Whether credit be allowed on repair & maintenance service and erection & commissioning services availed by assessee for laying water pipeline outside factory?

PJ/Case Law/2016-17/3362

Case:-ORIENT PAPER MILLS Versus COMMISSIONER OF CENTRAL EXCISE & S.T., RAIPUR

Citation:-2016 (45) S.T.R. 178 (Tri. - Del.)

Brief facts: -The appeal was against order dated 30-9-2015 of Commissioner (Appeals), Raipur. The appellants were engaged in the manufacture of paper liable to Central Excise duty. They were availing credit on inputs and input services. The present appeal dealt with the dispute regarding appellant’s eligibility for service tax credit of Rs. 4,90,316/- paid towards availing repair and maintenance service and erection and commissioning services with reference to water pipeline laid by the appellant to obtain water from Sharda OCM Plant situated away from the manufacturing facility of the appellant. The credits were denied on the ground that the services availed have no nexus to the manufacturing activity of the appellant and these are relating to pipelines situated outside the factory premises of the appellant.

Appellant’s contention:-Ld. Counsel for the appellant submitted that water was one of the main input item used in the manufacture of paper. The appellants laid pipeline to obtain water from Sharda OCM Plant, who had water storage facility at their abandoned mines. The services were availed by the appellants and for the purpose of input services, there was no necessity to avail the services inside the premises of the factory only. She relied on the decided case laws in support of the contention that the scope of Rule 2(l) is quite wide and cannot be restricted to the services received inside the factory only.

Respondent’s contention:-Ld. AR supported the findings of the lower authorities and submitted that the pipeline for transport of water had no direct link to paper manufactured and as such, the denial of credit is justified.

Reasoning of judgment:-Heard both the sides and examined the records.

The short point for decision was that eligibility of the appellant for service tax credit paid on the services availed with reference to the pipelines for transport of water to their factory. The “input services” as defined under Rule 2(l) of Cenvat Credit Rules, 2004 states that any service used by a manufacturer, whether directly or indirectly in or in relation to the manufacture of final products is eligible for credit. The admitted fact was that the services received by the appellants in the present case were not falling under any exclusion clause. The Revenue disputed that the pipeline related services were not having any nexus with the manufacture of paper by the appellants. In this context, it was to be seen that for the appellant, water was one of the main input items used in the manufacture of paper. Admittedly, water was being transported from outside by a pipeline laid and maintained by the appellant. “Input Services” to be eligible for credit was not linked to any location for receipt of such services. The Hon’ble Bombay High Court in case of Deepak Fertilizers & Petrochemicals Corpn. Ltd. - 2013 (32)S.T.R. 532 (Bom.) examined the scope of “Inputs Services” and held as under :-
“ 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. 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(1) 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(l) initially provides that input service means any services of the description falling in sub-clauses (i) and (ii). Rule 2(l) 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(l). The first part of Rule 2(l) 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(l) 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(l). Rule 2(l) 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(l). 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 manufacturer 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(l).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.”
The Tribunal in Welspun Maxsteel Ltd.- 2013 (31)S.T.R. 64 (Tri.-Mum.) upheld the credit on security services received in connection with the pump house for pumping water from the outside situated factory premises. In case of ZF Steering Gear (India) Ltd.- 2015 (317)E.L.T. 580 (Tri.-Mum.), the Tribunal upheld the eligibility of credit of “input services” with reference to annual maintenance of wind mill installed outside the factory premises for generation of electricity.
Considering the above discussion and analysis, the Tribunal found no justification for denial of credit to the appellant and as such, set aside the impugned order. The appeal was allowed accordingly.
(Order dictated and pronounced in open Court)

Decision:-Appeal allowed.

Comment:-The gist of the case was that the assessee laidpipelines outside factory to procure water and availed repair and maintenance services and erection and commissioning services and claimed CENVAT credit on the same. The assessee was engaged in manufacturing paper which required a lot of water as input. Since, the aforesaid services were utilized in procurement of this input; it does not fall under any exclusion clause of ‘input service’ definition and was in perfect nexus with the final product manufactured. Further, the location of receipt of service was not relevant for allowing credit. Accordingly, denial of credit was not sustainable as per Rule 2(l) of Cenvat Credit Rules, 2004.

Prepared by:-Praniti Lalwani

Comments

PJ/Case Law/2016-17/3362

Post a Comment

Query