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Reliance Industries Ltd. Versus Commissioner of CE & ST (LTU) , Mumbai

2015 (11) TMI 100 - CESTAT MUMBAI

Denial of CENVAT Credit - construction service, repairs and maintenance service, security service, manpower recruitment and supply service, works contract service etc - services utilized for residential colony/township of the appellant factories - Held that:- Appellant has various factories which are situated in remote areas. In order to run the factories smoothly, without any stoppages, they had constructed township/residential colonies near factory premises and accommodated the employees worki .....

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overt the said certificate in any way nor both the lower authorities have directed for special audit of the records of the appellant as provided under Section 14AA of the Central Excise Act, 1944. - Expenses which were incurred by the appellant for setting up of the township/colony for their employees is expenses which is in relation to the business activity of the appellant which is manufacturing final products i.e. petroleum products. It is also noted that while arriving at the price of th .....

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s is on advalorem which has been arrived at after considering all the expenses that had gone into manufacturing of the finished goods which included the cost of setting up of township and the residential colony. - Intention of the legislature is to provide for credit in respect of the inputs, capital goods and input services which are used in or in relation for manufacture of the final products and that duty is paid only on the value addition which takes place. This intent of the legislature .....

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s to be now squarely covered by the judgement of the Hon'ble High Court of Bombay in the case of Coca Cola India Pvt Ltd. We find strong force in the contentions raised by the learned Counsel that the Hon'ble High Court in the case of Manikgarh Cement (2010 (10) TMI 10 - BOMBAY HIGH COURT ) had not decided the issue, as it was never raised before them i.e. cost of setting up of the township/colony and the maintenance cost thereof is included in the cost of production for arriving at assessable v .....

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50 - BOMBAY HIGH COURT) is specifically on the point raised by the appellant before the lower authorities as well as before us. - Impugned order is liable to be set aside - Decided in favour of assessee. - Appeal No. ST/42 to 49/11 - Final Order No. A/3412-3419/2015-WZB/STB - Dated:- 15-10-2015 - M V Ravindran, Member (J) And C J Mathew, Member (T) For the Appellants : Shri J C Patel, Adv., Shri Vipin Kumar Jain, Adv., Shri Vishal Agarwal, Adv For the Respondent : Shri R K Das, Dy. Commr (AR) O .....

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t these services on which credit was availed of service tax paid were received in their residential township constructed for the employees. Coming into such a conclusion that the appellant had availed ineligible CENVAT credit, various show-cause notices were issued proposing to recover the ineligible credit along with interest and for imposing penalties. Appellant contested the show-cause notices on merits and also on limitation. Adjudicating authority did not agree with the contentions raised a .....

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ces rendered at residential complex/townships were attached with the factories and the said factories are situated at remote area. To ensure smooth functioning of factories, they were required to provide residential premises/quarters to the employees and such quarters were constructed and maintained by the Company and the cost was debited to their profit and loss account as expenses. Further he explained the difference between the definition of 'input' and 'input services' and st .....

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considered as cost of production of the finished goods and the same formed a part of cost of production in cost audit reports. He would submit that Cost Accountant's certificate was produced before the adjudicating authority as also before the first appellate authority and both the lower authorities have not disputed the said Cost Accountant's certificate nor the authorities contradicted the said certificate in any way. He would submit that the Hon'ble High Court in the case of Coca .....

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nt of the Hon'ble High Court of Bombay in the case of CCE vs. Manikgarh Cement - 2010 (20) STR 456 (Bom) for the proposition that 'input service' which are utilized for repair, maintenance and civil construction used in residential colony is not eligible to be availed as CENVAT credit. He would submit that the Hon'ble High Court in that case has not recorded any finding of fact which would indicate that the cost of the construction and maintenance of residential colony was debite .....

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ng Works (P) Ltd. - 1996 (88) ELT 622 (SC) for the same proposition. 4. Learned D.R. after taking us through the order-in-appeal would submit that appellant is not denying that the CENVAT credit availed is in respect of the services which were rendered at the residential colony/township attached to the factories. He would submit that the Hon'ble Bombay High Court in the case of Manikgarh Cement (supra) was specifically looking on the very same issue. He would draw our attention to the paragr .....

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y related to business activity of the assessee and not welfare activities. He would submit that the Hon'ble High Court has applied the ratio as laid down by the Hon'ble Apex Court in the case ofMaruti Suzuki Ltd. - 2008 (240) ELT 641 (SC). 5. In a rejoinder learned Counsel submit that the judgement of the Hon'ble Apex Court in the case of Maruti Suzuki Ltd (supra) has referred the matter to the Larger Bench of the Apex Court and the decision is not yet delivered. 6. We have considere .....

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s are that appellant has various factories which are situated in remote areas. In order to run the factories smoothly, without any stoppages, they had constructed township/residential colonies near factory premises and accommodated the employees working in such factories. It is a fact, that appellant had produced Cost Accountant's certificate indicting that the expenses incurred for setting up of the township/colony and various expenses incurred for maintenance and upkeep of such factory was .....

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which were incurred by the appellant for setting up of the township/colony for their employees is expenses which is in relation to the business activity of the appellant which is manufacturing final products i.e. petroleum products. It is also noted that while arriving at the price of the finished goods manufactured in these factory premises appellant had considered the expenses and included the same while arriving at the cost of production of the final products manufactured in those factory pr .....

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ony. 7.2 At this juncture we would like to record a little history as to the levy of Central Excise and the reasons for extending credit of Central Excise duty. 7.3 The duty of excise leviable under Section 3 of the Central Excise Act, 1944 on all excisable goods produced or manufactured in India is statutorily called the Central Value Added Tax. The fact that Central Excise duty leviable under concept of value added tax has also been recognized by the Apex Court in a judgement in the case of Al .....

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year 2004 and thereafter in the year 2004 credit was allowed on inputs and input services used in or in relation to manufacture of the final products. It can be clearly seen from the legislative pattern that the intention of the legislature is to provide for credit in respect of the inputs, capital goods and input services which are used in or in relation for manufacture of the final products and that duty is paid only on the value addition which takes place. This intent of the legislature clear .....

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. CCE 2009 (242) ELT 168 when this Hon'ble High Court held that the burden of service tax or duty should be borne by the ultimate consumer and not by any intermediary i.e. manufacturer or service provider. In order the avoid the cascading effect benefit of cenvat credit on input stage of goods and services must be allowed, more particularly, if the same form part of cost of the final product on which excise duty is paid, in other words credit on input must be allowed on the expenditure incur .....

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ance of the findings of the Apex Court in the case of All India Federation of Tax Practitioners, wherein it was held that excise duty is a tax on value addition on goods. The Court also took cognizance of the guidelines issued by the OECD as per which Value added taxes or taxes on consumption, was paid ultimately by the final consumer and that the same functions on the principle that the business should not bear the burden of taxes and that since there are mechanism and place that allow for a re .....

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evant findings of the Hon'ble High Court are extracted herein below for ease of reference. "12. Chapter V of the Finance Act, 1994 referred to Service Tax. It defined assessee to mean a person responsible for collecting the service tax. Under the Act, service tax was defined to mean tax chargeable under Chapter V. Under the Act, taxable service was defined to mean any service provided by a stock-broker to an investor in connection with the sale or purchase of securities listed on a reco .....

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ecting the service tax. It was similar to Section 3 of Central Excise Act, 1944. Section 67 dealt with valuation of taxable services. Section 68 dealt with collection and recovery of service tax. Section 71 dealt with assessment. Section 72 dealt with best judgment assessment. Section 73 dealt with value of taxable services escaping assessment. Section 83 inter alia stated that Section 9C, 9D, 11B etc. of the Central Excise Act shall apply also to collection and recovery of service tax. Further, .....

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ule (in this Constitution referred to as the Union List. xxx Article 265. Taxes not to be imposed save by authority of law. No tax shall be levied or collected except by authority of law. xxx Article 268A. Service tax levied by Union and collected and appropriated by the Union and the States.- (1) Taxes on services shall be levied by the Government of India and such tax shall be collected and appropriated by the Government of India and the States in the manner provided in clause (2). (2) The pro .....

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all be levied and collected by the Government of India but shall be assigned and shall be deemed to have been assigned to the States on or after the 1st day of April, 1996 in the manner provided in clause (2). Explanation. For the purposes of this clause,- (a) the expression "taxes on the sale or purchase of goods" shall mean taxes on sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce; (b) the expressi .....

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n which that tax is leviable in that year, and shall be distributed among those States in accordance with such principles of distribution as may be formulated by Parliament by law. (3) Parliament may by law formulate principles for determining when a sale or purchase of, or consignment of, goods takes place in the course of inter-State trade or commerce. xxx Article 276. Taxes on professions, trades, callings and employments. (1) Notwithstanding anything in article 246, no law of the Legislature .....

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all not exceed two thousand and five hundred rupees per annum. (3) The power of the Legislature of a State to make laws as aforesaid with respect to taxes on professions, trades, callings and employments shall not be construed as limiting in any way the power of Parliament to make laws with respect to taxes on income accruing from or arising out of professions, trades, callings and employments. Entry No. 92C of List I of the Seventh Schedule to the Constitution is as follows: 92C. Taxes on servi .....

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ip;. 21. …. 22. …. 23. …. 24. …. 25. …. 26. …. 27. …. 28. …. 29. …. 30. …. 31. Learned counsel for the appellants in support of his argument that the words professions and services are synonymous for the purposes of deciding the question of legislative competence of the State Legislature under Entry 60 List II, placed heavy reliance on Article 276, which has been quoted hereinabove. 32. Article 276 corresponds to Section 142A .....

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ited the amount payable to a specified amount. At that time, it was ₹ 50.00, which was the tax payable on profession. That was in 1935. Article 276 was, therefore, preceded by Section 142A of the GOI Act, 1935. The limit has been subsequently enhanced. The States power to tax professions etc. is founded on Entry 60 of List II and the purpose of Article 276 is not to amend that power but to provide that such tax on professions, trades etc. shall not be invalidated on the ground that it rela .....

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ph shows, taxes on entry of goods. A tax on profession can be imposed if a person carries out a profession whereas a tax on income can be imposed only if there is income. Therefore, a tax on profession is irrespective of the question of income. Article 276 enables the State Legislature to make laws for imposition of taxes on profession, for the benefit of the State, Municipality, District Board etc. by stating that such law shall not be invalid on the ground that it relates to a tax on income. T .....

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x is levied, the pensioner is not in employment, but he receives an amount of pension that receipt constitutes his income though it might be for past services from an employment. 33. As stated above, every Entry in the Lists has to be given a schematic interpretation. As stated above, Constitutional law is about concepts and principles. Some of these principles have evolved out of judicial decisions. The said test is also applicable to taxation laws. That is the reason why the Entries in the Lis .....

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spect to any of the matters enumerated in List I. The bottom line of the said doctrine is to look at the legislation as a whole and if it has a substantial connection with the Entry, the matter may be taken to be legislation on the topic. That is why due weight age should be given to the words with respect to in Article 246 as it brings in the doctrine of pith and substance for understanding the scope of legislative powers. Competence to legislate flows from Articles 245, 246 and the other Artic .....

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nd State Legislatures are subject to Constitutional limitations. Tax laws are governed by Part XII and Part XIII. Article 265 takes in Article 245 when it says that the tax shall be levied by the authority of law. To repeat, various entries in the Seventh Schedule show that the power to levy tax is treated as a distinct matter for the purpose of legislative competence. This is the underlying principle to differentiate between the two Groups of entries, namely, general entries and taxing entries. .....

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of luxury tax on tobacco and tobacco products by treating them as luxuries within the meaning of the word in Entry 62 of List II of the Seventh Schedule to the Constitution of India. Uttar Pradesh Tax on Luxuries Act, 1995 and certain other State enactments imposed luxury tax on tobacco by treating it as luxury within the meaning of the word in Entry 62 of List II. It was held by the Constitution Bench of this Court that the word luxuries in Entry 62, List II refers to activities of enjoyment, .....

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h reference to a taxable event but there is a distinction between such a tax and a tax on the taxable event. In the first case, the subject-matter of tax is the goods and the taxable event is within the incidence of the tax on the goods. In the second case, the taxable event is the subject-matter of tax itself. In our view, para 57 supports the reasoning given by us here-in-above. As stated above, service tax is a value added tax. Value addition is on account of the activity like planning, consu .....

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aid principle of equivalence which equates service tax to the Central Excise Duty, one taxes the provision of services and other production of goods. See para 2.14 of the recommendations made by Tax Reforms Committee headed by Dr. Chelliah which has stated that from the economic point of view, there is little difference between the taxation of commodities and taxation of services. 35. In the case of International Tourist Corporation and ors. v. State of Haryana and ors. reported in (1981) 2 SCC .....

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numerated in Entries 1 to 96 of List I with its power to legislate under Entry 97 of List I and, if so, then the power to legislate with respect to tax on passengers and goods carried on National Highway was within the exclusive legislative competence of Parliament and, therefore, Section 3(3) of Haryana Passengers and Goods Taxation Act, 1952 was beyond the legislative competence of the State Legislature. This argument was rejected by the Division Bench of this Court, which took the view that b .....

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he said principle in this case. In the present matter, as stated herein above, the State Legislature is empowered to levy tax on professions, trades, callings etc., as such and, therefore, the word services cannot be read as synonymous to the word profession in entry 60. Therefore, tax on services do not fall under Entry 60 List II. That, service tax would fall under Entry 92C/Entry 97 of List I. 36. In the case of Sodan Singh and ors. v. New Delhi Municipal Committee and ors. reported in (1989) .....

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of this judgment to the present case. As stated above, we are concerned with interpretation of legislative heads under the three Lists in the Seventh Schedule to the Constitution. As stated above, we have to go by the schematic interpretation of those entries. Moreover, we are concerned with a distinct taxing entries and not general entries. Hence, the judgment in the case of Sodan Singh (supra) has no application to the present case. 37. In the case of Tamil Nadu Kalyana Mandapam Assn. v. Union .....

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he Constitution. As per Article 246(3), the State Government has exclusive powers to make laws with respect to matters enumerated in List II (State List). In the said judgment, it has been held that service tax is made by Parliament under Entry 97 of List I. In our view, therefore, the point in issue in the present case is squarely covered by the judgment of this Court in the case of Tamil Nadu Kalyana Mandapam (supra). Of course, in the present case, we are not concerned with the services rende .....

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der Entry 97 of the Seventh Schedule to the Constitution. It was further held that service tax is not a levy on passengers or goods but on the event of service in connection with the carriage of goods and, therefore, it was not possible to hold that the Act was in pith and substance within the States exclusive powers under Entry 56 of List II. It was held that service tax came within Entry 97 of List I. In the present case, as stated above, we are concerned with Entry 60 of List II. As stated ab .....

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ld that in order to attract the liability under the service tax there has to exist what is called as goods. Since goods in question consisted of electromagnetic waves or radio frequencies, which carries voice, messages or other data, a telephone service was nothing but a service. We are not concerned with such a controversy in the present case. In the present case, we are concerned with the legislative competence of Parliament to legislate in respect of service tax under Entry 97/92C of List I. .....

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rovision. As stated above, we are concerned with the application of the above principles. In the present case, as stated above, we are concerned with the Constitutional status of the levy. As stated above, we have to examine the nature of the levy. We have done so and we have come to the conclusion that the word profession in Entry 60 List II cannot be made synonymous with the word service and, therefore, service tax would fall under the residuary Entry 97 read with Entry 92C after 2003. This po .....

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or a part of the cost of the final product, certainly the assesse would be entitled to cenvat credit of the tax so paid. In the Appellant's own case this Tribunal has in itsOrder No.A/225/14/EB/C-II dated 3.3.2014 held that if the cost of various services availed if it forms part of the assessable value of the goods manufactured and sold by the Appellant, there was no reason to deny cenvat credit of the duty/taxes paid on various inputs/inputs services availed, for undertaking the business o .....

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ormed a part of the assessable value on which excise duty was discharged. The Appellant has in its reply specifically contended that the factory township related expenses form a part of its cost of production as per CAS-4 and that it was accordingly eligible to avail credit of the tax paid. The submissions made by the Appellant in their reply, reads as under: "The fact that township related expenses are identically contended with eh manufacture of goods is also recognized by the principle o .....

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tory township expenses incurred form a part of the cost of production and consequently applying the ratio laid down by the Hon'ble Bombay High Court in the case of Coca Cola and that of the Karnataka High Court in the case of Milipore India Pvt Ltd., credit of the service tax paid on such services is admissible as the said services used by the manufacturer indirectly, in relation to manufacture of the final products. It is relevant to note here that factories are generally set up at remote l .....

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uired personnel for undertaking the business operations. In fact in many locations where a factory is located in an extremely remote location such townships also have in house schools, hospitals, Mall, etc., and that there can be no doubt that such townships are set up in relation to the ultimate activity of manufacture as without such townships being in place, competent personnel will not available for operation of the manufacturing activity. 8. We find that the learned Counsel was correct in b .....

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ut stage goods and services is established. Conceptually as well as a matter of policy, any input service that forms a part of the value of the final product should be eligible for the benefit of Cenvat Credit. Revenues" contention, if accepted as in the present case, would go against the very core and genesis of Cenvat credit scheme. In our opinion, such an interpretation would be plainly unacceptable. 38. Service tax therefore, paid on expenditure incurred by the assessee on advertisement .....

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value added tax. 43. What follows from the above discussion is that the credit is availed on the tax paid on the input service, which is advertisement and not on the contents of the advertisement. Thus it is not necessary that the contents of the advertisement must be that of the final product manufactured by the person advertising, as long as the manufacturer can demonstrate that the advertisement services availed have an effect of or impact on the manufacture of the final product and establish .....

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phs from the judgement of the Hon'ble High Court the ratio is very clear in as much the CENVAT credit has to be allowed in respect of the service tax which has been paid and which forms a part of the value of the finished goods on which excise duty is charged. 8.2 The reliance placed by the learned D.R. in the case of Manikgarh Cement (supra) needs to be addressed by us as the lower authorities have also relied upon the very same judgement to hold against the appellant herein. On perusal of .....

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