case of Manikgarh Cement (supra) needs to be addressed by us as the lower authorities have also relied upon the very same judgement to hold against the appellant herein. On perusal of the judgement of the Honble High Court of Bombay in the case of Manikgarh Cement (supra) we find that the judgement of the Honble High Court in the case of Coca Cola India Pvt. Ltd. (supra) was not cited before them. Be that as it may, we also find that in the narration of the facts as recorded by the Honble High Court there is nothing which indicates that the assessees Counsel had urged an argument that the cost of setting up of residential township/colony and subsequent maintenance was included in the cost of the final product and considered for arriving at assessable value. In the absence of any such proposition from the Counsel, their Lordships had taken a view which is correct in the facts and circumstances of that case, while the case in hand before us, the issue seems to be now squarely covered by the judgement of the Honble High Court of Bombay in the case of Coca Cola India Pvt. Ltd. We find strong force in the contentions raised by the learned Counsel that the Honble High Court in the case of Manikgarh Cement (supra) had not decided the issue, as it was never raised before them i.e. cost of setting up of the township/colony and the maintenance cost thereof is included in the cost of production for arriving at assessable value of the final products. It is settled law that a decision is an authority only on the proposition that it decides and not what was not urged or considered therein or what can be said to be logically flowing these from {see Mittal Engineering Works (P) Ltd. (supra), Fiat India Pvt. Ltd. 2012 (283) ELT 161 (SC).} In view of this we hold that the ratio as laid down by the Honble High Court of Bombay in the case of Coca Cola India Pvt. Ltd. (supra) is specifically on the point raised by the appellant before the lower authorities as well as before us.
8.3 In view of the foregoing and in facts and circumstances of this case, we hold that the impugned order is liable to be set aside and we do so.
9. The impugned order is set aside and the appeal is allowed with consequential relief, if any.
(Pronounced in Court on..) (C.J. Mathew) Member (Technical) (M.V. Ravindran) Member (Judicial) nsk ??
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1 25 Appeal No. ST/42 to 49/11