Whether CENVAT credit of service tax paid in relation to input service used beyond the place of manufacture is allowed or not?

PJ/CASE LAW/2015-16/2753

Case:- COMMR. OF C. EX., VADODARA-II Versus SIEMENS HEALTHCARE DIAGNOSTICS LTD.

Citation:- 2014 (36) S.T.R. 192 (Tri. - Ahmd.)

Brief facts:- The facts of the case, in brief, are that the respondents are engaged in the manufacture of excisable goods, i.e. Diagnostics Reagent, Glucostix-25 and Flowclean falling under Chapter Heading No. 3822 00 19 and 3402 90 11 of the Central Excise Tariff Act (CETA), 1985. During the course of audit of the records, it was found that the respondents had wrongly availed Service Tax credit of Rs. 5,42,444/- paid by them on rent, security and maintenance services during the period from 1-9-2008 to 1-4-2009. The services beyond the stage of manufacture and clearance of goods from the factory could not be input service. Therefore, the respondents had wrongly taken credit of Service Tax paid on rent, security and maintenance because the services were not provided at the respondent’s premises and these services have no nexus with the manufacture and clearance of final product. Therefore, they were not entitled to avail the said credit of Service Tax paid by them. Further, the respondents had neither furnished the details nor produced any documents/invoices to the department on the basis of which they had taken such credit and hence such wrongly availed by the respondents.
Show cause notice was issued for the demand of the said Cenvat credit availed by the appellant with the proposition of interest and also imposition of penalty. Adjudicating authority after following the due process of law confirmed the demands with interest and also imposed penalties. Aggrieved by such an order, the respondents preferred an appeal before the first Appellate Tribunal. The first Appellate Tribunal after considering the submissions made before him during the personal hearing and also the grounds of appeal taken by the assessee, relying upon the decision of the Hon’ble High Court of Bombay in the case of Ultratech Cement Ltd. [2000-TIOL-745-HC-MUM = 2010 (20)S.T.R.577 (Bom.) = 2010 (260)E.L.T.369 (Bom.)]set aside the impugned order. Aggrieved by such an order, Revenue is in appeal before the Tribunal.

Appellants’ contention:- Ld. D.R. would read the grounds of appeal and submit that the definition of input service has given under the Rule 2(l) of Cenvat Credit Rules, 2004 is very clear and Cenvat credit availed by the appellant of the Service Tax paid on the rent, security and repairs and maintenance is ineligible as these are not directly or indirectly involved in manufacturing of final products. It is his submission that the Revenue has not accepted the judgment of the Hon’ble High Court in the case of Ultratech Cement Ltd. (supra) and has filed an SLP before the Apex Court. It is also his submission that basic principle in allowing the Cenvat credit is to be used in or in relation to the manufacture of clearance of final product which is absent in this case.

Respondent’s contention:- Ld. counsel on the other hand would submit that in an identical issue came up before the Hon’ble High Court of Bombay in the case of Deepak Fertilizers and Petrochemicals Corporation Ltd., 2013 TIOL-212-HC-MUM-CX = 2013 (32)S.T.R.532 (Bom.) and submit that the Hon’ble High Court have, following the judgment of Ultratech Cement Ltd., held that any services rendered which is beyond the place of manufacture is also eligible for availing the CENVAT credit. He produces the copy of the said judgment.

Reasoning of judgement:-They find that the issue to be decided in this case is whether the impugned order of the first appellate Tribunal in allowing the CENVAT credit to the appellant of the Service Tax paid on rent, maintenance and security services is correct or not. They find from the records that there is no dispute as to the discharge of Service Tax by provider in this case and there is also no dispute as regards the invoices and receipt of services by the recipient. They find that, as correctly pointed out by the ld. counsel, the judgment of Hon’ble High Court of Bombay in the case of Deepak Fertilizers and Petrochemicals Corporation Ltd. (supra) is directly on the issue. They find that in that case, the Tribunal has held that any service rendered in respect of ammonia storage tank which is situated outside the factory is not eligible for Cenvat credit but the said order of Tribunal is set aside. The relevant paragraph of the said decision of the Hon’ble High Court is reproduced as under :
“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 hand. 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(l) the Tribunal was not justified in holding that the appellant would not be entitled to avail of Cenvat credit in respect of services utilized in relation to ammonia storage tanks on the ground that they were situated outside the factory of production. The definition of the expression ‘input service’ covers any services used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products. The words ‘directly or indirectly’ and ‘in or in relation to’ are words of width and amplitude. The subordinate legislation has advisedly used a broad and comprehensive expression while defining the expression ‘input service’. Rule 2(1) initially provides that input service means any services of the description falling in sub clause (i) and (ii). Rule 2(1) 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(1). The first part of Rule 2(1) 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(1) 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(1). Rule 2(1) must be read in its entirety. The Tribunal has placed an interpretation which runs contrary to the plain and literal meaning of the words used in Rule 2(1). 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(1). 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.”
It can be seen from the above reproduced ratio from the judgment of Hon’ble High Court of Bombay, the issue is squarely covered in favour of the respondent.
In view of the foregoing and respectfully following the judicial pronouncement, they find that the impugned order is correct and legal and does not require any interference. Appeal filed by the Revenue is rejected.

Decision:- Appeal rejected.

Comment:- The crux of the case is that relying on the case of Deepak Fertilizers and Petrochemicals Corporation Ltd., 2013 TIOL-212-HC-MUM-CX = 2013 (32)S.T.R.532 (Bom.) and considering the fact that the Hon’ble High Court have, following the judgment of Ultratech Cement Ltd., held that any services rendered which is beyond the place of manufacture is also eligible for availing the CENVAT credit, it can be construed that the definition of input services is very wide. As per the definition of “Input service”, any service, used by a provider of taxable service for providing an output service; or 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 will be treated as input service. The words ‘directly or indirectly’ and ‘in or in relation to’ are words of width and amplitude.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2753

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