Pradeep Jain - Chartered Accountant

PJ/CASE STUDY/2009-10/027

18 January 2010

Case Study

Prepared by: -

CA. Pradeep Jain

Sukhvinder kaur,LLB(FYIC)

Anjali Bihani

Inputs & input services which are directly or indirectly used or related to manufacturing of final goods are eligible for Cenvat credit. The below mentioned case involves issue of Cenvat credit allowable on service tax paid on garden maintenance service. Can the garden maintenance service be said to an input service?

M/s. ISMT Ltd. v/s Commissioner of Central Excise & Customs, Aurangabad

- The Appellant-assessee has taken Cenvat credit of service tax paid on Garden Maintenance service treating garden maintenance service as an input service for them.

- Revenue denied the credit on the ground that garden has no role in the manufacturing of final product.

- The Lower Authorities passed an order denying the cenvat credit on the said service. It was held that these services are not used in or in relation to the manufacture, whether directly or indirectly of the final product and clearance of final products from the place of removal.

- Appellant has come before the Tribunal challenging the impugned order.

¨ Appellant contended that credit of garden maintenance service is eligible and they have rightly availed the same. For this they relied upon the judgment given in the case of Millipore India Ltd v/s CCE, Bangalore-II [2009 (236) ELT 145 (Tri-Bang)] wherein the Tribunal had held that “modernization, renovation and repair etc of office premises are included and even the landscaping the surroundings of factory to be considered as “input service” within the definition of 2(l) of the CENVAT Credit Rules, 2004.”

¨ Revenue further relied upon the decision given in Maruti Suzuki Ltd. vs. CCE, Delhi III [2009(240) ELT 641 (SC)] and submitted that ‘input’ and ‘input service’ are identical and in the Maruti Suzuki Ltd case, the Apex Court has held that the input would become eligible for credit only when used in or in relation to the manufacture of final product.

¨ It is contended that these service are not covered within the definition of Rule 2(l) of the Cenvat Credit Rules, 2004.

¨ Revenue has relied on the decision in the case of Maruti Suzuki Ltd v/s CCE, Delhi III [2009-TIOL-94-SC-CX] and have contended that input and input service are identical and in the said decision has held that the input should be used in or in relation to the manufacture of final product in the substantive/specific part of the definition.

The issue to be decided before the Tribunal was that:-

Whether the garden maintenance service is an input service as per the definition in Rule 2(l) of the Cenvat Credit Rules, 2004?

v The Tribunal held that the Hon’ble High Court in the Coca Cola case has held that credit can be denied only when assessee fails to become eligible in any one of the categories. The Tribunal held that in category V, service used in relation to activities relating to business is covered and therefore, they have to examine whether the appellants are covered under this category or not?

v With regard to judgment of the Apex Court in Maruti Suzuki Ltd case, the Tribunal held that in each case it has to be established that inputs mentioned in the inclusive part is “used in or in relation to the manufacture of final product”. The main emphasis in the said judgment was on input only when used in or in relation to the manufacture of final product.

v The Tribunal went through the definition of ‘input’ and ‘input service’ and held that in the definition of “input” the definition is mainly emphasized for input and after the word includes the definition reads as lubricating oils, greases, cutting oils, coolants, accessories of for the final products cleared along with final product, goods used as paint, or as packing material or as fuel or for generation of electricity or steam used in or in relation to the manufacture of final product or for other purpose within the factory of production.

v The Tribunal held that both the definitions are not at all comparable or para material and coverage of the “input service” is definitely wider.

v The Tribunal held that the definition of input is exhaustive and is restrictive in scope. It teats all goods used in or in relation to manufacture of final products or for any other purpose within the factory of production. But certain goods which would be eligible as per definition have been excluded and certain goods which could be interpreted as not includable have been specifically included i.e. packing material. Lubricating oil, accessories etc. Therefore, all goods other than specified as includable have to be shown to be used in or in relation to manufacture of final product or for any other purpose within the factory of production. In fact, the Apex Court has held that input and capital goods used in captive means are covered by the definition expanding the scope of definition.

v The Tribunal further held that but in the definition of “input service” the Legislature has not used the word in the include part that it is to be used in or in relation of the final product. From this, it is clear that the intention of the Legislature was that these activities should be relating to the business. But the Apex Court in the decision of Maruti Suzuki Ltd has considered the word “input” in Rule 2(k) and there is no finding with regard to “input service”. Therefore, the reference made by the Revenue to the case of Maruti Suzuki Ltd is of no help to them.

v The Tribunal held that it cannot take a view that a garden is not relating to manufacture. A good garden creates a better atmosphere and environment which increases the working efficiency and the consumer would feel goods.

v The Tribunal also relied upon the judgment given in Force Motors Ltd v/s CCE, Pune [2009 (23) STT 160 (Mum-CESTAT)] and held that the appellant is entitled to Cenvat credit availed on the garden maintenance service which are used in or in relation to the manufacture of final products or used in relation to the business activity and in this case the services used by the appellants are in relation to the business activity, he is entitled for cenvat credit.

Appeal allowed accordingly.

It is a very good decision by the Tribunal. In our earlier case study no. PJ/CASE STUDY/2009-10/012 on decision of Coca Cola (India) Pvt. Limited v. Commissioner of Central Excise, Pune –III [2009-22-STT-130 (BOM), it was brought out that the Cenvat credit of input services is available on every expenditure relating to business. Someone rightly said on this decision that the Coco Cola decision has “RANG JAMA DIYA(रंग जमा दिया )”. However, in our case study no. PJ/CASE STUDY/2009-10/24 dated 25/12/09 we have shown the Hon’ble tribunal in case of Commissioner of Central Excise , Nagpur versus M/s Manikgarh Cement Works [2009-TIOL-2059-CESTAT-MUM] has followed the Apex Court decision in case of Maruti Suzuki Limited v. CCE, Delhi [2009(240)ELT641(SC)] and disallowed the Cenvat credit on input services. They have not followed the decision of CoCa Cola and said that Maruti decision is more relevant. Thus this decision has BUDRANG (बदरंग) the decision of COCA COLA. But current decision in this case study has once again made out that Coca Cola decision is right and Maruti verdict is applicable for inputs only. So, once again it can be very well said that Coca cola SACH ME RANG JAMA DETA HAI AUR CENVAT CREDIT CASES ME BHI USNE AISA HI KIYA. ( कोका कोला सच मे रंग जमा देता है और सेन्वेट क्रेडिट केस में भी उसने ऐसा ही किया )

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Comments & Conclusion: -

Decision of the Tribunal: -

v The Tribunal further held that the judgments in cases of Kirloskar Oil Engines Ltd and Vikram Ispat are of no help to the Revenue as the judgment of Coca Cola case was not considered therein as it was not available then.

Reasoning of the Judgment: -

Issue before the Tribunal: -

¨ Revenue further relied upon the judgment of the Bombay High Court in the case of Coca Cola India Ltd [2009-TIOL-449-HC-Mum] wherein the definition of input service has been divided in five categories and it has been held that if any one condition is satisfied then cenvat credit will be available. Revenue has emphasized on the illustrations put by the Bombay High Court in the said judgment which is reproduced here: “To illustrate, input services used in relation to setting up, modernization, renovation or repairs of a factory will be allowed as credit, even if they are assumed as not an activity relating to business as long as they are associated directly or indirectly in relation to manufacture of final products and transportation of final products upto the place of removal.”

¨ Revenue has relied upon the judgment in the case of Kirloskar Oil Engines Ltd [2009-TIOL-790-CESTAT- Mum] wherein it was held that “garden maintenance service has no nexus, even remotely, to manufacture or clearance of excisable goods. The above services was not used, directly or indirectly, in relation to the manufacture or clearance of excisable goods.” It was contended that therefore credit was denied. They have also relied upon the judgment given in Vikram Ispat [2009-TIOL-997-CESTAT-Mum].

Respondent contentions: -

Appellant Contentions: -

Brief Facts of the Case: -

(2010-TIOL-27- CESTAT-MUM)

Explanation 2.- Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer;

Explanation 1.- The light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol, shall not be treated as an input for any purpose whatsoever.

(ii) all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service;

(i) all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production;

"input" means-

Rule 2(k) of the Cenvat Credit Rules, 2004

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;”

(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,

(i) used by a provider of taxable service for providing an output service; or

2 (l) “‘input service’ means any service,—

Rule 2(l) of the Cenvat Credit Rules, 2004

Relevant Legal Provisions: -

Introduction: -

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PJ/CASE STUDY/2009-10/027
18 January 2010

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