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TMI Blog2008 (9) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... ises, 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) of the Cenvat Credit Rules, 2004 permits a manufacturer to take credit of the service tax paid on an 'input service' and to utilize the same for payment of duty on the final product. Rule 2(1)(ii) defines 'input service' to mean any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture and clearanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 consignment of exports. Service tax paid on such services used indirectly in the manufacture of exports is not reimbursed by way of drawback. In this context the applicant has referred to rule 6(5) of Cenvat Credit Rules which specifies a number of services, including services relating to commercial or industrial construction (section 65 (105)(zzq) Finance Act, 1994), in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, financing, recruitment and quality control, coaching and training, computer networking, credit rating share registry, and security, inward transportation of inputs or capital goods and outward transportation up to the place of removal". 6. The above definition is in two parts: the first part gives the basic definition of 'input service' while the second is an inclusive one t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 employees such as residential quarters, hospitals, recreation centres, schools etc. From the nature of the buildings specifically included in the extended definition and the kinds of services included in it, it has to be inferred that construction of only such buildings would be covered as input service which are linked to manufacture, storage, sale, transportation etc. of the final product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 export goods. As tax on such services is not taken into account in determining all industry drawback rates, the higher rate of drawback which gives back to the exporters the customs and central excise duties and service tax, should be applicable to the yarn exports. Reliance has also been placed on the judgment of the Supreme Court in the case of Chemicals and Fibres of India Ltd. (1991 (54) ELT 3). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 admissible on the said goods shall be reduced taking into account the lesser duty or tax paid or the rebate, refund or credit obtained} Provided further that................ (2) In determining the amount or rate of drawback under this rule, the Central Government shall have regard to, - (a) the average quantity or value of each class or description of the materials from which a particular class of goods is ordinarily pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 apply, on the basis of Condition 12 or any other condition in the Notification, has to be rejected as the first proviso to Rule 3(1) of the Drawback Rules will prevail over any provisions/conditions in the notification, which has been issued under the said Rules. The First proviso has to be given its due effect and should be read as a rider to the preceding sub-rule under which the notification as to the amount/rate of drawback could be al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation. 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. 2. The first and foremost, we will have to consider whether the services to be availed of for construction of workers' quarters in the factory premises would fall within the first and main part of the definition in Rule 2(1)(ii). It defines input service to be "any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products, upto the place of removal." By using the two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 "used in relation to the manufacture" in Rule 57A we are of the view that the assesses were entitled to MODVAT credit on LSHS." The said decision also illustrates what cannot be brought within the scope of the expansive meaning of the expression "used in relation to the manufacture". It was clarified in the concluding para: "We may point out that in some of the cases electricity generated is consumed by the residential colony of the factory's workers' famili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ude 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 of the definition of 'input service' contained in Rule 2(1)(ii). It is an inclusive definition, no doubt. But, the definition does not straightaway open up with an inclusive clause. In other words, the inclusive clause does not stand alone but it remains in the company of the substantive part of the definition, which has been referred to earlier. As already noticed, the first part of clause (ii) is widely worded and gives an expansive meaning to the expression 'input serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 situations which do not or which are not likely to fall within the main definition. In such a case, the inclusive part of the definition may not have any impact on the main definition preceding it. It will not be able to project its tentacles into the main definition clause. The inclusive clause in the instant case is also of that category. 9. As regards the second question, as pointed out by the learned Member, the first proviso to Rule 3 of Drawback Rules comes in the way of the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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