CESTAT Bangalore Allows CENVAT Credit as Services Had Nexus with Manufacturing Business

Jsw Steel Ltd Vs Commissioner of Central Excise (CESTAT Bangalore)

M/s Jindal Steel Works Ltd. (JSW) manufactures iron and steel products falling under Chapter 72 of the Central Excise Tariff Act, 1985 and avails CENVAT credit on inputs, capital goods and input services.

Following an audit, Revenue alleged wrongful availment of CENVAT credit on various inputs and services. Three show cause notices dated 06.12.2010, 02.05.2011 and 10.02.2012 covered the period from November 2005 to October 2011 and culminated in Order-in-Original No. 03/12 dated 16.03.2012. JSW challenged the order in Appeal No. E/1697/2012.

Revenue subsequently issued show cause notices dated 05.12.2012, 29.05.2013, 05.12.2013 and 27.01.2014 covering November 2011 to March 2013. These proceedings resulted in Order-in-Original No. 01/15-16-CX dated 04.06.2015, confirming demands of Rs.11,57,63,597/- while allowing credit for certain services. JSW filed Appeal No. E/21886/2015. Revenue filed Appeal No. 21990/2015 against allowance of credit of Rs.53,59,32,598/- and non-quoting of Rule 15(1) of the CENVAT Credit Rules read with Section 11AC of the Central Excise Act or Section 76 of the Finance Act, 1994.

JSW submitted that credit had been denied on grounds that the services were not received or utilised at the place of manufacture, were unrelated to manufacture, were consumed by individuals, lacked proper descriptions, were not established as essential for manufacture, or related to vehicles, aircraft and railways not qualifying as capital goods or inputs. It was argued that these grounds were contrary to Rule 2(l) and Rule 3(1) of the CENVAT Credit Rules, 2004.

JSW relied upon several judicial decisions and CBEC circulars concerning the broad scope of “input service” and eligibility of specific services. The services involved included cleaning, pest control, construction and repair, vehicle repair, maintenance services, meal vouchers, hiring of machinery, horticultural consultancy, public address systems, goods sent for job work, advertising, air travel, airport services, banking and financial services, business auxiliary and support services, cargo handling, chartered accountant services, clearing and forwarding, commercial construction, consulting engineering, courier, customs house agent, erection and installation, GTA, healthcare, IT and software, intellectual property, interior decoration, management consultancy, manpower supply, club membership, outdoor catering, port services, renting of vehicles and immovable property, security, sponsorship, warehousing, technical testing, telecommunications and works contract services.

The Tribunal examined Rule 2(l) of the CENVAT Credit Rules, 2004 as applicable up to 31.03.2011 and the amended provision applicable from 01.04.2011 to 30.09.2011. It also considered Rule 3(1), which permitted credit of service tax paid on input services received by the manufacturer.

CESTAT observed that the definition of “input service” had a wide connotation both before and after the amendment. The amendment introduced specific exclusions for certain services. The Tribunal noted that various High Courts had interpreted the Rules broadly rather than adopting the restrictive approach taken by Revenue.

Relying particularly on Coca Cola India Ltd Vs CCE, Pune – 2009 (15) STR 657 (Bom) and CCE, Nagpur Vs Ultra tech Cement Ltd – 2010 (20) STR 577 (Bom), the Tribunal held that the definition covered services used directly or indirectly, in or in relation to manufacture and clearance of final products up to the place of removal, as well as services having a direct nexus with or being integrally connected to the manufacturing business.

Considering the judicial decisions concerning the individual services tabulated before it, CESTAT concluded that JSW had correctly availed CENVAT credit on the disputed services. Consequently, the impugned orders were set aside.

Appeals E/1697/2012 and E/21886/2015 filed by JSW were allowed, while Department’s Appeal No. 21990/2015 was dismissed. The order was pronounced in the open court on 01/12/2021.

FULL TEXT OF THE CESTAT BANGALORE ORDER

M/s Jindal Steel Works Ltd are the manufacturers of iron and steel products falling under Chapter 72 of CETA, 1985. They are availing credit of duty or tax paid on inputs, capital goods and input services. On the basis of an audit conducted on the accounts of JSW, Revenue contended that the appellants have wrongly availed CENVAT credit of duty paid on various inputs and services. Three SCNs, dated 06.12.2010, 02.05.2011 and 10.02.2012, have been issued, covering the period November 2005 to October 2011; the proceedings culminated in the issuance of passing of the impugned order No.03/12 dated 16.03.2012. Learned Commissioner has dropped the proceedings initiated vide SCN dated 06.10.2012 and confirmed the demands raised vide SCN dated 02.05.2011 and 10.02.2012. M/s JSW are in appeal against this order vide Appeal No. E/1697/2012. Department further issued the following SCNs dated 05.12.2012, 29.05.2013, 05.12.2013 & 27.01.2014, covering the period November 2011 to March 2013. These proceedings culminated in the passing of the Order-in-Original No. 01/15-16-CX dated 04.06.2015 vide which the learned Adjudicating Authority has confirmed the demands to the tune of Rs.11,57,63,597/- raised therein and allowed credit of certain services utilized. M/s JSW are in appeal against this order vide Appeal No. E/21886/2015. Department is also in appeal against this order against allowance of the credit to the tune of Rs.53,59,32,598/- and against non-quoting of provisions of Rule 15(1) of the CCR read with provisions of Section 11AC of Central Excise Act or Section 76 of Finance Act, 1994.

2. M.S. Nagaraja, Learned Counsel, appearing for the Appellants submits both the impugned orders No.03/12 dated 16.03.2012 (Appeal No. E/1697/2012) and No. 01/15-16-CX dated 04.06.2015 (Appeal No E/21886/2015) have proceeded on the grounds that the CENVAT Credit is not admissible on Input Services since the same were not received and utilized by the manufacturer at the place of manufacture; services were received at a place away from the factory; services were not related to manufacture of final product; services were consumed by individuals having no connection with the process of manufacture; payments for certain services are made with no proper description of the input services; essentiality of services in the manufacture of final products is not established; services related to vehicles, aircraft and rails which are not Capital Goods/Inputs etc. He submits that the basis for disallowance of the Credit as alleged in the SCNs and confirmed in the impugned orders is contrary to the definition of ―input service‖ in Rule 2 (l) and eligibility condition in Rule 3 (1) of the CENVAT Credit Rules, 2004. The Appellants rely on the following judgments/circulars which lay down the general principles:

(i) in the cases of CIT Vs Tajmahal Hotel 1971 (3) SCC 550 and CCE Vs Dynamic Industries Ltd 2014 (307) ELT 15 (Guj) it was held that the Phrase “includes” in Rule 2 (l) is used to enlarge the meaning and scope of services eligible for credit.

(ii) in the cases of Coca Cola India Ltd Vs CCE, Pune – 2009 (15) STR 657 (Bom); CCE, Nagpur Vs Ultra tech Cement Ltd 2010 (20) STR 577 (Bom) and BASF India Ltd Vs CCE Mangalore 2021 (49) GSTL 8 (Tri – Bang) it was held that activities relating to business are eligible for credit and that there were no exclusions.

(iii) Vide CBEC Circulars, No. 1065/4/2018-CX., dated 8-6-2018 and No. 999/6/2015-CX, dated 28-2-2015, it was stated that Services received up to the “place of removal” eligible for credit,

(iv) in the cases of Deepak Fertilizers and Petrochemicals Corporation Ltd Vs CCE, Belapur – 2013 (32) STR 532 (Bom); CCE & C, Aurangabad Vs Endurance Technology Pvt Ltd –2017 (52) STR 361 (Bom) and CCE Chennai Vs Ashok Leyland Ltd 2019 (369) ELT 162 (Mad.), it was held that, in terms of Rule 3 (1) (ii) of the CENVAT Credit Rules, 2004, Services to be received by manufacturer and not necessarily within the factory unlike in the case of Inputs and Capital Goods

(v). in cases of Coca Cola India Ltd Vs CCE, Pune – 2009 (15) STR 657 (Bom); CCE Vs Tata Consultancy Services Ltd 2018 (362) ELT 777 (Bom) and CCE Mumbai II Vs Willis Processing Services (India) Pvt Ltd 2017 (7) GSTL 12 (Bom), it was held that Cost of input services included in the Cost of production/Price of goods is recognition of use of service in or in relation to manufacture

3. Learned Counsel submits that the impugned orders denied credit on various services on the grounds cited above. He submits that various services which were disallowed by the impugned orders have been held to be admissible for credit as per the judgments of various Courts and Tribunal and the issue is no longer Res Judicata. He relies on following cases for various services as mentioned in the table therein.

4. Shri P. Gopakumar, Authorized Representative for the Respondent reiterates the findings in the impugned order in respect of the appeals 1697/2012 & 21886/2015 filed by Ms JSW and the grounds of appeal in respect of the department’s appeal 21990/2015. He submits that the appeals filed by Ms JSW be dismissed and Revenue Appeal be allowed.

5. Heard both sides and perused the records of the case. We find that it would be beneficial to have a look at the relevant provisions of the cenvat credit Rules.

5.1. Rule 2 (l) of the CENVAT Credit Rules, 2004 defines ―input service‖ during the relevant period up to 31.03.2011 as under:

Rule 2 (l): “input service” means any service, –

(i) used by a provider of taxable service for providing an output service, or

(ii) used by a 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 up to 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;

5.2. Rule 2 (l) of the Cenvat Credit Rules, 2004 as amended from 1.4.2011 ( till 30.9.2011) is as under:

(l) “input service” means any service,-

(i) used by a provider of taxable service for providing an output service; or

(ii) used by a 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 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, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation up to the place of removal; but excludes services,-

(A) specified in sub-clauses (p), (zn), (zzl), (zzm), (zzq), (zzzh) and (zzzza) of clause (105) of section 65 of the Finance Act (hereinafter referred as specified services), in so far as they are used for-

(a) construction of a building or a civil structure or a part thereof; or

(b) laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services; or

(B) specified in sub-clauses (d), (o), (zo) and (zzzzj) of clause (105) of section 65 of the Finance Act, in so far as they relate to a motor vehicle except when used for the provision of taxable services for which the credit on motor vehicle is available as capital goods; or

(C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee.

5.3. The Rule 3 (1) of the CENVAT Credit Rules, 2004

Rule 3. CENVAT credit.— (1) A manufacturer or producer of final products or a [provider of output service] shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of –

(i) to (viii)

(ix) the service tax leviable under section 66 of the Finance Act; [* * *]

[(ixa) the service tax leviable under section 66A of the Finance Act;] [(ixb) the service tax leviable under section 66B of the Finance Act;]

(x) to (xi)

paid on –

(i) anyinput or capital goods received in the factory of manufacture of final product or [by] the provider of output service on or after the 10th day of September, 2004; and

(ii) any input service received by the manufacturer of final product or by the provider of output services on or after the 10th day of September, 2004,

including the said duties, or tax, or cess paid on any input or input service, as the case may be, used in the manufacture of intermediate products, by a job-worker availing the benefit of exemption specified in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 214/86-Central Excise, dated the 25th March, 1986, published in the Gazette of India vide number G.S.R. 547(E), dated the 25th March, 1986, and received by the manufacturer for use in, or in relation to, the manufacture of final product, on or after the 10th day of September, 2004.

6. On going through the provisions of the Rules it appears that the definition of input service did give vast connotation before or after amendment making the services used directly or indirectly, in or in relation to the manufacture of the final products. Only change made after amendment is that certain services are excluded. We find that Various High Courts have interpreted to Rules to have a wider connotation rather than the constrictive view taken by Revenue. We find that Hon’ble High Court of Bombay in the case of Coca Cola India Ltd Vs CCE, Pune – 2009 (15) STR 657 (Bom) has held that the manufacturer is entitled to take credit on services used directly or indirectly, in or in relation to manufacture and clearance of the final products up to the place of removal and on various services as illustrated in the inclusive part of the definition; further they held, in the case of CCE, Nagpur Vs Ultra tech Cement Ltd – 2010 (20) STR 577 (Bom), that the definition of input service read as a whole makes it clear that the said definition not only covers services, which are used directly or indirectly in or in relation to the manufacture of final product, but also includes other services, which have direct nexus or which are integrally connected with the business of manufacturing the final product. In view of the same and in view of the judgments of various High Courts and this tribunal in respect of eligibility of individual services as tabulated above, we find that the appellants have correctly availed the credit on various disputed services. Accordingly, the impugned order does not survive and needs to be set aside. We do so. For the reasons cited above, the departments appeal against dropping of a portion of demand, vide impugned order, does not survive.

7. In the result, the impugned orders are set aside. Appeals 1697/2012 & 21886/2015 filed by Ms JSW are allowed and department’s appeal 21990/2015 is dismissed.

(Order pronounced in the open court on 01/12/2021)