Whether credit admissible on Rent a Cab and Telephone Services used exclusively at corporate officeof the company?

Case:-THIRU AROORAN SUGARS LTD VERSUS COMMISSIONER OF CENTRAL EXCISE, TIRUCHIRAPALLI

Citation:-2013-TIOL-1270-CESTAT-MAD

Brief Facts:-The appellant is a manufacturer of excisable goods and they avail benefit of Cenvat Credit Rules, 2004. The dispute involved in this appeal is Cenvat credit taken by the appellant on (i) Rent a Cab Services, (ii) Telephone Services and (iii) Contract Bus Services for the period 2006-07 to 2010-11. The amount that is demanded is Rs. 1,84,920/- along with interest. Further, a penalty of Rs. 1,84,920/- is imposed on the appellant under section 11AC of the Central Excise Act read with Rule 15 (2) of Cenvat Credit Rules, 2004.
The credit in question is taken by the corporate office at Chennai in their capacity as "input service distributor" as envisaged in Rule 2 (m) of Cenvat Credit Rules, 2004 and passed on to their factory at Papanasam, Thanjavur for utilization for payment of excise duty.

Appellant Contentions:-The Counsel for appellant relies on the definition of input service at Rule 2 (l) of Cenvat Credit Rules, 2004 which reads as under:

"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 from 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;'

The Counsel argues that an input service being intangible cannot be seen in the final product unlike in the case of most of the inputs. He argues that their corporate office is managing their business but for which the manufacturing activity cannot go on. No business can run by just manufacturing goods. That is the reason for including "activities relating to business" in the definition of input service. The illustrations given after the expression "such as" are activities usually done by the corporate office. So the argument that services availed by corporate office cannot be considered as input service runs contrary to the plain meaning of the definition.
He relied on the following decisions:
·         CCE Vs. Stanzen Toyotetsu India (P) Ltd - 2011 (23) STR 444 (Kar) = 2011-TIOL‑ 866-HC-KAR-ST
·         CCE Vs. Beekay Engg. & Castings Ltd - 2009 (16) STR 709 (Tri-Del) = 2009-TIOL‑ 1376-CESTAT-DEL
·         Heartland Bangalore Transportation Ser (P) Ltd Vs. CST - 2011 (21) STR 430 (Tr-Bang) = 2010-TIOL-1764-CESTAT-BANG
·         J. K. Sugar Ltd Vs. CCE - 2011 (270) ELT 225 (Tri-Del) = 2011-TIOL-1091-CESTAT‑ DEL .
Respondent Contentions:-The adjudicating authority held that the definition of "input service" in Cenvat Credit Rules can extend only to services which have a proximate nexus to manufacturing activity; the definition cannot be extended to the services received at corporate office for officers and executives working in that office which is the situation in this case; providing rent-a-cab services to executives to come to office is only a welfare activity and not activity relating to manufacture.
It is further argued that the scope of the inclusive portion of the definition at Rule 2 (l) gives illustrative services and the services in question do not fall within the category illustrated by the list following the expression "such as" in the definition. It is argued that unless it is demonstrated that the manufactured product cannot emerge without the service in question the service cannot be considered as an input service. The adjudicating authority relied on the following decisions:-
(i) CCE Vs. Manikgarh Cement - 2010 (20) STR 456 (Bom) = 2010-TIOL-720-HC-MUM-ST
(ii)CCE Vs. Sundaram Brake Linings - 2010 (19) STR 172 (Tri-Chennai) = 2010-TIOL‑ 863-CESTAT-MAD

However, the finding on fact as seen recorded by the adjudicating authority towards the end of para 11 reads as under:

"Therefore, I hold that Service tax paid on 'Rent-a-Cab service, telephone service and contract services which is used exclusively for officers and Executives for Administrative purpose at their Corporate Office located at Chennai does not satisfy the requirement under the main definition for "Input Service" under the Cenvat Credit rules, 2004"

On appeal filed with Commissioner (Appeal), he rejected the appeal for more or less for the same reasons as given by adjudicating authority. Para 4.2 and 4.3 of the order is re-produced below:
"4.2 Rent a cab, telephone and Contract bus services are used by the officers and executives at their corporate office of the company and the appellants did not produce any evidence either direct or corroborative to show that such service used by the officers and executives is in or in relation to manufacturing activity. Therefore, it is clear that the claim made by appellants is not authentic as the impugned services for officers and executives was purely for personal reasons like comfort & is a welfare measure only as a part of the employment. On the other hand, the appellants failed to prove that providing of such service resulted either in completion of the manufacturing activity at a faster pace OR in enhancement of quality of manufacturing activity. It is also not a case of the appellants that these services have been utilized by the executives only in relation to procurement of raw materials, sale of finished goods and connected business activities. Nor any official purposes like establishing nexus with business of manufacture is established. Thus the nexus of service with the claim made by them clearly falls short of any cogent reason. When the services of Rent a Cab and Contract Bus Services, if provided to workers to reach the factory premises in time, then it could be said that the same is having a direct bearing on the manufacturing activity or at any rate activity relating to business. On the other hand provision of these services to executives of corporate office at Chennai, by no stretch of imagination can be considered to have any bearing on the manufacturing activity. Rent a cab service used for bringing employees to work in the factory of manufacture of goods alone can be considered as an activity in relation to the manufacture of goods or as activity relating to business. Consequently, the services claimed to be used by appellants are not in relation to the manufacture of final products and hence, such input service credit availed by the appellants, is ineligible read with the definition of input service under Cenvat Credit Rules, 2004.”

In the case of Hindustan Coca Cola (P) Ltd Vs CCE Hyderabad 2010 (18) STR 57 Tri-Bang = 2010-110L-48-CESTAT-BANG credit on rent a cab services and outdoor catering services were allowed when it was not in dispute that the services were received in the factory premises. Contrary to this the services pertaining to the appellants were not received in the factory premises. In the case of Commissioner of C.Ex Nasik Vs Cable Corporation 2008 (12) STR 598 = 2008-110L-1180-CESTAT-MUM, only when Rent a cab service used for bringing employees working in the factory for manufacture of goods, the said service was considered to be used indirectly in relation to manufacture or as part of business activity. In the case of Commissioner of C.Ex., Jaipur II Vs. J.K. Cement Works, 2009 (14) STR 538 = 2009-110L-411-CESTAT-DEL citing on the above case law of C.Ex Nasik Vs Cable Corporation, the respondents therein explained the use of hired tax is in relation to manufacture of cement and the tribunal allowed credit. The impugned services in the case in our hands are not related to the manufacture of Sugar and other excisable products manufactured by the appellants. It is not disputed that transporting of employees to the factory and back, has a direct nexus with the assessee's business of manufacture of final product, as without the employees being present in the factory, manufacture cannot take place as held in the case of Sundaram Fasteners Ltd Vs Commissioner of C.Ex., Chennai 2011 (271) ELT 318 (Tri-Chennai) = 2011-TIOL-1050-CESTAT-MAD but the impugned services/ activities viz. Rent a cab, telephone bills and contract bus services used exclusively by officers and executives to transport them from residential area at Chennai to Corporate office at Chennai and other touring can no stretch of imagination can be considered as having direct nexus with the appellant's business of manufacture of final product."

On the other hand the Ld A. R. for Revenue relies on the following decisions:

·         CCE Vs. Manikgarh Cement - 2010 (20) STR 456 (Bom) = 2010-TIOL-720-HC-MUM-ST
·         CCE Vs. Cadila Healthcare Ltd. - 2013 (30) STR 3 (Guj) = 2013-TIOL-12-HC-AHM-ST
·         CCE Vs. Gujarat Heavy Chemicals Ltd. 2011 (22) STR 610 (Guj) = 2011-TIOL-383- HC-AHM-ST
·         Disa India Ltd. Vs. CCE - 2011 (24) STR 507 (Tri-Bang) = 2011-TIOL-1128-CESTAT‑ BANG .

Reasoning Judgment:-After going through the large number of decisions relating to rent a cab-service it is seen there is a uniformity in view of the Courts and Tribunal that has emerged that rent-a-cab services utilized to bring workers or executives to factory is covered bydefinition at Rule 2 (l). The argument of the Revenue is that decisions in respect of transportation from residence to factory and back will not apply to transportation of executives and employees from residence to corporate office and back. This argument is almost like the argument that a factory worker may take during wage negotiation that the entire business depends on them which is not correct. If there is no management by the corporate office, a manufacturing organization cannot survive - finance cannot be procured, raw materials cannot be purchased, manufactured goods cannot sold and so on. So the argument to separate the corporate office from manufacturing activity, for the purpose of deciding eligibility to Cenvat credit on services received, is flawed especially having regard to the fact many services usually received by corporate office is listed specifically in the inclusive portion of the definition of input service. The concept of "input service distributor" as defined in Rule 2 (m) of the Cenvat Credit Rules, 2004 also implies allowing credit of services availed by an office which cannot utilize the credit as in the case of a corporate office. In the first place as per the definition "input service" means service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products. The scope of this expression is further expanded by an inclusive portion mentioning specific services to remove any ambiguity in the definition in respect of these services. Such inclusive part has one expression reading "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". Here again the listing within this category cannot be taken to be exhaustive but only illustrative. Against such legal frame work it is to be decided whether the impugned service will fall within the definition when received at the corporate office. In the matter of extending Cenvat credit to these three services Tribunal do not see any distinction that can be made between the factory and corporate office going by the provisions in Cenvat Credit Rules, 2004. It is already decided by Karnataka high Court that such services will qualify to be input service within rule 2(l).

Further it was noted that the decisions relied upon by the Ld. A. R. for Revenue are in relation to services availed in residential colonies of assessees and not corporate office. Tribunal find no reason to extend this distinction made in respect of residential colonies to services received in corporate office.

Though the matter is examined above with reference to rent-a-cab service similar logic should apply to contract bus service and telephone service. In the case of telephone service the clarification issued by Ministry vide para 8.3 of Circular No. 97/8/2007-S.T., dated 23-8- 2007 is very relevant. However the Commissioner (Appeal) has recorded that the appellant has not produced evidence to show the nexus between the manufacturing activity and the services in question. It is not understood what sort of nexus is being asked for. Is it necessary to show what was talked in each call through each of the telephone in respect of which Cenvat credit is claimed? Demand for such demonstration can only lead to meaningless harassment to assessees. Where the expenditure is incurred by the company in its books of accounts there is a presumption in favour of the appellant that the service is availed in relation to their business. So long as Revenue has not proved anything to the contrary Tribunal do not see any merit in the argument of Revenue.

So Tribunal sets aside the impugned order and allows the appeal.

Decision:-Appeal allowed.

Comment:-The essence of this case is that credit is admissible even of the input services availed in the corporate office that is managing business as no business can run by just manufacturing goods. Accordingly, credit pertaining to rent a cab services and telephone services used in corporate office cannot be denied on the contention that the same are not directly related to the manufacturing activities conducted at the factory premises.

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PJ/Case Law/2013-14/1854

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