whether cenvat credit denied if service provided outside the manufacturing premises?

PJ/CASE LAW/2015-16/2957

Case: MAHANAGAR GAS LTD. versusCOMMISSIONER OF CENTRAL EXCISE, MUMBAI-II

Citation:2015 (40) S.T.R. 586 (Tri. - Mumbai)

Brief Fact:The issue involved in this case is regarding the Cenvat credit of service tax paid on the services for inspecting vehicles providing MS plates at regional transport office at Andheri, Tardeo and Ghatkopar. It is the case of the revenue that the services rendered by the service provider are not connected with the manufacturing activity of the appellant i.e. CNG and hence they are not input services, as also the definition of “input service” as per Rule 2(l) of Cenvat Credit Rules, 2004 does not permit the appellant to avail Cenvat credit on such services. Both the lower authorities have held against the appellant.

Appellant contention: Ld. advocate appearing on behalf of the appellant submitted that statutorily appellant has to fill the Compressed Natural Gas (CNG) in the tanks or cylinders fitted in vehicle subject to condition that these cylinders are tested for hydrostatic test or hydrostatic stretch test as the case may be. It is her submission that the appellant is responsible for the delivering the CNG into the cylinders only if they are approved as per the standard fixed by the Chief Controller of Explosives and in order to comply with such conditions instead of appointing the testing agency at different locations, the testing agency is appointed at Regional Transport Office and the testing charges and certification charges are paid by the appellant, as a policy no vehicle is filled with CNG unless the vehicle owner produces a metal label indicating the cylinder have undergone hydrostatic test or hydrostatic stretch test as the case may be. It is her submission that the services which are received are in respect of the activities relating to business as without such a test sale of CNG cannot take place. She would submit that the Apex Court in the case of Good Year Ltd. - 1997 (95)E.L.T.450 (S.C.) has laid down a law which is that the expression “such as” means that the stipulated activities that follow the said expression in the definition are only illustrations and not limitations, she would then submit that the expression “in relation to” used in Rule 2(l) has a wider connotation, as held by the Apex court in the case of Solaris Chemtech Ltd. - 2007 (214)E.L.T.481 (S.C.). Subsequently, she would submit that the definition of “input service” needs to be read keeping in mind the interpretation given by the apex court in respect of the words “as such” and “in relation to”. It is her submission that compression of CNG is a manufacturing activity and every retail outlet which is being used to dispense/vend the CNG is registered with the Central Excise department and Central Excise duty is paid on the gas which is vended, the service of certifying the cylinder is integrally connected with the business activity of manufacturing and marketing of CNG. It is also her submission that input service need not be performed within the factory premises, as is the allegation in the show-cause notice, is the ratio decided by the Tribunal in the case of CCE v. Deloitte Tax Services (I) P. Ltd. - 2008 (11)S.T.R.266, Brakes India Ltd. 2009 (13)S.T.R.684, CCE v. Hindustan Coca Cola Beverages P. Ltd. - 2008 (10)S.T.R.495. It is also her submission that the cost of testing the cylinder is included in the final cost of CNG which is dispensed by them, as per the Larger Bench decision in GTC Industries Ltd. - 2008 (12)S.T.R.468 which is upheld by the Hon’ble High Court of Bombay, that once the cost is included in the final price, Cenvat credit cannot be denied.

Respondent contention:Ld. Departmental Representative, on the other hand, submitted that Cenvat credit can be availed only on the services which are rendered to the appellant, in the case in hand the service rendered by the cylinder certifying agency are not rendered to the appellant but to the vehicle owners who have fitted the cylinder in the vehicle. It is also his submission that the final product CNG are cleared from the tanks into the retail outlet and subsequent filling of the cylinder is not a manufacturing activity as compression of the natural gas takes place and the said natural gas is delivered into the tank located at the outlet. It is also his submission that inspection of cylinder is taking place outside the manufacturing activity area as it is undisputed that the inspection of the cylinder is undertaken at Regional Transport Office.

Reasoning of Judgment: The issue involved in this case regarding eligibility to avail Cenvat credit of the Service Tax paid on the service rendered by an agency which certify the cylinder which are fitted in a car whether they are safe or unsafe, is to be answered in affirmative in favour of the appellant for more than one reason.
Firstly, the definition of “input service” during the relevant period as enshrined in Rule 2(l) of Cenvat Credit Rules, 2004 reads as under :-
(l) “input service” means any service,-
(i) used by a provider of taxable service for providing an output service, or
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,
and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal;
It can be seen from the above reproduced definition that “input service” means any service which is used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products. In the case in hand, it is undisputed that CNG can be filled only in those cylinders which are certified to be fit to carry the CNG and conform to the provisions of the Explosives Act and rules made thereunder. It is also mandated that there is restriction in filling of any cylinder with compressed gas unless fitness of such cylinder is approved by an agency authorised to do so. It is undisputed that the cylinder cannot be filled with CNG unless they are certified to be worthy of filling of gas which in this case is being done by the outside agency appointed by the appellant. It has to be held that unless the cylinders are certified, the appellant cannot fill the gas in the said cylinder, is an activity in connection to their business of sale of CNG.
Secondly, another objection by the revenue that the certification of the cylinder did not take place in the manufacturing area, will also not carry the case of the revenue any further as the definition of “input service” does not restrict that the said service have to be rendered in the factory premises of the manufacturer. As I have already recorded that the business activity of the appellant could not be carried out unless the said cylinder are certified as worthy of filling gas, the certification, even if it takes place outside the premises, Cenvat credit on service tax paid cannot be denied to the appellant.
Thirdly, there cannot be any dispute that the certification of the cylinder is required from the angle of safety as well as the authorities filling the gas in such cylinders as it is common knowledge that compressed gases is filled in cylinders which do not pass mandatory test, are hazards in public place. From this angle, it has to be held that when the cylinder are certified by an agency and service tax is paid on such services Cenvat credit cannot be denied to appellant.
Tribunalfind strong force in the contention raised by the ld. Counsel that the ratio of the Apex Court in the case of Good Year Ltd. (supra) and Solaris Chemtech Ltd. (supra) as to the meaning of the expression “such as” and “in relation to” would cover the case in hand in favour of the appellant.
In view of the foregoing, and in the facts and circumstances of this case, Tribunal find that the impugned order is unsustainable and liable to be set aside.

Decision: Appeal allowed.

Comment:The substance of the case is that the defination of input service does not restrict that the said service has to be given at the premises of manufacturer. Also, business activity of the appellant cannot carry out without inspection, even if inspection takes place outside the premises, cenvat credit cannot be denied to the appellant.

Prepared By:Anash kachaliya

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PJ/CASE LAW/2015-16/2957

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