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2015 (6) TMI 1091 - MADRAS HIGH COURT

2015 (6) TMI 1091 - MADRAS HIGH COURT - TMI - Denial of benefit of Cenvat credit - outdoor catering services - services provided in the factory for employees of the factory - 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: - In an identical circumstance, this Court dealt with the issue with regard to outdoor catering service, in the case of C .....

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availed by a manufacturer for outward transportation of final products from the place of removal should be treated as an input service in terms of Rule 2 (1) (ii) of the CENVAT Credit Rules, 2004? - Held that: - reliance placed on the decision of the case of CCE V. ABB Ltd., Bangalore [2011 (3) TMI 248 - KARNATAKA HIGH COURT], where it was held that 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 pla .....

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d off - decided in favor of assessee. - C.M.A. No: 1276 of 2010 - Dated:- 26-6-2015 - Mr. R. Sudhakar and Ms. K.B.K. Vasuki, JJ. For appellant : Ms. R.K. Sekina Reshma For 1st respondent : M/s. Mohammed Shaffiq 2nd respondent : Tribunal JUDGMENT This Civil Miscellaneous Appeal filed by the Revenue is as against the order of the Customs, Excise and Service Tax Appellate Tribunal in allowing the appeal filed by the assessee so far as denying the benefit of Cenvat credit on the service tax paid on .....

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Rule 2 (1) of the CENVAT Credit Rules, 2004? 2. Whether the Cenvat Credit of the service tax, so paid for receiving the outdoor caterer's services by them for providing canteen services to their employees, was eligible for availemnt and utilisation in terms of Rule 3 read with Rule 2 (1) ? 3. Whether the second respondent Customs, Excise and Service Tax Appellate Tribunal, South Regional Bench, Chennai, was correct in relying in the impugned Final Order the ratio of the decision of the Large .....

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as an input service used, whether directly or indirectly, in or in relationot manufacture or clearance of the final products, within the meaning and comprehension of Rule 2 (1) of the Cenvat Credit Rules, 2004 ? 5. Whether the Cenvat Credit of the service tax, so paid for receiving the said services for outward transportation of final products beyond the place of removal was eligible for availment and utilisation in terms of Rule 3 read with Rule 2 (1) ? 6. Whether, in view of the grounds discus .....

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received by a manufacturer ? '' 2. The brief facts of the assessee's case are as follows: '' (i) The assessee manufactures sugar, molasses, rectified spirit (non-excisable), extra neutral alcohol (exempted), ethanol, denatured ethyl alcohol and fuel oil (dutiable). The assessee was availing Cenvat credit of duty paid on the capital goods and inputs and the service tax paid in respect of input services as per the Cenvat Credit Rules, 2004. On verification of the records it wa .....

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7 and after due process of law the adjudicating authority has ordered recovery of Cenvat credit of ₹ 30,119/- with interest under proviso to Section 73 and 75 of the Finance Act, 1944 read with Rule 14 of Cenvat Credit Rules and also imposed penalty of ₹ 5,000/- under Rule 15 of Cenvat Credit Rules. (ii) Aggrieved by the Order-in-Original, the assessee pursued the matter before the Commissioner (Appeals). The Commissioner (Appeals) disposed of the appeal in the following manner : 07. .....

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of the Commissioner (Appeals), the assessee went before the Tribunal. 3. The Tribunal following the Larger Bench decision of the Tribunal in the case of Commissioner of Central Excise, Mumbai 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) allowed the appeal by holding that Cenvat credit is admissible on 'outdoor catering service' as well as 'outward freight service' as the same are input serv .....

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freight service as input service. 7. In an identical circumstance, this Court dealt with the issue with regard to outdoor 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 definit .....

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relevant portion of the decision of the Bombay High Court in the case of CCE V. Ultratech Cement Ltd. reported in 2010 -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 (suc .....

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rt of the definition of "input service" covers various services used in relation to the business of manufacturing 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 .....

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tegrally 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. 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 .....

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course of manufacture of final product. Mere fact that the item is a packing material whose value is included in the assessable 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 o .....

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or steam, input used as an accessory and input used as paint are per se also not relevant. All these considerations become 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 ite .....

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n to the manufacture of final product. Hydrogen gas used in the manufacture of sodium cyanide is an eligible input, since 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 o .....

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4 Rules would equally apply while interpreting the expression "activities relating to business" in rule 2(l) of 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 se .....

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service under rule 2(l) of 2004 Rules. 32. As rightly contended by Shri Shridharan, learned Counsel for the respondent - 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 assesse .....

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ed on behalf of the revenue that not only the ratio but the decision of the Apex Court in the case of Maruti Suzuki Ltd. (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 o .....

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other words, by applying the ratio laid down by the Apex Court in the case of Maruti Suzuki Ltd. (supra), it cannot be 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 .....

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sion "such as" in the definition of input service is exhaustive and is restricted to the services named therein, 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, aud .....

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39; to suggest that the Legislature intended to define that expression restrictively. Therefore, in the absence of any intention 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 t .....

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s also held that the cost of any input service that forms part of value of final products would be eligible for CENVAT credit. 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 o .....

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he service tax is borne by the ultimate consumer of the service, namely the worker, the manufacturer cannot take credit 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 re .....

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Bombay High Court and followed the above-said decision. 10. 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. 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 Tr .....

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the definition to which the word means applies has to be construed restrictively as it is exhaustive. However, the portion 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, .....

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sed. It includes the transportation charges. Because, after the final products has reached the place of removal, to clear the final products nothing more needs to be done, except transporting the said final products to the ultimate destination i.e. the customers/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 inclu .....

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definition of input service has been clearly set out in that portion of the definition. Thereafter, the words activities 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 specific .....

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ut also includes outward transportation of the final product upto the place of removal. Therefore, in the later portion of the definition, an outer limit is prescribed for outward transportation, ieup 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, cou .....

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s worded, it is not open to the Court to include something which the legislature deliberately did not include in 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 phras .....

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in the second part (inclusive) of the definition when the phrase used is activities relating to business such 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 .....

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rpretation of ours find support from the subsequent conduct on the part of the Central Government, which amended 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 removalincluded transportation charges from t .....

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to the place of removal. The phrase outward transportation upto the place of removal used in the inclusive 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 clearan .....

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from 1.4.2008 notwithstanding the clarification issued by the Central Government by way of their circular, 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 businessas including clearance of final products from the place of removalwhich occurred already in the first part of Rule 2(i) (ii) prior to 1. .....

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to the clearance from the place of removal and service used for outward transportation up to the place 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 a .....

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oods till the delivery of goods in acceptable condition to the purchaser at his door step, the freight 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 man .....

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