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M/s Indus Towers Limited Versus The Commissioner of Central Excise

2016 (1) TMI 1053 - AUTHORITY FOR ADVANCE RULINGS

Manufacturing activity or service - repair and maintenance of the equipments so that the same can be re-used without requiring replacement - The equipments repaired are generally 3-7 years old or are damaged due to transportation or due to fire / floods / rains or are not working efficiently due to any technical defect etc. - Held that:- The activity of repair and maintenance proposed to be undertaken by the applicant will not amount to manufacture within the meaning of section 2(f) of the Centr .....

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ntral Excise Act, 1944 / Additional Duty of Excise under Section 3(1) of the Customs Tariff Act, 1975 paid on parts and spares used for their replacement of the defective ones and Service Tax paid on inspection, Certification and engineering services etc. for the aforesaid repair and maintenance activities and claim set off against the output service tax paid for rendering of passive infrastructure service by the applicant to its customers. - Ruling No. AAR/CE/ 03 /2016, Application No. AAR/44/C .....

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ts to be registered under the category of Business Support Services and was formed with the main object of sharing passive telecommunication infrastructure support services among various telecom service providers by avoiding the need to set up individual telecom tower by each telecom operator. This concept was mooted and promoted by the Ministry of Telecommunications, Government of India, with an objective of reducing the number of towers and thus optimizing the capital and operational expenditu .....

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ndia. Some of the machines/ equipments which are purchased by the applicant are Diesel Generators (DG) Sets, Air Conditioners (AC), Batteries, Power Management Systems, Towers and Shelters. The aforementioned equipments are used to provide 24x7x365 power supply at desired current and voltage levels (at -48 DC current levels) to customers transmission/ telecommunication equipments and to maintain the temperature below 35 degrees Celsius inside the shelter. To ensure that the operations of the Com .....

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tage regulator, cooling and exhaust system, lubrication system, battery charger, control panel, starter motor, fuel tank, charging alternator, piston, fuse, MCB, switch and other small components. Parts of Air Conditioner:- compressor, condenser motor, cooling coil, fan meter, evaporator coil, condenser coil, filter etc. 2. Applicant submits that in view of the high utilization of the aforesaid equipments at the sites and to reduce the operational cost and capital investments, applicant proposes .....

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ip firms or companies at applicant s warehouse or at their own repair facilities. 3. Applicant has summarized the activities proposed to be carried out by the applicant of repair and maintenance of the equipments hereunder:- I. The equipments which require repair and maintenance shall be transferred from the applicant s telecom sites to the warehouse. Both the site and the warehouse are registered under a single centralized registration for Service Tax purposes. II. The said equipments shall be .....

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ified shall be either repaired or replaced with new parts or usable parts extracted from irreparable equipments which will depend upon the condition of the defective parts. V. The identity of the original equipments will remain the same i.e. the original functionality of the equipments does not change and no new product emerges or is manufactured or formed out of the repairs and maintenance activities. The activity would merely entail repairing of the equipments so as to make them functional for .....

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undertaken by applicant can be defined as under:- The applicant will undertake repairs of its own equipments only. The applicant will use the repaired equipments for its own business operations of rendering passive telecom infrastructure services liable to Service Tax. Technical examination/ inspection of condition of equipments at applicant s warehouse. Identification of defective parts in the equipments. Procurement of new parts either from vendor or from stores or retrieval of a part in work .....

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ing activities will not be performed as part of the aforesaid business activities The applicant will not be branding /re-branding the repaired product as its own. The applicant will not put its own logo or trade name on the repaired product (other than for transportation and identification for fixed assets tracking) for marketing or brand promotion. No new product or article will be manufactured as part of the aforesaid repairs activities. 6. Following issues are raised by the applicant for dete .....

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le Supreme Court in the case of J. G. Glass has laid down the following two-fold test for deciding whether the process amount to manufacture . First, whether by the said process a different commercial commodity comes into existence or whether the identity of original commodity ceases to exist. Secondly, whether the commodity which was already in existence will serve no purpose but for the said process. In other words, whether the commodity already in existence will be of no commercial use but fo .....

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r or use. Manufacture should result in loss of original identity of the product. 8. Applicant submits that activities involving mere repair of goods (where there is no change in identity of products) would not amount to manufacture. Further, the proposed activities of repair and maintenance are not in the nature of manufacture and thereby should not be eligible to Excise Duty on account of the following reasons: a) The applicant is only proposing to carry out repair / replacement of certain part .....

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amount to manufacture then the basis of valuation for the purpose of excise duty, we vide Misc. Order No. AAR/44/ST/01/2015 dated 27.03.2015 admitted the application only on the basis of third question relating to CENVAT. Applicant vide written submissions dated 05.08.2015 requested this Authority to record a finding on the first two questions, as Revenue is not opposing these two issues and these stand in favour of the applicant. 10. It is noticed that four Commissionerates i.e. Commissioners .....

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ity of repair and maintenance proposed to be undertaken by the applicant will not amount to manufacture within the meaning of section 2(f) of the Central Excise Act, 1944. 11. Second issue raised by the applicant is whether in the facts and circumstances of the case and in the event the aforesaid activities of repair and maintenance amount to manufacture, then the basis for arriving at value for purpose of Excise Duty under the Central Excise Act, 1944 and Rules made there-under. Since the activ .....

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Tax paid on inspection, certification, engineering services etc. for the aforesaid repair and maintenance activities and claim set off against the output service tax paid for rendering of passive infrastructure services by the Applicant to its customers. 13. It is noticed that third issue raised by the applicant has 2 parts; a) Whether the applicant is eligible to avail Cenvat Credit on Service Tax paid on input service i.e. Certification, inspection and engineering service provided by third pa .....

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redit of Service Tax leviable, paid on any input service received by the provider of output services. Applicant further submits that Rule 2(l) of Cenvat Credits Rules, 2004 define input service as any service used by a provider of output service for providing an output service; that input service bring within its ambit, certification, inspection and engineering services in relation to repair of D.G. sets, Air Conditioners etc. since it has been used by the applicant for providing output service. .....

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Revenue. We also hold that as per Rule 3(1) read with Rule 2 (l) of Cenvat Credit Rules, 2004, applicant is eligible to avail Cenvat Credit on Service Tax paid on input service i.e. certification inspection and engineering service provided by third party vendor to the applicant for repair of capital goods, such as D.G. sets, Air conditioners etc. 17. As far as issue (b) above is concerned, applicant submits that they propose to procure parts from third party vendors, which shall be used for rep .....

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e ones with respect to goods such as D.G. sets, Air Conditioners etc. since they are capital goods within the meaning of Rule 2(a) (A)(i) of the Cenvat Credit Rules,2004. Therefore, its components, spares and accessories will be considered as capital goods in view of Rule 2(a)(A)(iii) ibid. Further, applicant will be eligible to avail Cenvat Credit under Rule 3 of Cenvat Credit Rules, 2004 for duty paid on capital goods. 19. Central Excise Commissionerate, Jaipur, inter alia, submits that the ap .....

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il Cenvat Credit. Central Excise Commissionerate, Kolkata, inter alia, submits that in terms of Para 3 of Departmental Instructions dated 08.07.2010, credit is not allowed on inputs used in repair and maintenance of DG sets, Air Conditioners, Batteries etc. 20. It is observed that Rule 2(a) of Cenvat Credit Rules, 2004 reads as under; (a) capital goods means:- (A) the following goods, namely:- (i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading No. 68.05 grinding .....

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ding dumpers and tippers used- (1) in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or (1A) outside the factory of the manufacturer of final products for generation of electricity for captive use within the factory; or (2) for providing output service; 21. Rule 3 of Cenvat Credit Rules, 2004 reads as under, (1) A manufacturer or producer of final products or a provider of output service shall be allowed to take credit (h .....

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al Duties of Excise (Goods of Special Importance), Act 1957 (58 of 1957); (v) the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001(14 of 2001); (vi) the Education Cess on excisable goods leviable under section 91 read with Section 93 of the Finance (No.2) Act, 2004 (23 of 2004); (via) the Secondary and Higher Education Cess on excisable goods leviable under section 136 read with section 138 of the Finance Act, 2007 (22 of 2007); (vii) the additional duty levi .....

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Finance Act; and (x) the Education Cess on taxable services leviable under section 91 read with section 95 of the Finance (No.2) Act, 2004 (23 of 2004) (xa) the Secondary and Higher Education Cess on taxable services leviable under section 136 read with section 140 of the Finance Act, 2007 (22 of 2007); and (xi) the additional duty of excise leviable under section 85 of Finance Act, 2005 (18 of 2005) paid on - (i) any input or capital goods received in the factory of manufacture of final product .....

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r of output service. In the case before us, DG sets, Air Conditioners etc., fall under Chapter 85 and in view of definition of capital goods as enshrined in Rule 2 (a)(A)(iii), i.e. components, spares and accessories of goods inter alia specified under Chapter 85, will be covered under the meaning of capital goods . Therefore, parts of DG sets, Air Conditioners etc will be capital goods . Further, in terms of Rule 3 ibid, applicant who is provider of output service is allowed to take credit of d .....

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er Section 2(f) of Central Excise Act, 1944, applicant is not entitled to Cenvat Credit. The contention of the Commissionerate is not correct, as the applicant proposes to take Cenvat Credit as service provided under Rule 3 read with Rule 2 (a)(A)(iii) of Cenvat Credit Rules, 2004 and not as manufacturer. It is also noticed that Central Excise Commissionerate, Kolkata (IV), inter alia, submits that Cenvat Credit of Central Excise duty paid on inputs used / to be used for repair and maintenance o .....

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