TMI Blog2011 (1) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... Car hiring/rent-a-cab service) and sub-para (iv) (Authorised Service Station Service) - matter remanded back for verification of evidences. Cenvat Credit in relation to (Management Consultancy Service), (Maintenance or Repair Service), (Recovery Agent's Service), (Insurance and Courier Service) and (Courier Service) two member bench have difference of opinion - matter referred to larger bench. - ST/263 OF 2009 - 1 OF 2011 - Dated:- 5-1-2011 - P.G. CHACKO, P. KARTHIKEYAN, JJ. Thomas Vellapally for the Appellant. D.P. Nagendra Kumar for the Respondent. ORDER P. Karthikeyan, Technical Member. This is an appeal filed by M/s. Telco Construction Equipment Company Ltd. (TCECL for short), Dharwad impugning an order of the Commissioner of Central Excise Customs, Belgaum vide which he disallowed and demanded an amount of Rs. 2,22,35,165 availed by the appellant as credit of Service Tax paid on various input services during the period October, 2006 to March, 2008 along with applicable interest and imposed penalties of Rs. 2,000 for each credit entry in the CENVAT Account under Rule 15(3) of the CENVAT Credit Rules, 2004 (CCR) in respect of each of the two show-ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the CENVAT credit of various input services in the context whether such services were used in or in relation to the manufacture and clearance of final products form place of removal ignoring the fact that the appellant was also a provider of output services. The appellant's unit was situated at Dharwad. The impugned credit was transferred to it by its Head office located in Bangalore. The Headquarters operated as an input service distributor under Rule 7 of CCR. Such credit could be disallowed only by the Service Tax authorities at Bangalore. The impugned order was passed by the Commissioner, Belgaum without jurisdiction. On denying the Service Tax paid under Air Travel Agent's services, the impugned order held that the same had been incurred in connection with sponsored holiday trips, etc., allowed to its employees by the assessee. This finding was without any evidence or allegation in the show-cause notice. The appellants had produced invoices in support of the claim that the Service Tax was paid for booking air tickets for sales promotion trips undertaken by its employees. As regards the mandatory services (Maintenance or repairs), it is submitted that the services were arrang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to the Jurisdictional Rage Superintendent clearly showed that the assessee had availed of the CENVAT credit provided by the consultants outside India, like the KPMG Associates and Management Consultancy services received in India from Watson Wyatt and India Life Capital (P.) Ltd., etc. The management consultancy services received from Watson Wyatt were availed for the purposes of gratuity valuation, superannuation valuation, leave entitlement valuation of its employees and came within the scope of "Auditing". When the definition of 'input services' included services related to business, such as auditing, financing, etc., the appellant was entitled to this credit. They had received consultancy service on various important policy matters relating to finance, accounting, taxation, capital investments, etc., from Shri Soumendu Mazumdar, a highly experienced Chartered Accountant. They had received consultancy services for process improvement of the organization from Shri John Vinward, a Consultant appointed by the assessee. The assessee had appointed KPMG and SL Garrigues for due diligence for acquisition of foreign company. The said services were provided in connection with its bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 14 of CCR, read with Section 11AB and Section 75 of the Finance Act was illegal and improper. The assessee had availed of credit due to it. Similarly, penalty imposed for each credit entry under Rule 15(3) of CCR was illegal. The assessee had not taken any CENVAT credit wrongly or in contravention of any of the relevant rules. 6. During hearing, the learned Counsel representing the appellant submitted that the mandatory services during warranty and services post-warranty were carried out by the dealers on behalf of the appellant. Free services were necessary in connection with the sale of the machine under contract between the appellant and the customers. The learned Counsel relied on the decision of the Tribunal in CCE v. Danke Products [2010] 26 STT 56 (Ahd. - CESTAT) in support of the claim that the appellant was entitled to credit of Service Tax paid by the dealers who carried out free services on behalf of the appellant. The services undertaken post-warranty by the dealers also were carried out under a comprehensive maintenance contract between the assessee and the customers. The dealers undertook the service on behalf of the appellant. As per the CBEC Circular No. 96/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Apex Court in Maruti Suzuki Ltd. v. CCE [2009] 22 STT 54. He has also relied on the decisions of the Tribunal in Vikram Ispat v. CCE [Order No. A/71/2010 - WZB, dated 20-1-2010]; Chemplast Sanmar Ltd. v. CCE [2010] 25 STT 97 (Mad. - CESTAT), Manikgarh Cement Works [Final Order No. A/632/2009/SMB/C-IV, dated 13-11-2009] and Sundaram Brake Linings Ltd. v. CCE [2010] 28 STT 435 (Chennai - CESTAT). The main plank of the Revenue's case is that in order to qualify as 'input service', the same had to satisfy two ingredients; i.e., (i) such input service should be used by a provider of taxable service for providing an output service or used by the manufacturer of the final product for manufacture and clearance of final product up to the place of removal. (ii) Any services specified in the inclusive part of the definition of Rule 2(l) should also meet the essential requirements specified under the main part of the definition. Paragraph 39 of the High Court's judgment ran counter to the ruling of the Apex Court in Maruti Suzuki Ltd.'s case (supra). In the Vikram Ispat case (supra), the Tribunal had distinguished the Coca Cola India (P.) Ltd. v. CCE [2009] 22 STT 130 (Mum.) from that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same could not be availed as an input service tax credit. (f) As regards the service tax reimbursed to dealers, it is submitted that the reimbursement of Service Tax pertained to mandatory services provided by the dealer to the customer on the finished products after their sale from the factory. Therefore, the same could not be held as an input service in terms of Rule 2(l) of CCR. (g) As regards Recovery Agent's services, the same were provided subsequent to sale and had no nexus either with the manufacture or clearance of the excisable goods or were subsequent to activities specified in Rule 2(l) of CCR. (h) As for the insurance services involved, the same relating to branch office and transit insurance in respect of spares could not be treated as input services as such services were availed subsequent to sale of manufactured goods. It could not be said with certainty that entire spares in respect of which insurance had been taken at the branch office, warehouse as well as transit insurance were actually used for providing taxable output services such as maintenance or repairs by the appellants themselves. Moreover, the maintenance or repair services were actually p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s being a legal question the Commissioner needs to give a finding in this regard in the remand proceedings we order. 9.1 The admissibility of credit raised on the various services is discussed below seriatum. (i) Air Travel Agent's Service: The assessee had claimed credit of Service Tax paid for booking Air tickets for travel by its employees. The claim before the Commissioner was that the personnel had undertaken travels in connection with promotion of sales of the finished products of TCECL. The Commissioner denied the credit on the ground that the assessee had not established with necessary evidence that the impugned service was availed for sales promotion, as claimed by the assessee. To qualify for credit of the tax paid, it had to establish that the service was availed in relation to promotion of sales of the assessee's products, namely, excavators, etc. In principle, the authorities are not averse to allow the disputed credit. This matter has to be remanded to the Commissioner so that the appellants can establish its entitlement to the credit in terms of the provisions contained in the CENVAT Credit Rules. (ii) Rail Travel Agent's Service: The dispute in relation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o carry out a number of initial 'free services' of the equipment during the warranty period. The consideration for these services is paid to the dealer by the assessee. The assessee bears the cost of these services and the same is included in the value of the equipment. The cost of the service and the tax are parts of the assessable value of the equipment on which excise duty is paid. Beyond the warranty period, the customers of the assessee have the option to avail servicing of its vehicles by the designated dealers of the assessee at various locations. The customers pay for the services and the dealer pays the Service Tax. The Service Tax paid by the dealers is reimbursed by the assessee. In the proceedings before the Tribunal, the appellants relied on a decision of the Tribunal in the case of Danke Products (supra). The taxable entry 'maintenance or repair service" read as follows during the material period: "Section 65(64): "management, maintenance or repair" means any service provided by - (i) any person under a contract or an agreement; or (ii) a manufacturer or any person authorised by him, in relation to, - (a) management of properties, whether immovable or n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were provided subsequent to sale and had no nexus either with the manufacture or clearance of excisable goods or were activities specified under Rule 2(l) of CCR. We note that this service is availed by the appellant for recovering amounts due from customers of the assessee. The appellants had claimed that these were Business Auxiliary Services availed in relation to business in connection with the manufacture and clearance of final products from the place of removal. After considering the arguments by both sides, we find that the tax paid under this head will qualify for credit provided the services can be brought under "activities relating to business", which we discuss in the latter part of this order. (viii)Insurance and Courier service: Insurance service is provided for insuring branch offices, warehouses, stocks, medical insurance of employees, transit insurance for spares and car insurance. As per the impugned order, the assessee pays Service Tax on insurance of warehouse, branch office and for stocks, medical insurance of employees, transit insurance for spares and car insurance. The appellants have claimed that insurance service relating to manufacturing plant, warehou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P.) Ltd. v. CCE [2009] 23 STT 289 (Mum. - CESTAT) we find that vide the order cited, the Tribunal had held that the tax paid on maintenance or repairs of photocopy machines used in the assessee's office was an input service. The impugned services are availed on equipment placed in its various offices for use in connection with sale. This service is an input service and the appellant is eligible for the credit of tax paid. (xi) Club Association Service: As regards this service, the assessee had taken corporate membership in Bangalore Club and claimed credit on the ground that the membership was for official purpose and was related to business activities. We find that membership of any employee of the assessee in Bangalore Club is not an activity related to business. We uphold the decision of the Commissioner. (xii) Courier Service: This service was availed for transportation of spares from central warehouse to feeder warehouses and branches for transport of replacement materials under warranty or for providing maintenance or repair services or for sale of goods to dealers. The Commissioner held that these activities were post removal and clearance of goods and not entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that the impugned activity was undertaken for facilitating transport of spares to be used for maintenance or repair or sale of the assessee's products. It would appear that the activity is one of the activities related to business. This aspect has to be examined by the Commissioner. 10. The Commissioner disallowed credit relating to most services on the ground that as per definition contained in Rule 2(l) of the Cenvat Credit Rules, input service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture and clearance of the final products up to the place of removal and included certain activities relating to business. An illustrative list of such activities was contained in the definition. Therefore, service tax paid on services which were not directly or indirectly used, in or in relation to the manufacture and clearance of the final products of the assessee up to the place of removal, or which were not inputs for the provision of the output services of the assessee were not input services eligible to credit. The Commissioner has not allowed credit of service tax paid on activities undertaken after the manufacture and clearance of final p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the High Court found the definition of input service to comprise five independent definitions ran counter to the ruling of the Apex Court in the Maruti Suzuki Ltd.'s case (supra). 12. He has cited various decisions of the Tribunal in support of the Revenue's case. We discuss these decisions below seriatim. (a) Vikram Ispat's case (supra) In this case following the Maruthi Suzuki Ltd.'s case (supra), a ld. Single Member of the Tribunal held that any service to be brought within the ambit of definition of input services should be one which satisfies the essential requirement contained in the main part of the definition. This requirement was equally applicable to the various items mentioned in the inclusive part of the definition. We observe that this view is inconsistent with the view taken by the Hon'ble High Court of Bombay in the Coca-Cola India Ltd.'s case (supra). The Tribunal held that the Coca-Cola India (P.) Ltd.'s case (supra) judgment stood overruled by the Maruthi Suzuki Ltd.'s case (supra) judgment. (b) Vikram Ispat's case (supra) In this case, the ld. Single Member of the Tribunal followed his own decision in the Vikram Ispat's case (supra). (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service does not meet the same in relation to the manufacture of the finished excisable goods listed in the Table in paragraph 2." 13. The judgment in the case of Coca-Cola India (P.) Ltd. (supra) the Hon'ble High Court of Bombay analysed the definition of input service in detail and held that activities related to business included diverse activities not covered by the main part of the definition or did not figure in the list of services specified in the inclusive part. What was necessary was that the nexus between the manufacture and the service was established. We find that the definitions of input and input service are not structured similarly. The relevant provisions are reproduced below:- Rule 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, the ratio of the Maruti Suzuki Ltd. (supra) judgment cannot be applied to interpret the scope of 'input service'. In the circumstances, the judgment of the Hon'ble High Court of Bombay is binding on us. We hold that the Commissioner has to decide admissibility to credit in the disputed cases remanded to him in the light of the judgment of the Bombay High Court judgment in the Coca Cola India (P.) Ltd. case (supra). 14. In the Coca Cola India (P.) Ltd.'s case (supra), the appellant manufactured beverage concentrates and incurred expenditure on advertisement of bottled beverages including service tax. The issue was whether the appellant was entitled to credit of service tax paid on advertising. Their Lordships of the Hon'ble High Court of Mumbai examined the following questions and answered them in the affirmative. (a) Whether services of advertising and marketing procured by the appellants in respect of advertisements for aerated waters are covered by the definition of the words "input services" as defined in Rule 2(l) of the CENVAT Credit Rules, 2004, when admittedly the appellants manufacture concentrates exclusively used for the manufacture of the respective aerated wate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g as the manufacturer could demonstrate that the advertisement services availed had an effect or impact on the manufacture of the final product and establish the relationship between the input service and the manufacture of the final product. Once the cost incurred by the service had to be added to the cost, and was so assessed, it was recognition by Revenue of the advertisement services having a connection with the manufacture of the final product. This test would also apply to the case of sales promotion. We find that this observation on the link with the assessable value of the final product was incidental to the facts of that case and that the language of the definition and the reading of their Lordships do not find such a requirement for services to qualify as input services. It would, therefore, appear that all services which constitute activities related to business need not have a nexus with manufacture in a manner different from what was found in the Coca Cola India (P.) Ltd.'s case (supra) by the Hon'ble High Court to become input service. 17. In the instant cases, we find that the issues involved are complex and do not lend themselves to one clear interpretation. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent in Central Excise Appeal No. 7/2010 (CCE v. Ultratech Cement Ltd. [2010] 29 STT 244 (Bom.). What was held by the High Court in Coca Cola case was that the expression "activities in relation to business" in the inclusive part of the definition of 'input service' widened the scope of 'input service' so as to cover all services used in the business of manufacturing the final product. The Nagpur Bench added the rider of 'integral connection' vide para 29 of its judgment, which reads as follows: "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." [Emphasis supplied] In another context, the Nagpur Bench clarified certain observations contained in Coca Cola judgment by stating that such observation had to be construed to mean that, where input service was integrally connected with the business of manufacturing the final product and the cost of the input service formed p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty-related issue. 21. Reverting to the Hon'ble High Court's judgment in Coca Cola India (P.) Ltd.'s case (supra), I note that the Hon'ble High Court analysed the definition of 'input service' by dividing it into 5 limbs/categories in relation to a manufacturer and held that each limb/category of the definition of 'input service' could be considered as an independent benefit available to the manufacturer vide para 39 of the High Court's judgment. It was held that, if an assessee could satisfy anyone of the five limbs, then credit of service tax paid on the input service would be available to them. Their Lordships, in this context, further observed thus: "This would be so even if the assessee does not satisfy the other limb/limbs of the above definition." On the other hand, in para 43 of the Hon'ble High Court's judgment, it was held that, for availing the benefit of the CENVAT credit on service tax paid on advertisement services, a manufacturer should demonstrate that such services had an effect or impact on the manufacturing of the final product and should establish the relationship between the services and the manufacture of the final product. Noticeably, the view taken by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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