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2015 (4) TMI 254 - MADRAS HIGH COURT

2015 (4) TMI 254 - MADRAS HIGH COURT - TMI - Benefit of Cenvat credit - outdoor catering services - services provided in the factory for employees of the factory and outward freight services - whether the assessee can utilise the cenvat credit facilities in respect of outdoor catering services, provided in the factory for its employees and outward freight service as input service - held that:- Court dealt with the issue with regard to outdoor catering service, in a batch of appeals in [2015 (3) .....

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on of the Larger Bench of the CESTAT in the case of CCE V. GTC Industries Ltd. [2008 (9) TMI 56 - CESTAT MUMBAI] is a correct law, however, with a rider that where the cost of the food is borne by the worker, the manufacturer cannot take credit of that part of the service tax which is borne by the consumer. - Therefore, the issue as decided by the Tribunal and the various Courts clearly settled the issue that the Cenvat Credit has been properly availed in respect of outdoor catering services. < .....

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NVAT Credit Rules, 2004 and thereby enabling the manufacturer to take credit of the service tax on the value of such services - Decided against Revenue. - C.M.A. No. 307 of 2010 - Dated:- 20-3-2015 - R. Sudhakar And R. Karuppiah,JJ. For the Appellant : Mr. E. Vijay Anand Standing Counsel For the Respondents : Mr. M. Sivavarthanan - R1 JUDGMENT (Delivered By R. Sudhakar, J.) This Civil Miscellaneous Appeal filed by the Revenue as against the order of the Customs, Excise and Service Tax Appellate .....

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rd freight treating them as 'Input Service', when those services are not in relation to the manufacture of final products? 2. Whether the second respondent was correct in law in applying the ratio of the Larger Bench of the Tribunal's decision in the case of CCE , Mumbai v. GTC Industries Ltd., (2008 (12) STR, 468 (TR-LB) and ABB Ltd., Vs. CCe Bangalore as reported in 2009 (15) STR 23 (Tri-LB) when these were appealed before the Hon'ble High Court, Bombau on 02.06.2009 with a Cen .....

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outward freight do not fall within the ambit of definition 'input service', specified under Rule 2(l) of the Cenvat Credit Rules, 2004. The Department was of the view that catering/canteen services and outward freight services were neither used in or in relation to the manufacture or clearance of final product nor it could be said to be an activity relating to business and proceed to disallow the cenvat credit. The Adjudicating Authority vide order-in-original, supported the view of the .....

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ai V. GTC Industries Ltd. reported in 2008 (12) STR 468 (Tri.-LB) and ABB Ltd., Vs. CCe Bangalore as reported in 2009 (15) STR 23 (Tri-LB) dismissed the appeal filed by the Department and allowed the appeal filed by the assessee holding that Cenvat credit is admissible on 'outdoor catering service' as well as 'outward freight service' as the same are input service relating to business. 4. Being aggrieved by the orders of the Tribunal, the Revenue has filed the present appeal befo .....

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r catering service, in a batch of appeals in C.M.A.Nos.2 of 2010 batch and vide judgment dated 13.02.2015 held in favour of the assessee by following the decision of the Bombay High Court in the case of CCE V. Ultratech Cement Ltd. reported in 2010 -TIOL - 745 - HC- MUM - ST, wherein all the contentions raised by the Revenue has been considered in extenso including the definition of 'input service' as defined in the case of Maruti Suzuki Ltd. V. CCE reported in 2009 (240) ELT 641 (SC) . .....

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TIOL - 745 - HC- MUM - ST reads as follows: "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 .....

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ing 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 .....

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rvice 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 .....

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essable 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 .....

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me 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 ma .....

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e 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 rel .....

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f 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 t .....

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- 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 outdo .....

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(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 .....

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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 ha .....

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n, 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 o .....

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ntention 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 .....

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redit. 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 (P.) 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 c .....

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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 .....

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ious Courts clearly settled the issue that the Cenvat Credit has been properly availed in respect of outdoor catering services. 11. With regard to the outward freight charges, the Kanartaka High Court in the case of CCE V. ABB Ltd., Bangalore reported in [2011] 44 VST 1, which was rendered on the appeal filed by the Department as against the decision of the full Bench of the Tribunal, while answering the issue whether the services availed by a manufacturer for outward transportation of final pro .....

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ion of the definition to which the word includes applies has to be construed liberally as it is extensive. The exhaustive portion of the definition of input service deals with service used by the manufacturer. Whether directly or indirectly, in or in relation to the manufacture of final products. It also includes clearance of final products from the place of removal. Therefore, services received or rendered by the manufacturer from the place of removal till it reached its destination falls withi .....

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ar the final products nothing more needs to be done, except transporting the said final products to the ultimate destination i.e. the customer s/buyer of the said product, apart from attending to certain ancillary services as mentioned above which ensures proper delivery of the finished product upto the customer. Therefore, all such services rendered by the manufacturer and included in the definition of input service . However, as the legislature has chosen to use the word means in this portion .....

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ities relating to business an omni-bus phrase is used to expand the meaning of the word input service . However, after using the omni-bus phrase, examples are given. It also includes transportation. The words used are (a) inward transportation of inputs or capital goods (b) outward transportation upto the place of removal. While dealing with inward transportation, they have specifically used the words inputs or capital goods . But, while dealing with outward transportation those two words are co .....

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rtion of the definition, an outer limit is prescribed for outward transportation, ie up to the place of removal. 31. The phrase activities relating to business is an omni-bus one and it finds a place in the inclusive definition. The question is, by a judicial interpretation, outward transportation of the final product from the place of removal till it is delivered to the customer, could be construed as falling within the definition of input service . It is a well settled rule of interpretation t .....

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n the definition. If the Courts indulge in such interpretation, it amounts to rewriting the provision which is impermissible. Yet another reason for coming to such a conclusion is, in the first part of the restrictive definition clearance of final products from the place of removal is expressly stated. If transportation of final product from the place of removal is included in the phrase clearance of final products from the place of removal again the same cannot be read into the provision under .....

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as , merely because in that portion of the definition either transportation charges is not included or service rendered for clearance of final products is not included, it is impermissible to read those words as in the earlier portion of the definition, it is specifically provided for. It is a well known rule of interpretation that when the statute uses words and phrases in a particular section, meaning has to be given in each of those sections. When the statute provides specifically for a part .....

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nded Rule 2 (i)(ii). By notification No.10/2008-C.E.(N.T.) dated 1.3.2008, the words clearance of final products upto the place of removal were substituted in the place of the words clearance of final products from the place of removal . The intention of the legislature is thus manifest. Till such amendment, the words clearance from the place of removal included transportation charges from the place of removal till it reached the destination, namely the customer. Therefore, the said input servic .....

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e portion of the definition (the second part), has to be read along with the word inward transportation of input or capital goods. It has no reference to clearance of final products . However, when the claims are put forth on the basis of the said circular of 23.8.2007, for benefit of CENVAT credit, even in the cases where the aforesaid conditions are not satisfied relying on the words clearance of final products from the place of removal, the Central Government it fit to amend the provision fro .....

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ular, transportation charges incurred by the manufacturer for clearance of final products from the place of removal was included in the definition of input service. Therefore, the interpretation placed by the tribunal on the words activities relating to business as including clearance of final products from the place of removal which occurred already in the first part of Rule 2(i) (ii) prior to 1.4.2008, runs counter to the language employed in the second part of the definition of input service .....

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lace of removal are to be treated as input service. The first clause does not mention transport service in particular. The second clause restricts transport service credit up to the place of removal. When these two clauses are read together, it becomes clear that transport service credit cannot go beyond transport up to the place of removal. The two clauses, one dealing with general provision and another dealing with a specific item, are not be read disjunctively as to bring about conflict and i .....

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ight charges incurred by the manufacturer for such sale and supply at the door step of the customer are subjected to service tax and therefore, it falls within the definition of input service . However, the Larger Bench of the CESTAT following the aforesaid judgment held the expression activities relating to business covers transportation upto the customers place and it is an integral part of the manufacturing business and therefore, credit cannot be denied by relying on a specific coverage of o .....

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