Whether service tax credit for setting up storage tank outside factory admissible?

PJ/Case Law/2012-13/2036

Case:- DEEPAK FERTILIZER & PETROCHEMICAL CORPN. LTD VS UOI

Citation:- 2013 (32) S.T.R. 532 (BOM.)

Brief facts:- The Appellant is engaged in the manufacture of excisable goods which fall under Chapters 28, 29 and 31 of the Central Excise Tariff Act, 1985. The appellant has installed storage tanks for storing ammonia at its premises situated at JNPT and claims that it is eligible for Cenvat credit of Service Tax paid on input services used for the ammonia storage tanks installed at JNPT since the input/raw material stored there is intended for manufacture of the final product at the factory of the appellant at Taloja. The Appellant availed of Cenvat credit in respect of the services of consulting engineers, technical inspection and certification, construction, erection, commissioning and installation services for the installation of the ammonia storage tanks. A show cause notice dated 31 July, 2009 was issued to the appellant demanding Cenvat credit of Rs. 2.78 Crores under Rule 14 of the Rules read with Section 11A(1) of the Central Excise Act together with interest under Section 11AB and a penalty was proposed to be imposed under Rule 15A. After adjudication the demand was confirmed together with interest and a penalty of Rs. 5,000/-. The appellant filed an appeal before the Tribunal which was dismissed by the impugned order dated 12 November, 2012. Hence, the appellant is before the High Court on following substantial question of law:-

1. Whether in the fact and circumstances of the case, the appellant tribunal was justified in holding that appellant would not be entitled to credit of Service Tax paid on input services received for setting up of storage tank?
2. Whether in the fact and circumstances of the case, the appellant tribunal was correct & justified in holding that service used in relation to the storage of input outside the factory will not be eligible for credit as services are received outside the factory?

Reasoning of Judgment:- The Hon’ble High Court held that 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 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 Hon’ble High Court held that appellant is undisputed manufacturers of dutiable final products and the storage and use of ammonia is an intrinsic part of that process. The Hon’ble high court concluded that the judgment of the Tribunal is ex facie unsustainable. The questions of law as framed are accordingly answered in the negative.
The Appeal is accordingly allowed

Decision:- Appeal allowed.

Comment:- In this case it is concluded that the input service utilized in relation to installation of ammonia storage tanks situated outside the factory of production was an intrinsic part of the process of manufacture and used directly or indirectly, in or in relation to manufacture of final product. Hence, these were input services on which assessee is entitled to take credit of service paid on them as per correct interpretation of Rule 2(l) and 3(1) of Cenvat Credit Rules, 2004.

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PJ/Case Law/2012-13/2036

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