TMI Blog2008 (9) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... oposes to construct within its factory premises, additional sheds for manufacturing and storing of yarn, as also residential quarters for its workers and staff, as a part of its programme to augment the production capacity. While the application originally mentioned that the residential quarters were to be constructed both within and outside the factory premises, subsequently it has been stated that the construction of the quarters would be confined to the factory premises. Advance ruling has been sought under section 96C of the Finance Act, 1994 on the following issues :- (a) Whether the construction services used for construction of workers' quarters within the factory premises, fall within the ambit of input services as defined in rule 2(1) of Cenvat Credit Rules, 2004 and consequently whether Applicant can avail of the credit of such construction services in terms of rule 3 of the mentioned rules? (b) Whether the applicant can claim full rate of drawback on export of yarn manufactured by the applicant along with cenvat credit on construction services used for construction of manufacturing/storage/workers residential quarters within the factory premises? 2. Rule 3(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rooms and residential colony for workers, has been availed of. According to the applicant, the only condition required to be fulfilled for availing of the higher drawback rate as set out in clause (12) (i) of the above notification is that no Cenvat credit should have been availed of of the Central Excise duty on inputs used in the manufacture of yarn exports. This condition is met in the applicant's case. Inputs i.e., physical goods are distinct from input service. Condition 12 (i) nowhere mentions non-availment of Cenvat credit of tax on an input service, as a pre-condition for availing of the higher rate of drawback. Such an interpretation, it is claimed, is entirely logical as service tax paid on services used indirectly in the manufacture of exported goods, are not factored in while calculating all industry drawback rates. The applicant has referred to the letter D.O.No.609/10/2007-DVK dtd.01.03.07 of Joint Secretary Drawback in this regard. Construction of sheds, store rooms and residential house is a service rendered prior to commencement of manufacture of the yarn exported and by their very nature, cost of such services cannot be apportioned to any particular consig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t taken into account, while fixing the higher rate of drawback. Buildings are not considered as capital goods in Cenvat rules. The relevance of rule 6(5) of Cenvat rules in the present case has not been brought out in the application. The Departmental Representative reiterated the comments of the Commissioner. 5. The first issue for decision is whether the services used by the manufacturer for the construction of residential quarters for workers and staff within the factory premises, can be considered to be Input service under the Cenvat Credit Rules, 2004. Rule 2(1)(ii) defines an input service to be any service (i)............ (ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products, up to the place of removal and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectly in the manufacturing process. Both the above services however, have a nexus with and are related to the final product: the setting up a factory provides the space and machinery for the manufacture; auditing ensures proper accounting of the inputs and disposal of the final products. A perusal of the other services in the inclusive part of the definition indicates that use of each of these services is linked to manufacture, storage, transport or sale of the final product. The services of market research, sales promotion and advertising, for example, may not be used in the actual process of manufacture which is necessary for their inclusion in the basic definition of input service, yet they find mention in the inclusive definition as their use does promote sale of the final product. Similar is the case with regard to services used in storage and transportation, accounting, auditing, financing etc. It is relevant to note here that when the extended definition specifically included services used for setting up certain buildings, such buildings were restricted to buildings used to house factories and its offices. A manufacturer may construct other types of buildings for its employe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all declare, and if necessary, establish to the satisfaction of the Assistant Commissioner of Customs or Assistant Commissioner of Central Excise or Deputy Commissioner of Customs or Deputy Commissioner of Central Excise, as the case may be, that no Cenvat facility has been availed for any of the inputs used in the manufacture of the export product . Since non-availment of Cenvat credit only in respect of inputs is mentioned in condition 12(i) and there is no mention of input service, it is claimed that drawback rate admissible when Cenvat is not availed of, will be applicable for yarn exports even when Cenvat credit of service tax has been taken, irrespective of the clarification given in clause (5) of notification 68/07. (2) Alternatively, if the buildings constructed are considered to be capital goods, in that situation also, the higher rate of drawback is admissible as condition 12(i) does not prohibit availment of cenvat credit in respect of capital goods for availing the rate in column 4 of the Schedule to Cus.-Notification No.68/07. (3) Services used for construction of factory sheds, store rooms and residential buildings are used indirectly in manufacture of the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services used as input services in the manufacture of such goods; RULE 3. Drawback. - (1) Subject to the provisions of- (a) the Customs Act, 1962 (52 of 1962) and the rules made thereunder, (b) the Central Excises and Salt Act, 1944 (1 of 1944) and the rules made thereunder, (b)(b) the Finance Act, 1994 (32 of 1994), and the rules made thereunder; and (c) these rules, a drawback may be allowed on the export of goods at such amount, or at such rates, as may be determined by the Central Government : {Provided that where any goods are produced or manufactured from imported materials or excisable materials or by using any taxable services as input services, on some of which only the duty or tax chargeable thereon has been paid and not on the rest, or only a part of the duty or tax chargeable has been paid; or the duty or tax paid has been rebated or refunded in whole or in part or given as credit, under any of the provisions of the Customs Act, 1962 (52 of 1962) and the rules made thereunder, or of the Central Excise Act, 1944 (1 of 1944) and the rules made thereunder, or of the Finance Act, 1994 (32 of 1994) and the rules made thereunder, the drawback admissibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t facility is not availed and a lower rate given in Column 6 applicable when cenvat facility has been availed . Condition 5 of the Notification clarifies that drawback rate available when cenvat facility has not been availed , reimburses Customs and Central Excise Duties and Service Tax whereas the other rate applicable when cenvat facility is availed gives back only the Custom duty. It is further stated that the difference between the two rates in Columns 4 and 6 represents the Central Excise and Service Tax component of drawback. The applicant in the instant case has stated that credit of service tax paid on the services used in construction of factory sheds and store rooms is admissible under the Cenvat Credit Rules and will be availed of in respect of the yarn manufactured for export. Since credit of service tax is admittedly availed of in the instant case, it is abundantly clear from the first proviso to rule 3(1) of Drawback Rules that the full rate of drawback in column 4 re-imbursing the customs, central excise duties and service tax will not be admissible. Any other conclusion on the issue of whether or not the higher drawback rate in the notification 68/2007-Cus will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is clarificatory or otherwise, having regard to the view we have taken that the omission of input service in Condition no. 12 (i) does not make any difference on account of the operation of proviso to Rule 3 of Drawback Rules. It is therefore unnecessary to deal with this aspect further. 15. The judgment in the case of Chemicals Fibres of India Ltd. cited by the applicant's counsel does not appear to be relevant for the present application. 16. The applicant has laboured hard to put forward an argument that buildings fall in the category of capital goods and that availment of Cenvat credit on capital goods is no bar to availment of the higher rate of drawback. Such a claim has to be rejected outright. Capital goods are defined under the Cenvat Credit Rules and this definition does not cover buildings or sheds. 17. In the above background, both the questions posed for advance ruling are answered in the negative. (Chitra Saha) Member Per : P.V. Reddi, J (Chairperson): While I am in broad agreement with the views expressed by the learned Member, I would like to supplement her reasoning in regard to the first issue. Hence, this separate opinion. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Rule 57A of MODVAT Rules. There also the expression 'in relation to the manufacture of final products' fell for consideration. While observing that words 'in relation to the manufacture' have been used to widen and expand the scope and meaning of the expression 'inputs' so as to attract goods which do not enter into finished goods, the Court summarized the legal position as follows: Where raw-material is used in the manufacture of final product it is an input used in the manufacture of final product. However, the doubt may arise only in regard to use of some articles not in the mainstream of manufacturing process but something which is used for rendering final product marketable or something used otherwise in assisting the process of manufacture. This doubt is set at rest by use of the words used in relation to manufacture . In the present case, the LSHS is used to generate electricity which is captively consumed. Without continuous supply of such electricity generated in the plant it is not possible to manufacture cement, caustic soda etc. Without such supply the process of electrolysis was not possible. Therefore, keeping in mind the expression us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mangalore pattern roofing tiles can be brought within the scope of that Entry by virtue of the inclusive definition. 5. The function of the inclusive definition has been explained thus, in RBI v. Peerless GFI Co. Ltd : AIR 1987 SC, Pg. 1023 Legislatures resort to inclusive definitions 1) to enlarge the meaning of words or phrases so as to take in the ordinary, popular and natural sense of the words and also the sense which the Statute wishes to attribute to it, 2) to include meanings about which there might be some dispute, or 3) to bring under one nomenclature all transactions possessing certain similar features but going under different names. Depending on the context, in the process of enlarging, the definition may even become exhaustive . 6. The governing principle of interpretation has been succinctly articulated as follows: Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual. 7. Now, let us examine the anatomy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion is not meant to be covered by the definition, the reason being that only certain types of construction services which have closer connection with the manufacturing activity or final product are included. The construction of workers' quarter is not one of them, as the learned Member has said. It gives an indicia that the construction services relating to workers' quarters would not fit into the species or pattern of services brought within the sweep of Rule 2(1)(ii) and therefore the applicant cannot contend that the main part of the definition takes colour from the inclusive part. Ultimately, it comes to this. The case of the petitioner should stand or fall on the application of the opening and the main part of the definition. The inclusive clause far from supporting the applicant's stand goes against it. 8. There is another way of looking at the inclusive part of the definition. An inclusive clause following a wide and extensive definition may not have any bearing on the connotation and scope of substantive definition. It may not further enlarge the ambit of main definition. The purpose of inclusive clause could be to bring in certain additional things or sit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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