TMI Blog2010 (9) TMI 958X X X X Extracts X X X X X X X X Extracts X X X X ..... cts of the case are that the appellant t is an assessee engaged in the manufacture of construction equipments, excavators and cranes of Chapter 84 of the Central Excise Tariff. They availed CENVAT credit of duty paid on inputs, capital goods and Service Tax paid on input services. TCECL have th eir Corporate office at Bangalore registered with the Department as an Input Service Distributor‟ under Rule 4 A of the Service Tax Rules, 1994, for distributing the credit of Service Tax paid and accounted at their Corporate office to its manufacturing u nits, one of which is TCECL, Dharwad, the appellant. The impugned order disposed two show - cause notices, one dated 05.11.2007 and another dated 02.09.2008. Both the show - cause notices had proposed to disallow and recover credit of Service Tax taken by TCEC L on various taxable services such as air travel agents‟ service, management consultancy‟ service, goods transport agents‟ service, maintenance repair service‟, car hiring‟ ( rent a - cab‟) service, telephone and mobile‟ service, courier‟ service, r ecovery agent‟s service, rail travel agent‟s service, war ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the services were arranged to be provided free of cost to the customers. The transaction value for the machines included cost of such services. Assessee‟s dealers provid ed services on production of mandatory service coupons issued t o them by the assessee. As per Circul ar No. 643/34/2002 - CX dated 01.07.2002 (para 7) CBEC had clarified that these services were provided free by the dealer on behalf of the assessee and the co st towards this was reimbursed to him. This was one of the considerations for sale of the goods (motor vehicles, consumer items etc.). In the case of the appellant, this element hence formed part of the assessable value of the machinery sold by it. Therefo re, the assessee was entitled to avail credit of the Service Tax involved. 4.1 Another ground raised is that the service rendered by its dealers were used by appellant for providing maintenance or repair services to its customers and the appellant was full y entitled to avail of the input credit of Service Ta x on the invoices raised on the appellant by the service centers. In dace of this service, the words used in the definition of input service‟ in Rule 2(1)(i) are service used b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igues for due diligence for acquisition of foreign company. The was fully entitled to the credit of Service Tax. The claims made by the assessee were ignored by the Commissioner while passing the impugned order. 4.3 As regards Service Tax reimbursement pertaining to mandatory services, these services were provided by the dealer on behalf of the appellant; the credit of the related Service Tax should not have been disallowed. The recovery agents‟ services used by the appellant t to recover payment from customers was part of the business activities of the appellant. Therefore, Service Tax paid for this activity was admissible as input service credit. The service tax paid for insuring the manufacturing plants, warehouse and sales offices of the assessee and insurance paid for movement of materials used for manufacture and maintenance or repair as well as insurance paid for vehicle used for sale promotion was due as the assessee provided output service of repair and maintenance . The medical insurance for the employees also formed part of the business activities of the assessee. 4.4 As regards professional fees and manpower supply, the assessee had produced necessary evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustomer. The dealer undertook the ST dated 23.08.2007, it was clarified that services provide by the sub- contractors were in the nature of input services. Services of the dealers utilized by the appellant was part of the overall maintenance contract with the customer and satisfied the definition of input service‟. 6.1 As regards the GTA service, it was submitted that the definition of input service‟ in clause (ii) of Rule 2(1) covered services used by a 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 . In the case of transport from the factory to the depot, place of removal was depot and the appellant was entitled to credit. The Commis sioner had wrongly relied on the Gujarat Ambuja Cement case (supra), which had been vacated by the judgment of the Punjab Haryana High Court in Ambuja Cements Ltd. vs. Union of India [2009 (236) ELT 431 (P H)]. The decision in the case of India Japan Lig hting Pvt. Ltd. vs. CCE [2007 (8) STR 124] relied on by the Commissioner was no longer a good law in view of the Larger Bench decision of the Tribunal in the case of ABB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. In the case of M/s. Sundaram Brake Linings case Tribunal in the GTC Industries case and the High Court‟s judgment in the Coco cola India P Ltd. case. The Department had not accepted the judgment of the Hon‟ble High Court in the Coca cola India P Ltd., case and an appeal had been filed before the apex court vide SLP No. CC/3580/2010. 7.1 The learned JCDR has made the following submissions in respect of the various services involved: (a) Air Travel Agent‟s Service: The appellant had not submitted evidence to establish that the services of Air Travel Agents availed by the assessee was in relation to sales promotion or activities relating to business as defined under Rule 2(1) of the CCR. (b) JCDR made the same submissions as in the case of Sl. No. (1) in respect of Rail Travel Agents‟ service, Car hiring/ rent-a-cab service, Authorized service station service. (c) As regards the professional fees, he submitted that the appellate had failed to produce any evidence to establish that the service related to Chartered Accountant‟s service. (d) As regards the Management Consultancy services, it is argued that they were not used in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at the C F agent‟s premises, it is submitted that these were services availed subsequent to sale of the goods from the assessee‟s premises and, therefore not credit could be availed. It was also not established that the spares packed at C F Agent‟s premises were fully used either for further manufacture of excisable goods or for providing tax able service. (j) As regards the GTA service, the JCDR submitted that the service relatable to transport from factory to depot was admissible. In so far as the transportation of goods from factory to customer‟s premises, credit could be allowed if it was established that the sale was on for destination basis and the place of delivery was the customer‟s premises where the ownership of the goods including risk remained with the seller and the cost of transportation was included in the assessable value of the goods sold, in terms of CBEC Circular dated 23.08.2007. He seeks the matter to be remanded for factual verification. As regards the Service Tax paid on outward transportation of goods from the warehouse to customer‟s site, the same could not be allowed as it was subsequent to sale and the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ish its entitlement to the credit with evidence that the service was input service availed for sales promotion. This dispute is also remanded. (iii) Car hiring/Rent-a-cab service: As regards the credit under this head also, the authorities are inclined to allow the credit provided the assessee establishes with evidence that the service involved conform to input service under Rule 2(1) of CCR. The dispute is remanded. (iv) Authorized Service Sta tion service: The appellants claimed before the adjudicating authority that the impugned service was availed for servicing the vehicles owned by the assessee and used for travel by its employees for sales promotion. From the records, we find that the appel lants had not established the above claim. We remand this dispute for a fresh decision by the Commissioner. (v) Management Consultancy Service: Under this category, the appellants had availed consultancy from agencies such as M/s. Watson Wyatt, India Life Capital Pvt. Ltd., etc M/s. Watson Wyatt was engaged for constancy on superannuation valuation, Bhavishya Kalyan Yojana Sheme, leave encashment valuation, post retirement valuation, insurance of its emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng a motor vehicle. During the period from 01.06.2007, the ac tivity was service as per (ii) (c) of the above definition i.e. service provided by a manufacturer or any person authorized by him in relation to maintenance or repair including reconditioning or restoration, or servicing of any goods, ex cluding motor vehicle. We find that the service rendered by the dealer during the warranty period and post - warranty period is as per the authorization by the appellant. During the warranty period, the appellant is bound by a contract with the customers to provide free service‟. In the Danke Products case (supra), the Tribunal held that findings of the Commissioner (Appeals) in the order impugned before it to the effect that the person who (Danke Electricals) undertook maintenance and repair service of transformers under warranty period had not rendered service to the buyers of transformers but to the manufacturer of the transformers who had the legal obligation to provide repair and maintenance service to its customers. We find that the services provided by the dealers of TCECL to its customers during warranty period are essentially similar to the services provided to the buye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of insurance of cars used for sales promotion. Courier service was also an input for the assessee‟s output service. As regards the insurance services, the appellants relied on the following decisions:- (i) Millipore India Ltd. vs. CCE, Bangalore- 2009 (236) ELT 145 (Tri.-Bang) (ii) CCE, Raipur vs. Beekay Engineering Castings Ltd. 2009 16) STR 709 (Tri.-Del.) We find that the tax incurred under insurance service for insuring the employees of assessee was held to be eligible input service in the decision of the Tribunal in Stanzen Toyotetsu India Pvt. Ltd. vs. Commissioner- 2009 (14) STR 316 (Tribunal). In Beekay Engineering case, the Tribunal held that tax paid on premium of general insurance against losses due to fire, machinery breakdown, cash handling, group gratuity and group accident policy was eligible for credit. We find that insuring the business premises of the assessee including godowns and its stocks are apparently activities relating to business . Medical insurance of employees is held to be input service in the case of Stanzen Toytetsu (supra) by the Tribunal. Therefore, all these services qualify to yield credit. In any case, these are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share of the total credit disallowed and demanded was under GTA for (i) transportation of goods from factory to depot; (ii) transportation of goods form factory to customers place and (iii) transportation of goods from warehouse to customer‟s site, for providing maintenance or repair services or for providing services during warranty period. During hearing, the learned JCDR fairly conceded that Service Tax paid under GTA for transportation of goods from factory to depot is admissible. Accordingly, we allow this part of the appeal. As regards the transportation of goods from factory to customer‟s place, we find that he Department had relied on a judgment of the Punjab Haryana High Court wherein their lordships held that tax paid for transportation of goods from the factory to the customer‟s premises was admissible when the three conditions stipulated in the CBEC Circular No. 97/6/2007-ST dated 23.08.2007 were satisfied. These were (a) the ownership of the goods and the property of the goods remained with the seller of the goods till the delivery of goods in acceptable condition to the purchaser at this door step; (b) the seller bore the risk of loss or damage to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had made an endeavour to support the impugned order relying on the following case law and the rule 2(1) of CCR. a. Vikram Ispat vs. CCE, Aurangabad [ 2009-TIOL-997-CESTAT-MUM] b. Vikram Ispat vs. CCE, Raigad [ 2010-TIOL-900-CESTAT-MUM] c. Maruti Suzuki vs. CCE, Delhi-III [2009 (240) ELT 641 (SC)] d. Chemplast Sanmar Ltd. vs. CCE, Salem [2010-TIOL-180-CESTAT-MAD] e. CCE, Nagpur vs. Maikgarh Cement works [2009-TIOL-2059-CESTAT-MUM] f. CCE, Chennai vs. Sundaram Brake Linings [ 2010(19) STR 172 (tri. Chennai)] Relying on the definition of input service under Rule 2(1) of Cenvat Credit Rules, the learned JCDR submitted that to qualify as input service, such service should be used by a provider of a taxable service for providing output service or used by the manufacturer in the manufacture and clearance of final product upto the place of removal. However, as far as services specifically mentioned in the inclusive part of the definition were concerned these could be held as input services even if they did not satisfy the main part of the definition. As regards other input services, they had to meet the conditions prescribed in the substantive part of the definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber of the Tribunal followed his own decision in the Vikram Ispat vs. CCE, Aurangabad [ 2009-TIOL-997-CESTAT-MUM]. c. Maruti Suzuki Ltd. vs. CCE, Delhi-III [2009 (240) ELT 641 (SC)] In this case, the apex court considered the definition of input‟ contained in Rule 2(k) of Cenvat Credit Rules. The apex court held that the items appearing in the inclusive part of the definition also had to satisfy the definition contained in the specific and substantive part of the definition. d. Chemplast Sanmar Ltd. vs. CCE, Salem [2010-TIOL-180-CESTAT-MAD] In this case, the a ld. Single Member of the Tribunal found that the provision contained in Section 37(2) of the Act under which Cenvat Credit Rules were framed enabled the Government to frame rules for providing credit of service tax paid or payable on taxable services used in, or in relation to, manufacture of excisable goods . The services which were used by the manufacturer subsequent to completion of manufacture and for sale of goods cannot be considered as input service. e. CCE, Nagpur vs. Manikgarh Cement Works [ 2009-TIOL-2059-CESTAT-MUM] In this case, a ld. Single Member of the Tribunal held the same view as he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether 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; 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. Explanation 2.- Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer; The inclusive part of the definition is a short and finite list of goods which could find multifarious uses other than in manufacture also. The definition of input service under Rule 2(l) is reproduced below:- Rule 2(l) input service means any service,- used by a provider of taxable service for providing an output servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices 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 water which are advertised by the Appellants? (b) Whether the advertisement or sales promotion of aerated waters undertaken by manufacturer of concentrate is covered by the inclusive part of the definition of input service contained in Rule 2(l) of the Cenvat Credit Rules, 2004? 15. The Hon‟ble High Court considered expressions used in the definition of input service pertinent to decide the controversy. The definition of input service used the terms means‟ and includes‟. Relying on Regional Director vs. High Land Coffee Works-1991 (3) SCC 617, the High Court held that the expression means and includes‟ was exhaustive. By the word includes‟ services which may otherwise have not come within the ambit of the definition clause were included and by the words means‟ these were made exhaustive. The next expression considered from the definition was such as . The words such as were held as illustrative and not exhaustive. In the context of business, those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice. 17. In the instant cases, we find that the issues involved are complex and do not lend themselves to one clear interpretation. We find that the appellant is entitled to a lenient treatment as to its penal liability. We set aside the penalties. The Commissioner has to decide the question raised by the appellant on his jurisdiction to decide the impugned show-cause notices. Except where we have specifically rejected the plea of the appellant or allowed its prayer for relief, all other matters have to be considered by the Commissioner afresh. It will be open to the assessee to canvass its claim relating to any particular activity such as that falling under GTA or any other activity also under the head activities relating to business . We thus allow the appeal filed by M/s TCECL by way of remand for taking a fresh decision on the issues remanded in terms specified by, us after hearing the party. (Pronounced in open court on ---------------) Per: P G Chacko: 18. After careful perusal of the text of the order recorded by learned brother, I agree with his decision to remand to the adjudicating authority the issues discussed in sub-para (i) (Air Travel Agent‟s S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04 Rules. In another context, the Nagpur Bench clarified certain observation 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 part of the cost of the final product then credit of service tax paid on such input service would be admissible to the manufacturer. What is thus discernible form the Hon‟ble High Court‟s judgment in Coca Cola case as clarified in the case of Ultratech Cement Ltd. is a binding judicial view to the effect that, if the activity is not integrally connected with the business of manufacture of final product, the service would not qualify to be an input service under Rule 2(l) for the purpose of CENVAT Credit. Therefore, I am unable to concur with the view (as expressed in para 16) 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 Pvt. Ltd.case by the Hon‟ble High Court to become input service. I do not forget that when the learned . Mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 Hon‟ble High Court in para 43 ibid is in conformity with the ratio of the Hon‟ble Supreme Court‟s judgment in the case of Maruti Suzuki Ltd (supra). It is also noticed that, in the case of Ultratech Cement (supra), the Nagpur Bench of the Hon‟ble Bombay High Court has expressed the view that, while interpreting the words used in the definition of input service‟ , only the ratio laid down by the apex court (in Maruti Suzuki case)in the context of the definition of input‟ would apply and not the judgment in its entirely. Be that as it may, what is relevant for the present purpose, according to me, is the view taken by the Nagpur Bench of the High Court with regard to the expression activities in relation to business in the definition of input service under Rule 2(l). It is therefore, necessary that a manufacturer claiming the benefit of Cenvat Credit on any service under Rule 2(1) on the premise that the service is covered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore me as, third member, in view of the differences of opinion recorded in Misc. Order No. 01/2010 dated 22.9.2010. 24. The relevant facts have been recorded in detail in the Misc. Order, dated 22.9.2010. However, it would be appropriate to recapitulate certain facts in brief to consider the referred issues which are as follows : (a) The appellants are manufacturing construction equipment, excavators and cranes etc. in their factory situated at Dharwad coming under the jurisdiction of the Commissioner of Central Excise, Belgaum. They have their corporate office/Head office at Bangalore which is registered as Input Service Distributor under Rule 4A of the Service Tax Rule, 1994. (b) The dispute relates to the credit taken for various input services by the factory at Dharwad which was distributed by the appellant from its Head office. The Commissioner has disallowed the CENVAT credit on various grounds and demanded service tax totally amounting to Rs. 2,17,29,461/- (Rs. 1,23,22,725/- + Rs. 94,06,736/-) along with interest and imposed penalties based on two show-cause notices dated 5.11.207 and 2.9.2008. The period of dispute is from October 2006 to March 2008. (c) The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be entitled to CENVAT credit as input service. (b) Maintenance or Repair Services : The learned advocate submits that there are two type of services under this category. In respect of services rendered during warranty period, the customers get free services through their dealers. The dealers raise invoices for the free service rendered to the customers and the appellant pays to the dealers. The price of the goods sold take into account amounts which may be incurred towards the free service to be rendered during the warranty period and Excise duty stands paid on the full value and, therefore, the services rendered by the dealers should be treated as input services towards manufacture of machines with respect to which the free warranty service has been rendered. In respect of the post-warranty period, the appellants enters into Annual Maintenance Contract(AMC) with the customers who have purchased the machineries but the services are rendered through their dealers. The customers do not pay to the dealers who undertake the service. The dealers who undertake the services raise the bills on the appellants and they pay service tax. The service tax so paid by the dealers are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacturing goods cannot take away the benefit granted by the decision of the Hon‟ble High Court in the case of Coco Cola. These two judgments should be read harmoniously. He also submits that the decisions of the Hon‟ble Karnataka High Court in Stranzen Toyotetsu case, Honble Gujrat High Court in the case of Commissioner of C. Ex. Customs vs. Parth Poly Wooven Pvt. Ltd. [2012 (25) S.T.R. 4 (Guj.)] and in the case of Commissioner of C. Excise, Bangalore vs. Millipore India Pvt Ltd. [2012 (26) S.T.R. 514 (Kar.)] also support the case of the appellants that integral connection as a condition may not be necessary and as long as the input services are related to business activities of the assessee, the credit should be extended. 26.3. He further submits that the issue of jurisdiction of the Commissioner, Belgaum to adjudicate the dispute regarding input service credit distributed by the Bangalore based ISD distributor stands remanded to the original authority. 27. The learned Commissioner (AR) made the following submissions: (a) In his opinion, the most important question to be decided is whether availability of credit on service depends upon establishing integral ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices. 30.1 In respect of 9 out of 14 disputed services, the matter stands remanded to the Commissioner for fresh consideration. In respect of other 5 services, learned Member (Technical) held that the appellants are eligible for the credit whereas the learned Member (Judicial) held it appropriate to remand the issue of eligibility of credit to these services also to the Commissioner for fresh consideration. 30.2. The proposed order by the Honble Member (Technical) allowing the credit in respect of five services and the proposal to remand for fresh consideration of the eligibility of nine services has been made in the light of decision in Coco Cola case holding 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 Coco Cola India Pvt. Ltd. case by the Honble High Court to become input service . On the other hand, Honble Member (Judicial) took note of the decision in the case of Ultratech Cement Ltd. relevant portion of which reads as follows : 29. The expression activities in relation to business in the definition of input service postulates activities which are integr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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