Case Law Details
Andhra Organics Ltd Vs CCT (CESTAT Hyderabad)
The issue to be decided is whether the appellant is entitled to credit of the service tax paid on the tour operator service used for transporting their employees from their residence to the factory.
Input services on which credit is allowed have to be used by 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 as per Sec.2 (l) of the CENVAT Credit Rules, 2004.
The question is whether bringing the workers to the factory from homes can be termed as an input service is in relation to the manufacture of final products. Every activity undertaken by a business can have some remote relation to their business.
The question is where you draw the line to decide whether it is used in or in relation to the manufacture. In my opinion, the line can be drawn at the factory.
Once the workers come into the factory their services are used in relation to the manufacture of final products. But bringing workers to the factory or providing accommodation to them outside the factory or providing any other welfare measures for the workers or their families have no nexus with the manufacture of the final products, although they are welfare measures meant for the general well being of the workers who manufacture the goods.
Thus in this case, I find that the assessee is not entitled to the credit of service tax paid on the buses hired to bring workers to their factory.
FULL TEXT OF THE CESTAT JUDGMENT
1. These appeals are filed against Orders-in-Appeal Nos.VIZ-EXCUS-001- APP-242 to 245-17-18 dated 26.02.2018. Heard both sides and perused the records. The issue in short compass is that the appellant are manufacturers of bulk drugs and they availed CENVAT credit of service tax paid on ‘tour operator services’ used for transporting workers and staff to the factory. It is the contention of the appellant that they are entitled to the benefit of this CENVAT credit because this service is used in relation to the manufacture of their final products. The department’s contention is that provision of bus service to bring workers to the factory is only a welfare measure and it has no nexus with manufacturing operations. The lower authority issued two show cause notices for the periods March, 2007 to January, 2011 and February, 2011 to December, 2011 seeking to recover the CENVAT credit taken in respect of the service tax paid on the said service. He adjudicated and confirmed the demands and ordered recovery of the CENVAT credit. On an appeal by the appellant the demands were set aside by the Commissioner (Appeals) vide his Order-in-Appeal No.47/2012 dated 30.08.2012 and Order-in-Appeal No.17/2013 dated 20.03.2013. The department apparently had not filed an appeal against these Orders-in-Appeal. Subsequently, Deputy Commissioner of Vizianagaram issued two show cause notices for the period February, 2012 to Janurary, 2013 and Feb, 2013 to Jan, 2014 on the same grounds. Subsequently the Additional Commissioner, Vizag-I issued a show cause notice for Feb, 2014 to Jan, 2015 also on the same grounds. Another show cause notice was issued for the period Feb, 2015 to December, 2015 on the same grounds. All these, 4 show cause notices were adjudicated by the Superintendent, Srikakulam range in view of the revised monetary limits for adjudication. He confirmed the demands in these notices and imposed penalty of 10%.
2. Aggrieved, the appellant filed an appeal before the first appellate authority who, vide Order-in-Appeal Nos.VIZ-EXCUS-001-APP-242 to 245- 17-18 dated 26.02.2018 upheld all the 4 Orders-in-Original and rejected the appeals. The present appeal is against this Order-in-Appeal.
3. The appellant challenged the Order-in-Appeal on the following grounds.
(a) Since for an earlier period the Commissioner (Appeals) had held in their favour and the department did not appeal against the Order-in-Appeal, the issue has reached its finality and the department cannot issue show cause notices on the same issue for subsequent period.
(b) The adjudicating authority has wrongly confirmed the demand by saying that the earlier Order-in-Appeal were not appealed against on monetary limits and the department had not accepted it on merits.
(c) Since in an earlier case, the Commissioner (Appeals) had held that the transportation of workers to the factories has a nexus to manufacture of final products, the adjudicating authority has no authority to take a contrary view.
(d) In the impugned Order-in-Appeal the Learned Commissioner (Appeals) has travelled beyond the scope of the show cause notice in holding that the Bus hire charges are ‘rent a cab’ service and hence excluded from the scope of Rule 2 of CCR, 2004.
4. The Learned Counsel for the appellant reiterated the above arguments and forcefully argued that since the earlier Orders-in-Appeal were not appealed against by the department, no new show cause notices can be issued. It is his assertion that their Orders-in-Appeals were not appealed against on merits and not on monetary limits.
5. The Learned Departmental Representative reiterated arguments made in Order-in-Original and Order-in-Appeal and asserted that appellant is not entitled to the credit of service tax paid on the buses hired for bringing workers from home to manufacturing facilities as it has no nexus to the manufacture itself. He relied on the following judgments.
(1) Maruti Suzuki Ltd [2009 (240) ELT 641 (SC) in which it was held that input used in generation of electricity wheeled out to vendors by the assessee would not constitute an input used in or in relation to manufacture of the final product.
(2) CCE, Nagpur Vs Manikgarh Cement [2010 (20) STR 456 (Bom.)] in which it was held that services of repair and maintenance and civil construction used in residential colony of the assessee is a welfare measure and it cannot be said to be integrally connected with the business of the assessee. Although the expenditure may be allowable under Income Tax Act, no CENVAT credit is admissible.
(3) Applied Micro Circuits India Pvt Ltd [2016 (42)STR 441 (Tri.- Mumbai)] in which it was held that services received subsequent to amendment of definition of input services in which there is specific exclusion for outdoor catering services – Credit is not admissible.
(4) Sai Life Sciences Ltd [2017 (51) STR 55 (Tri.-Hyd.)] in which it was held that the appellant is not entitled to the Credit of rent a cab service as it is itself allowed under the Rules.
6. I have gone through the records of the case and considered arguments on both sides. I find force in the arguments of the appellant that the show cause notice would not state that the appellant had availed credit of tour operator services used for transportation of their employees. The Learned first appellate authority had gone beyond the scope of the show cause notice in holding that the Bus Hire charges are in the nature of rent a cab operator service. Be that as it may, the issue to be decided is whether the appellant is entitled to credit of the service tax paid on the tour operator service used for transporting their employees from their residence to the factory. Input services on which credit is allowed have to be used by 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 as per Sec.2 (l) of the CENVAT Credit Rules, 2004. The question is whether bringing the workers to the factory from homes can be termed as an input service is in relation to the manufacture of final products. Every activity undertaken by a business can have some remote relation to their business. The question is where you draw the line to decide whether it is used in or in relation to the manufacture. In my opinion, the line can be drawn at the factory. Once the workers come into the factory their services are used in relation to the manufacture of final products. But bringing workers to the factory or providing accommodation to them outside the factory or providing any other welfare measures for the workers or their families have no nexus with the manufacture of the final products, although they are welfare measures meant for the general well being of the workers who manufacture the goods. Thus in this case, I find that the assessee is not entitled to the credit of service tax paid on the buses hired to bring workers to their factory. In concluding so, I rely on the judgment of the Hon’ble High Court of Bombay in the case of Manikgarh Cement (supra) and in the case of Maruti Suzuki Ltd (supra). The next question is whether the department is prohibited from issuing a show cause notice by virtue of the fact that they had not appealed against adverse order by the Commissioner (Appeals) for an earlier period. It is the contention of the department that these were not contested on monetary grounds. The assessee asserts that they were accepted on merits. I have not found any evidence to support either argument. Be that as it may, the earlier order of the Commissioner (Appeals) is not a binding precedent on the CESTAT and therefore an independent decision can be taken in this regard. I therefore find that assessee is not entitled to the credit of service tax paid on the tour operator services for the bus provided by them to carry workers from their residence to the factory.
7. The appeals are rejected.
(Pronounced in the open Court on 24.07.2018)
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