Bombay High Court
The Commissioner Central Excise vs M/S. Ultratech Cement Ltd on 25 October, 2010
Bench: J.P. Devadhar, A. B. Chaudhari
1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY,
NAGPUR BENCH, NAGPUR
CENTRAL EXCISE APPEAL NO. 7 OF 2010
The Commissioner Central Excise, Nagpur
Central Excise Building,
Telangkhedi Road, Civil Lines,
Nagpur. ........ APPELLANT
// VERSUS //
1. M/s. Ultratech Cement Ltd.,
At Post : Awarpur, Tq. Awarpur,
Distt. Chandrapur (M.S.)
2. The Customs, Excise and Service Tax
Appellate Tribunal, West Zonal Bench,
Jai Centre, 3rd Floor, 34 P.D.'Mello Road',
Poona Street, Masjid Bunder, (East),
Mumbai 400 009. ........ RESPONDENTS
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Mr. S. K. Mishra, Assistant Solicitor General for appellant.
Mr. V. Shridharan, Advocate for respondent no.1.
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Date of reserving the Judgment : 11-10-2010
Date of pronouncement of the Judgment : 25-10-2010
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CORAM : J.P. DEVADHAR AND
A.B. CHAUDHARI, JJ.
DATED : OCTOBER 25, 2010
JUDGMENT (Per J. P. Devadhar, J) :
1.
The substantial question of law raised by the Revenue in this
appeal reads thus :
"Whether the Hon'ble CESTAT was correct in holding
that the respondent is entitled to avail the CENVAT
Credit on outdoor 'catering services' provided in the
factory for employees of the factory as a input
service credit despite the fact that outdoor catering
service does not fall under the ambit of the
definition of "Input service" specified under Rule
2(l) of Cenvat Credit Rules, 2004, as the
catering/canteen services are neither used in or in
relation to the manufacture or clearance of final
product nor can it be said, to be an activity relating
to business. "
2. The appeal is admitted on the above substantial question of
law and by consent, the appeal is taken up for final hearing.
3. The facts relevant for the present appeal are that the
Respondent-assessee is engaged in the manufacture of cement
which is excisable under Chapter 25 of the Central Excise Tariff Act,
1985.
4. On scrutiny of the CENVAT register, it was noticed by the
Excise Authorities that, during the period 2004-08, the assessee
had availed credit of service tax paid on outdoor catering services
under the provisions of Cenvat Credit Rules, 2004 (In short, " the
2004 Rules ") & utilized the same in paying excise duty, that is,
central value added tax on clearance of cement manufactured by
the assessee.
5. The Assistant Commissioner, Central Excise, Chandrapur was
of the opinion that outdoor catering services was not a "Input
service" under Rule 2 (l) of the 2004 Rules and therefore, the
assessee was not entitled to take credit of service tax paid on
outdoor catering services. On issuance of show-cause notices, the
assessee contended that, under the Factories Act, 1948, it was
mandatory for the assessee to provide canteen facilities to the
employees working in the plant and the administrative Offices of
the assessee/Company. It was contended that, in order to comply
with the aforesaid statutory requirement, the assessee had
engaged the services of M/s. Shrikrishna Catering Services. Since
the cost of food including service tax paid thereon by the Caterer
was reimbursed by the assessee, it was contended that the
assessee was entitled to take credit of the said service tax and
utilize the same in paying the excise duty i.e. Central Value Added
Tax (CENVAT) on the cement manufactured by the assessee.
6. Rejecting the contention of the assessee, the Assessing
Officer held that the service tax paid by the outdoor caterer would
not qualify as "Input Service" under Rule 2(l) of the 2004 Rules.
Accordingly, the Assessing Officer confirmed dis-allowance of the
CENVAT credit as well as the credit of education cess/Secondary
and Higher Secondary Education Cess taken by the assessee on
outdoor catering services and demanded the same with interest
and penalty under Rules 14 and 15 of the 2004 Rules r/w. Section
11(A)(B) of the Central Excise Act, 1944 and Section 75 of the
Finance Act, 1994.
7. Being aggrieved by the orders passed by the Assessing
Officer, the assessee filed appeals before the Commissioner of
Central Excise (A) who, by a common order dt. 24.2.2009, allowed
the said appeals by following the larger Bench decision of CESTAT
in the case of Commissioner of Central Excise vs. GTC
Industries Ltd. reported in 2008 (12) STR 468 (T-LB). The larger
Bench in the case of GTC Industries Ltd. (supra) had held that the
cost of food borne by the factory would form part of the cost of
production and hence, credit of duty paid thereon was allowable.
8. Being aggrieved by the afore-said order passed by the
Commissioner of Central Excise (A), the Revenue filed appeals
before the CESTAT. By the impugned order dt.8.9.2009 the CESTAT
upheld the order of the Commissioner of Central Excise (A) by
following the larger Bench decision of the Tribunal in the case of
GTC Industries Ltd. (supra). Challenging the said order of the
Tribunal, the Revenue has filed the present appeal. We are
informed that the appeal filed by the Revenue against the larger
Bench decision of the Tribunal in the case of GTC Industries Ltd.
(supra) is pending before the Principal Bench of this Court at
Mumbai.
9. Mr. S. K. Mishra, learned Assistant Solicitor General
appearing on behalf of the Revenue submitted, firstly, that the
Tribunal was wrong in placing reliance on the larger Bench decision
of the Tribunal in the case of GTC Industries Ltd. (supra) because,
in that case, duty on the final product was payable on the
assessable value; whereas in the present case, duty on the final
product is payable on tonnage basis. Therefore, the larger Bench
decision of the Tribunal in GTC Industries Ltd. (supra) being
distinguishable on facts, the Tribunal ought not to have applied the
ratio of the said decision to the facts of the present case.
Secondly, the credit under Rule 2(l) of the 2004 Rules is available
only if the taxable service tax is used in or in relation to the
manufacture of the final products. The outdoor catering service is
not a service used in or in relation to the manufacture of cement
and therefore, the assessee could not avail credit of service tax
paid on outdoor catering services. Thirdly, recent decision of the
Apex Court in the case of M/s Maruti Suzuki Ltd. vs. CCE, Delhi
reported in 2009 (240) ELT 641 (SC) squarely applies to the facts of
the present case and in the light of the above decision of the Apex
Court, the question raised in the appeal be answered in favour of
the revenue.
10. On the other hand, Mr. Shridharan, learned Counsel
appearing on behalf of the assessee submitted that the decision of
the Tribunal is in consonance with the Scheme of the Value Added
Tax and if the contention of the Revenue is accepted, it would
defeat the very object of the CENVAT Scheme. Relying on the
Finance Minister's speech while introducing Union Budget 2004-05,
the Draft Cenvat Credit Rules, 2004 and the Press note dt.
12.8.2004, Counsel for the assessee submitted that the CENVAT
Scheme introduced under the 2004 Rules envisages integration of
tax on goods and services used in relation to the manufacturing
business and therefore, credit of service tax paid on any taxable
service that forms part of the assessable value of the final product
has to be allowed under the 2004 Rules. He submitted that the
expression "Input Service" as per Rule 2 (l) of the 2004 Rules
cannot be restricted to the services used in or in relation to the
manufacture of the final products, but is liable to be extended to
all services that are used in relation to the business of the
manufacturer. In the present case, the assessee, carrying on the
business of manufacturing cement, is mandatorily required under
the Factories Act, 1948, to supply food to the employees. He
submitted that, to comply with the above statutory provisions,
outdoor catering services were engaged. Such an activity
mandatorily required to be complied with would be an activity
relating to the business of the assessee covered under the
definition 'Input service' under Rule 2 (l) of the 2004 Rules.
11.
Counsel for the assessee further submitted that the inclusive
part of the definition of "Input service" under Rule 2 (l) of the 2004
Rules makes it clear that credit of service tax paid on services
which are used in relation to the business such as accounting,
auditing, .....etc. would be allowable even if the said services are
not per se used in or in relation to manufacture of the final
product. He submitted that the very object of the Cenvat Scheme
is to allow credit of taxes paid on inputs used in or in relation to
the manufacture of the final product and service tax paid on
services used in relation to the manufacture of final products as
well as the services used in relation to the business of the
manufacture. Counsel for the assessee further submitted that the
expression "such as" in Rule 2 (l) of the 2004 Rules is merely
illustrative and not exhaustive. Therefore, credit of service tax paid
on any service used by the assessee in relation to the business of
manufacturing cement has to be allowed. In support of the above
contention, Counsel for the assessee referred to the meaning of
the word "such as" in Concise Oxford Dictionary and Chambers
Dictionary. He also relied upon the decisions of the Apex Court in
the case of Good Year Ltd. vs. Collector of Customs, 1997 (95)
ELT 450 and Royal Hatcheries (P) Ltd. vs. State of Andhra
Pradesh reported in 1994 SUPP (1) 429.
12. Counsel for the assessee further submitted that the
business activity is an integrated/continuous activity and is not
confined/ restricted to mere manufacturing activity. Therefore,
business activity covers all activities that are related to carrying on
the business. Therefore, the term "in relation to business" in Rule
2(l) of the 2004 Rules cannot be given a restricted meaning so as
to cover only those activities which churn out the final product
from the raw materials. In support of the above contention, he
relied upon the decisions of the Apex Court in the case of State of
Karnataka vs. Shreyas Paper Pvt. Ltd. reported in 2006 (1)
SCC 615, Mazgaon Dock Ltd. vs. CIT reported in AIR 1958 SC
861.
13. Counsel for the assessee further submitted that the
expression "activity relating to business" in Rule 2(l) of the 2004
Rules clearly denotes that the legislature intended to give wider
meaning and not narrower meaning. In this connection, he relied
upon the decision of the Apex Court in the case of Doypack
Systems (P) Ltd. vs. Union of India reported in 1988 (36) ELT
201 (SC).
14. Relying on the decision of the Apex Court in the case of CIT
vs. Chandulal Keshavlal and Co. reported in 1960 (38) ITR 601
(SC) and Eastern Investments Ltd. vs. CIT reported in 1951
(20) ITR-I (SC), Counsel for the assessee submitted that the
expenses incurred as a result of commercial expediency are
covered by the term "activities relating to business". Relying on
the decision of the House of Lords in the case of Customs and
Excise Commissioner .vs. Redrow Group PLC reported in
1999 SIMON Tax Cases 161, Counsel for the assessee submitted
that where t-he services used have direct and immediate link with
the business of the assessee, then credit of service tax paid on
those services would be allowable.
15. Counsel for the assessee further submitted that the Service
Tax is a Value Added Tax which, in turn, is a destination based
consumption tax i.e. a tax on commercial activities and it is not a
charge on the business, but a charge on the consumer. In support
of this contention, he relied on the CBEC Circular No.56, dt.
25.4.2003, the Circular No.80, dt.17.9.2004, the decision of the
Apex Court in the case of All India Federation of Tax
Practitioners .vs. Union of India reported in 2007 (7) SCC 527
and the Division Bench Judgment of this Court in the case of Coca
Cola India Pvt. Ltd. vs. CCE reported in 2009 (242) ELT 268
(Bom).
16. We have carefully considered the rival submissions. Before
dealing with the rival submissions, it would be appropriate to set
out brief history regarding the levy of excise duty on goods
manufactured in India.
17. Central Excise & Salt Act, 1944 ("1944 Act" for short) was
enacted with a view to impose excise duty on goods manufactured
in India. As per the 1944 Act, manufactured goods on which
excise duty has been paid, if used as inputs in the manufacture of
the final products, then excise duty was again leviable on the
manufacture of final products. This resulted in levying duty on
duty. To avoid this cascading effect of duty, proforma credit
scheme was introduced under the Central Excise Law. Under the
proforma credit scheme, excise duty and counter vailing duty paid
on the inputs were allowed as proforma credit while paying excise
duty on the final products, provided both the inputs as well as the
final products were liable to duty under the same tariff item.
Originally excise duty was payable at the rate prescribed under the
Schedule to the 1944 Act. With the introduction of the Central
Excise Tariff Act, 1985 ("1985 Act" for short), excise duty became
payable at the rate prescribed under the schedule to the 1985 Act.
18. Since the benefit under the proforma credit scheme was
limited to a very small area, the Government introduced the
Modified Value Added Tax Scheme (MODVAT scheme) with effect
from 01-3-1986. The basic object of the MODVAT scheme was to
shift the burden of excise duty from the inputs to the final products
so that the duty paid on inputs as well as the final products is
ultimately passed on to the consumer. The MODVAT scheme was
initially introduced by inserting Rule 57 A to 57 I in the Central
Excise Rules, 1944 in respect of goods falling under specified
chapters of the Central Excise Tariff Act, 1985. Later on the
MODVAT scheme was extended to the remaining chapters of the
Central Excise Tariff. Subsequently MODVAT Scheme was extended
to cover capital goods by inserting Rule 57 Q to 57 U to the Central
Excise Rules, 1944. As per the MODVAT Scheme, the
manufacturers were entitled to take credit of duty paid on inputs
used in the manufacture of the final products and utilize the said
credit in paying the excise duty on the final products.
19. With the introduction of service tax in the year 1994-95,
persons rendering specified services became liable to pay service
tax on services rendered. `Service Tax', as held by the Apex Court
in the case of All India Federation of Tax Practitioners (supra) is a
value added tax, which in turn is a general tax, which applies to all
commercial activities involving production of goods and provision
of services. Thus, levy of excise duty was on manufacture of
goods whereas, levy of service tax was on rendering specified
services.
20. Since the excise duty as well as the service tax are ultimately
borne by the consumer, the Government decided to integrate the
tax on goods and services under the "Value Added Tax System"
('VAT System' for short). Under the VAT System, tax is levied on
the value added to any goods manufactured or services rendered
each time when there is change of hand. In implementation of the
VAT System, Section 3 of the 1944 Act was amended thereby
renaming the levy of excise duty as "Central Value Added Tax"
('CENVAT' for short) with effect from 12-5-2000. Thereafter, the
Government introduced the CENVAT Credit Rules, 2001 under
which Modvat on inputs/capital goods and service tax were sought
to be amalgamated into one integrated scheme. These Rules were
replaced by CENVAT Credit Rules, 2002. Simultaneously, Service
Tax Credit Rules, 2002 were also framed by the Government under
which credit of service tax paid on services used in the output
services was allowed to be taken.
21. With a view to totally integrate the tax on goods and services
the Government introduced CENVAT Credit Rules, 2004 ('2004
Rules' for short) by superseding the CENVAT Credit Rules, 2002 and
Service Tax Credit Rules, 2002. The object of 2004 Rules is to
extend the credit of service tax and excise duty across goods and
services.
22. As per Rule 3 of 2004 Rules a manufacturer or producer of
final products is entitled to take credit of duty of excise, additional
duty of excise, national calamity contingent duty, education cess,
secondary education cess etc. paid on any input or capital goods
received in the factory of manufacturer of final products on or after
10-9-2004 as well as credit of service tax paid on any input service
received by the manufacturer of the final product or by the
provider of output service on or after 10-9-2004. The said credit
called "CENVAT Credit" can be utilized in paying excise duty
(CENVAT) on the final products/service tax on any output service.
23. Rule 2 (k) and Rule 2(l) of the 2004 Rules define the
expression "input" and "input service" as follows :-
"2(k) "input" means -
(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;
(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;
2(l) "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 upto 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 relating, share registry, and
security, inward transportation of inputs or
capital goods and outward transportation upto
the place of removal:"
24. In the present case, the dispute is, whether the assessee is
entitled to take credit of service tax reimbursed by the assessee to
the outdoor caterer (whose services were engaged for providing
canteen facilities to the employees of the assessee) and utilize the
said credit in discharging the excise duty/CENVAT payable on the
cement manufactured by the assessee ?
25. In the present case, the CESTAT following the Larger Bench
decision of the Tribunal in the case of GTC Industries Ltd., (Supra)
held that the assessee is entitled to the credit of service tax paid
on the outdoor catering services. According to the Revenue, the
Tribunal was wrong in relying upon Larger Bench decision of the
CESTAT in the case of GTC Industries Ltd. (Supra) because in that
case the CENVAT on the final product was payable on the
assessable value, whereas in the present case the CENVAT on
cement is payable on tonnage basis. We see no merit in the above
contention because, if in law the assessee is entitled to take credit
of service tax paid on outdoor catering services then the said
credit cannot be denied merely because the duty on cement is
levied on tonnage basis. Therefore, the fact that the CENVAT on
cement is payable on tonnage basis cannot be a ground to deny
the credit of service tax if in law the assessee is entitled to the
credit of service tax paid on outdoor catering service.
26. The question, therefore, to be considered is, whether the
service of an outdoor caterer used by the assessee is an `input
service' used in the manufacture of cement ?
27. The definition of "input service" as per Rule 2(l) of 2004
Rules (insofar as it relates to the manufacture of final product is
concerned),
consists of three categories of services. The first
category, covers services which are directly or indirectly used in or
in relation to the manufacture of final products. The second
category, covers the services which are used for clearance of the
final products up to the place of removal. The third category,
includes services namely;
a) Services used in relation to setting up,
modernization, renovation or repairs of a factory,
b) Services used in an office relating to such
factory,
c) Services like advertisement or sales promotion,
market research, storage upto the place of
removal, procurement of inputs,
d) Activities relating to business such as,
accounting, auditing, financing, recruitment and
quality control, coaching and training, computer
networking, credit relating, share registry and
security, inward transportation of inputs or
capital goods and outward transportation upto
the place of removal.
Thus, the definition of 'input service' not only covers services,
which fall in the substantial part, but also covers services, which
are covered under the inclusive part of the definition.
28. In the present case, the question is, whether outdoor catering
services are covered under the inclusive part of the definition of
"input service". The services covered under the inclusive part of
the definition of input service are services which are rendered prior
to the commencement of manufacturing activity (such as services
for setting up, modernization, renovation or repairs of a factory) as
well as services rendered after the manufacture of final products
(such as advertisement, sales promotion, market research etc.)
and includes services rendered in relation to business such as
auditing, financing ........ etc. Thus, the substantive part of the
definition "input service" covers services used directly or indirectly
in or in relation to the manufacture of final products, whereas the
inclusive part of the definition of "input service" covers various
services used in relation to the business of manufacturing the final
products. In other words, the definition of "input service" is very
wide and covers not only services, which are directly or indirectly
used in or in relation to the manufacture of final products but also
includes various services used in relation to the business of
manufacture of final products, be it prior to the manufacture of
final products or after the manufacture of final products. To put it
differently,
the definition of input service is not restricted to
services used in or in relation to manufacture of final products, but
extends to all services used in relation to the business of
manufacturing the final product.
29. The expression "activities in relation to business" in the
definition of "input service" postulates activities which are
integrally connected with the business of the assessee. If the
activity is not integrally connected with the business of the
manufacture of final product, the service would not qualify to be a
input service under Rule 2(l) of the 2004 Rules.
30. The Apex Court in the case of Maruti Suzuki Ltd. (supra) has
considered the expression `used in or in relation to the
manufacture of final product' in the definition of "input" under
Rule 2(k) of 2004 Rules and held as follows :-
"14. .......... Moreover, the said expression,
viz, "used in or in relation to the manufacture of
the final product" in the specific/substantive part
of the definition is so wide that it would cover
innumerable items as "input" and to avoid such
contingency the Legislature has incorporated the
inclusive part after the substantive part qualified
by the place of use. For example, one of the
categories mentioned in the inclusive part is
"used as packing material". Packing material by
itself would not suffice till it is proved that the
item is used in the course of manufacture of final
product. Mere fact that the item is a packing
material whose value is included in the
assessable value of final product will not entitle
the manufacturer to take credit. Oils and
lubricants mentioned in the definition are
required for smooth running of machines, hence
they are included as they are used in relation to
manufacture of the final product. The intention
of the Legislature is that inputs falling in the
inclusive part must have nexus with the
manufacture of the final product.
16. In our earlier discussion, we have referred
to two considerations as irrelevant, namely, use
of input in the manufacturing process, be it direct
or indirect as also absence of the input in the
final product on account of the use of the
expression "used in or in relation to the
manufacture of final product". Similarly, we are
of the view that consideration such as input
being used as packing material, input used as
fuel, input used for generation of electricity or
steam, input used as an accessory and input
used as paint are per se also not relevant. All
these considerations become relevant only when
they are read with the expression "used in or in
relation to the manufacture of final product" in
the substantive/specific part of the definition. 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". It
is the functional utility of the said item which
would constitute the relevant consideration.
Unless and until the said input is used in or in
relation to the manufacture of final product
within the factory of production, the said item
would not become an eligible input. The said
expression "used in or in relation to the
manufacture' have many shades and would
cover various situations based on the purpose for
which the input is used. However, the specified
input would become eligible for credit only when
used in or in relation to the manufacture of final
product. Hydrogen gas used in the manufacture
of sodium cyanide is an eligible input, since it has
a significant role to play in the manufacturing
process and since the final product cannot
emerge without the use of gas. Similarly, Heat
Transfer Oil used as a heating medium in the
manufacture of LAB is an eligible input since it
has a persuasive role in the manufacturing
process and without its use it is impossible to
manufacture the final product. Therefore, none
of the categories in the inclusive part of the
definition would constitute relevant consideration
per se. They become relevant only when the
above crucial requirement of being "used in or in
relation to the manufacture" stands complied
with. In our view, one has to therefore read the
definition in its entirety."
31. In our opinion, the ratio laid down by the Apex Court in the
case of Maruti Suzuki Ltd. (supra) in the context of the definition of
'input' in Rule 2(k) of 2004 Rules would equally apply while
interpreting the expression "activities relating to business" in Rule
2(l) of 2004 Rules. No doubt that the inclusive part of the
definition of `input' is restricted to the inputs used in or in relation
to the manufacture of final products, whereas the inclusive part of
the definition of input service extends to services used prior
to/during the course of/after the manufacture of the final products.
The fact that the definition of `input service' is wider than the
definition of `input' would make no difference in applying the ratio
laid down in the case of Maruti Suzuki Ltd. (supra) while
interpreting the scope of `input service'. Accordingly, in the light
of the judgment of the Apex Court in the case of Maruti Suzuki Ltd.
(supra), we hold that the services having nexus or integral
connection with the manufacture of final products as well as the
business of manufacture of final product would qualify to be input
service under Rule 2(l) of 2004 Rules.
32. As rightly contended by Shri Shridharan, learned Counsel for
the respondent-assessee, in the present case, the assessee
carrying on the business of manufacturing cement by employing
more than 250 workers is mandatorily required under the
provisions of the Factories Act, 1948 to provide canteen facilities to
the workers. Failure to do so entails penal consequences under the
Factories Act, 1948. To comply with the above statutory provision,
the assessee had engaged the services of a outdoor caterer. Thus,
in the facts of the present case, use of the services of an outdoor
caterer has nexus or integral connection with the business of
manufacturing the final product namely, cement. Hence, in our
opinion, the Tribunal was justified in following the Larger Bench
decision of the Tribunal in the case of GTC Industries Ltd. (supra)
and holding that the assessee is entitled to the credit of service
tax paid on outdoor catering service.
33. It is argued on behalf of the Revenue that not only the ratio
but the decision of the Apex Court in the case of Maruti Suzuki Ltd.
(supra) must be applied ipso facto to hold that the credit of
service tax paid on outdoor catering services is allowable only if
the said services are used in relation to the manufacture of final
products. That argument cannot be accepted because unlike the
definition of input, which is restricted to the inputs used directly or
indirectly in or in relation to the manufacture of final products, the
definition of `input service' not only means services used directly
or indirectly in or in relation to manufacture of final products, but
also includes services used in relation to the business of
manufacturing the final products. Therefore, while interpreting the
words used in the definition of `input service', the ratio laid down
by the Apex Court in the context of the definition of `input' alone
would apply and not the judgment in its entirety. In other words,
by applying the ratio laid down by the Apex Court in the case of
Maruti Suzuki Ltd. (supra), it cannot be said that the definition of
`input service' is restricted to the services used in relation to the
manufacture of final products, because the definition of `input
service' is wider than the definition of `input'.
34. Therefore, the definition of input service read as a whole
makes it clear that the said definition not only covers services,
which are used directly or indirectly in or in relation to the
manufacture of final product, but also includes other services,
which have direct nexus or which are integrally connected with the
business of manufacturing the final product. In the facts of the
present case, use of the outdoor catering services is integrally
connected with the business of manufacturing cement and
therefore, credit of service tax paid on outdoor catering services
would be allowable.
35. The argument of the Revenue, that the expression "such as"
in the definition of input service is exhaustive and is restricted to
the services named therein, is also devoid of any merit, because,
the substantive part of the definition of `input service' as well as
the inclusive part of the definition of `input service' purport to
cover not only services used prior to the manufacture of final
products, subsequent to the manufacture of final products but also
services relating to the business such as accounting, auditing.....
etc. Thus the definition of input service seeks to cover every
conceivable service used in the business of manufacturing the final
products. Moreover, the categories of services enumerated after
the expression 'such as' in the definition of 'input service' do not
relate to any particular class or category of services, but refer to
variety of services used in the business of manufacturing the final
products. There is nothing in the definition of `input service' to
suggest that the Legislature intended to define that expression
restrictively. Therefore, in the absence of any intention of the
Legislature to restrict the definition of 'input service' to any
particular class or category of services used in the business, it
would be reasonable to construe that the expression 'such as' in
the inclusive part of the definition of input service is only
illustrative and not exhaustive. Accordingly, we hold that all
services used in relation to the business of manufacturing the final
product are covered under the definition of `input service' and in
the present case, the outdoor catering services being integrally
connected with the business of the manufacture of cement, credit
of service tax paid out on catering services has been rightly
allowed by the Tribunal.
36. The argument of the Revenue that the expression "such as"
in Rule 2(l) of 2004 Rules is restricted to the categories specified
therein, runs counter to the C.B.E.C. Circular No.97, dated 23rd
August, 2007. In that Circular the C.B.E.C. (vide para 8.3) has
held that the credit of service tax paid in respect of mobile phone
service is admissible provided the mobile phone is used for
providing output service or used in or in relation to manufacture of
finished goods. Mobile phone service is neither used in the
manufacture of final product nor it is specifically included in the
definition of input service. Even then, the C.B.E.C. has construed
the definition of input service widely so as to cover not only the
services specifically enumerated in the definition of 'input service'
but also cover all services which are used in relation to the
business of manufacturing the final products. Therefore, the
argument of the revenue which runs counter to stand taken by the
C.B.E.C. cannot be accepted.
37. In the case of Coca Cola India Pvt. Ltd. (Supra) a Division
Bench of this Court has considered scope of the expression "input
service' as defined in rule 2(l) of 2004 Rules. In that case, the
question for consideration was, whether a manufacturer of non
alcoholic beverage bases (concentrates) is eligible to avail credit of
service tax paid on advertisement, sales promotion, market
research etc. The argument of the revenue in that case was that
the advertisements are not relatable to the concentrate
manufactured by Coco Cola India Pvt. Ltd. (supra) and hence, the
credit in respect thereof cannot be allowed. Considering the
Finance Minister's Budget Speech for 2004-05, press note issued
by the Ministry of finance along with the Draft 2004 Rules and
various decisions of the Apex Court, this Court held that the
expression 'activities in relation to business' in the inclusive part of
the definition of 'input service' further widens the scope of input
service so as to cover all services used in the business of
manufacturing the final products and that the said definition is not
restricted to the services enumerated in the definition of input
service itself. The Court rejected the contention of the revenue
that a service to qualify as an input service must be used in or in
relation to the manufacture of the final products and held that any
service used in relation to the business of manufacturing the final
product would be an eligible input service.
38. We concur with the above decision of this Court in the case of
Coco Cola India Pvt. Ltd. (supra). However, in that case, this Court
has also held that the cost of any input service that forms part of
value of final products would be eligible for CENVAT credit. That
observation of the Division Bench is made in the context of a
service which is held to be integrally connected with the business
of manufacturing the final product. Therefore, the observation of
the Division Bench in the case of Coca Cola India Pvt. Ltd. (supra)
has to be construed to mean that where the input service used is
integrally connected with the business of manufacturing the final
product and the cost of that input service forms part of the cost of
the final product, then credit of service tax paid on such input
service would be allowable.
39. The Larger Bench of CESTAT in the case of GTC Industries Ltd.
(supra) has also observed that the credit of service tax would be
allowable to a manufacturer even in cases where the cost of the
food is borne by the worker (see last para). That part of the
observation made by the Larger Bench cannot be upheld, because,
once the service tax is borne by the ultimate consumer of the
service, namely the worker, the manufacturer cannot take credit of
that part of the service tax which is borne by the consumer.
Shri Shridharan, learned Counsel for the assessee fairly conceded
to the above position in law and in fact filed an affidavit affirmed
by a responsible officer of the assessee wherein it is stated that
the proportionate credit to the extent embedded in the cost of food
recovered from the employee/worker has been reversed.
40. For all the aforesaid reasons, the question of law framed by
the revenue is answered in the affirmative, i.e. in favour of the
assessee and against the revenue. However, the CENVAT credit
reversed by the assessee, belatedly, having not been verified by
the Excise Authorities, the Excise Authorities are directed to verify
the same and pass an appropriate order in that behalf.
41. The appeal is disposed of in the above terms with no order as
to costs.
JUDGE JUDGE
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