CENVAT CREDIT ON INPUT SERVICES – RECENT JUDICIAL DECISIONS

[Mr. M. GOVINDARAJAN]

Rule 3 of CENVAT Credit Rules, 2004 provides for availing and utilizing of service tax paid on input services for providing output service or manufacturing of goods. Rule 2(l) defines the term ‘input service’ which has been the subject matter for interpretation in many of the litigation.   The said definition has been substituted so that many of the input services are not eligible for CENVAT credit.   Here some of the recently reported case laws are given:

In ‘National Engineering Industries Limited V. Commissioner of Central Excise, Jaipur’ – 2013 (6) TMI 590 - CESTAT NEW DELHI the Tribunal found that Kolkata office is registered office of the appellants and is being maintained by them for the purpose of business relating to goods being manufactured by them.   The definition of ‘input services’ does not restrict itself to the services availed for manufacturing activities but gets extended to the services used relating to business.   Inasmuch as Kolkata and Delhi Office are maintained by the appellants used for business activities the services availed at other places get covered by the definition of ‘input services’.

In ‘Commissioner of Central Excise, Vapi V. Hindalco Industries Limited’ – 2011 (7) TMI 175 - CESTAT, AHMEDABAD the Tribunal held that legislative intent in respect of inputs for manufacture and input service, in case of manufacture are to be treated differently and when input services rendered in relation to the business activity credit is admissible.   It cannot be said that the service of the Commission agent is not relatable to the business activity.   The Tribunal further held that there is no doubt that the Commission agent would help in increasing the business activity.   The respondents are eligible for the benefit of credit of service tax paid on the services rendered by the agent.

In ‘Semco Electric Private Limited V. Commissioner of Central Excise, Pune-I’ – 2011 (10) TMI 142 - CESTAT, MUMBAI the Tribunal held as follows:

• As regards maintenance and repair service, it is seen that the maintenance and repair has been undertaken in respect of the office equipments installed in the factory of the appellant and such services are definitely ‘input services’ in or in relation to the manufacture and export of final products and therefore, such credit is permissible under the CENVAT Credit Rules, 2004;
• Clearing and Forwarding Agency Service have been provided in connection with the export of goods and such services are in fact exempt from payment of service tax.   In case service tax has been paid on such services, the assessee would be entitled for refund of such service tax paid;
• As regards management consultancy service, the appellant submits that such services had been availed in respect of foreign exchange risk management and amalgamation and merger of the units of the assessee.   These services are relating to business activity and as per the definition of ‘input service’ services in relation to business activity are eligible input services;
• As regards GTA service in respect of which CENVAT credit has been availed, it is seen that in the instant case, the said service pertains to import of inputs and capital goods. There cannot be any doubt regarding such services being ‘input services’ as defined in Rule 2(l) of CENVAT Credit Rules, 2004. Without bringing the raw materials and capital goods into the factory, production activity cannot take place and such services are an integral part of the manufacturing activity.

In ‘NTF (India) Private Limited V. Commissioner of Central Excise, Delhi – III’ – 2013 (6) TMI 618 - ITAT DELHIit was held that the definition of ‘input service’ makes it clear that the input service specifically covers the 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.   Thus the construction service used for construction of office rooms of the appellant’s factory was specifically covered by the definition of ‘input services’ during the period in dispute.

As regards the housekeeping service, the same undisputedly has been used for keeping the factory premises neat and clean which is a statutory requirement of Section 11 of the Finance Act, 1948.   In view of this, the service has to be treated as service used by the manufacturer in relation to the manufacture of final product as without compliance with the provisions of the Factories Act, manufacturing operations are not possible. Thus the Tribunal held that housekeeping service is also eligible for CENVAT credit during the period in dispute.

In ‘Commissioner of Central Excise, Meerut-II V. Jindal Pipes Limited’ – 2013 (2) TMI 494 - CESTAT, NEW DELHI the Tribunal held that renovation involves dismantling of the existing structures on which a new structure can be erected.   Hence credit is allowed.

In ‘Golden Tobacco Limited V. Commissioner of Central Excise, Mumbai – I’ – 2013 (6) TMI 617 - CESTAT MUMBAI the appellant availed the services on which credit has been availed relate to audit and accounting services, repair and maintenance services, packaging service, legal services etc.,   The Tribunal held that all these services have nexus and are integrally connected with the business of manufacturing and therefore, all are eligible input services as defined in Rule 2(l) of CENVAT Credit Rules, 2004.

In ‘Commissioner of Central Excise, Mumbai – IV V. GTC Industries Limited’ – 2012 (5) TMI 447 - CESTAT, MUMBAI it was held that the service having nexus or integral connection with the manufacture of final product would qualify to be input service under Rule 2(l) of 2004 Rules.   Under the provisions of Section 46 of the Factories Act, 1948 it is mandatory for the appellant to provide canteen facility for the worker in their factory premises as a measure of welfare of the workers.   The canteen facility also helps in furtherance of the manufacture.   Thus the canteen service has nexus or integral

In ‘Bajaj Hindustan Limited V. Commissioner of Central Excise, Lucknow’ – 2013 (6) TMI 616 - CESTAT NEW DELHI it was held that the service tax paid by the commission agent is in respect of sale of sugar manufactured by the appellant.   The input service under Rule 2(l) of CENVAT Credit Rules, 2004 means any service which includes service in respect of sales promotion. Credit is allowed.

In ‘Commissioner of Central Excise, Vadodara V. Schott Glass India Private Limited’ – 2012 (11) TMI 78 - CESTAT, AHMEDABAD rent-a-cab for transportation of employees from city to factory in village about 40 kms away which did not have adequate facilities for employees is used.   The Tribunal held that to get proper employees it was necessary for the assessee to provide transport facility from nearest city.   It was welfare measure necessary to ensure that manufacture took place properly.   The services had nexus with business of manufacture.   Hence credit was admissible.

In ‘Commissioner of Central Excise, Ahmedabad – II V. Cadila Healthcare Private Limited’ – 2013 (1) TMI 304 - GUJARAT HIGH COURT the copies machine, air conditioner, water cooler etc., are the equipments necessary for factory building as well as for activities relating to business.   They are eligible for credit. The assessee availed in respect of instruments used for measuring-

• Size : gauges and vernier calipers;
• Weight : scales;
• Temperature : temperature indicators; and
• Humility and temperature – thermo hygrometer

It was held that these instruments measure various factors with precision.   By their very nature, they have to be required standards, accurate and precise and checked/calibrated from time to time for which assessee requires services of technical inspection and certification.   Also since it was a statutory requirement of Drugs and Cosmetics Act, 1940 and Drugs and Cosmetic Rules, 1945 it was held it was necessary for the assessee to avail such services.   As these instruments/equipments were used in relation to manufacture of final products, their maintenance, checking and calibration as necessary corollary would be in relation to manufacture of final products.   In that view these services are eligible for credit.

The assessee availed the technical testing and analyzing services, engaged in manufacture of medicaments for testing of clinical samples by various agencies prior to commencement of commercial production.   These samples manufactured in small trial batches and removed after payment of excise duty. It was held that drugs manufactured by assessee, by their very nature required technical testing and analysis before entering commercial production. Final product could be manufactured only upon approval of regulatory authority after technical testing and analysis.   In that view, testing and analysis of trial batches was directly related to manufacture of final product. It was input service and assessee was entitled to take credit of service tax paid thereon.

Now we will discuss how far the above case laws will be applicable to the new definition for ‘input service’. According to Rule 2(l) “input service” means any service, -

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

(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal,

and includes services used in relation to 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 up to the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation up to the place of removal; but excludes,-

(A) service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for -

(a)  construction or execution of works contract of a building or a civil structure   or a part thereof; or                    

 (b) laying of foundation or making of structures for support of capital goods,

 except for the provision of one or more of the specified services; or

 (B) services provided by way of renting of a motor vehicle, in so far as they relate   to a motor vehicle which is not a capital goods; or

(BA)  service of general insurance business, servicing, repair and maintenance , in so far as they relate to a motor vehicle which is not a capital goods,  except when used by -

(a) a manufacturer of a motor vehicle in respect of  a motor vehicle manufactured by  such person ; or

(b) an insurance company in respect of a motor vehicle insured or reinsured by such person; or

(C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee;”

According to this definition only the services contained in the inclusive clause are eligible for CENVAT credit.   The welfare activities taken by the service provider or manufacturer are not at all eligible for CENVAT credit.   Many of the services discussed in the above said case laws are related to business activity. Such definition is not found in the new definition.   These case laws are helpful only for the cases before the new definition has come into effect.