M/s Honda Motorcycle & Scooter Vs CCE & ST (CESTAT Delhi)
Conclusion: Cenvat credit is allowable on service tax paid on rent of infrastructural facilities as common facilities availed by assessee on rent basis were in ‘relation to the manufacture of goods’ and an integral part of the overall activity of manufacturing. .
Held: In the present case, Revenue denied the benefit of cenvat credit to assessee in respect of service tax paid by them on renting of infrastructural facilities from M/s H Pvt. Ltd. It was held common facilities such as road, water supply facility, boundary wall infrastructure for supply of electricity etc. were absolutely essential for making the manufacturing facility to work. For example without „road‟ inside their factory premises, it was absolutely unthinkable to as to how the raw material, manpower and finished goods were going to have movement. Hence, common facilities availed by assessee on rent basis were in “relation to the manufacture of goods” and an integral part of the overall activity of manufacturing. Since the charges of rent/license fee paid by assessee must have been included in the cost of the finished product manufactured by assessee as per the provisions of Cenvat Credit Rules they were entitled to credit of service tax paid by them as the facilities were in relation to manufacturing of their finished product.
FULL TEXT OF THE CESTAT JUDGMENT
The brief facts of the matter are that the appellant/ assessee is engaged in manufacture of motorcycles and scooters falling under Central Excise Tariff Heading 87 of 1st Schedule to the Central Excise Tariff Act, 1985. The appellants have been availing facility of Cenvat credit on inputs, capital goods and input services under Cenvat Credit Rules, 2004. During the period from June 2011 to March 2016, the appellant have been availing input service credits on the services, such as (I) commission paid to agents of print media; (II) services of authorized service stations provided by the appointed dealers of the appellant to the buyers of vehicles under free after sale service and warranty period services ; (III) service tax paid on the rent for common civil infrastructure services availed by the appellant from M/s Honda Siel Car India Ltd. The Department had entertained a view that the appellant have wrongly availed input service credit on the above-mentioned services and a show cause notice demanding reversal of Cenvat credit amounting to Rs.9,85,38,215/- was demanded vide show cause notice dated 06/07/2016 which has been adjudicated by the learned Commissioner vide his order dated 09/02/2017, wherein the above-mentioned amount of the Cenvat credits have been confirmed under Rule 14 of Cenvat Credit Rules, a penalty of equal amount have also been imposed under Section 11AC (i) (c) of the Central Excise Act, 1944, personal penalty of Rs. 5,00,000/- and Rs. 10,00,000/- has also been imposed on Shri Sunil Kumar Gupta, Manager (Taxation) and Shri Naveen Kumar, Division Head (Finance and Account) of the appellant, respectively. The appellants are before us against the above-mentioned order-in-original. The learned Advocate appearing on behalf of the appellant has contended that repair and maintenance services received by the appellant from his authorized service stations cannot be denied to them as the scope of input service as mentioned under Rule 3 of the Cenvat Credit Rules and defined under Rule 2 (l) of the Cenvat Credit Rules has a specific mention that the appellant are entitled for credit on all input services used directly or indirectly, in or in relation to manufacture or clearance of final product. It can be seen from the scope of the definition of input service that it not only covers any services used directly or indirectly in relation to manufacture or clearance of the manufactured product, since the free after sale service coupons provided by them to the buyer of two wheelers have already formed part of the assessable value of the two wheelers manufactured and cleared by them and therefore the appellant is entitled for availment of Cenvat credit of input services used by them in this regard.
It has further been elaborated by learned Advocate that :
(i) the appellant offers 3-4 free service coupons to its customers depending upon the product. The free service coupons entitle the customer to avail free services enumerated overleaf each such coupon such as inspection of fuel line, replacement of engine oil, cleaning of vehicle, inspection of suspension etc. These free service coupons carry a validity period expressed in terms of specified distance coverage or time period. For e.g., appellant grants 4 free service coupons for CB125 Shine SP. The first free service coupon is valid for use within 750–1000 km. or within 15 to 30 days from the date of sale, whichever is earlier. The second free service coupon is valid for use within 3500–4000 km. or 105 to 120 days from the date of sale, whichever is earlier.
(ii) That in addition to the above, appellant offers warranty on two wheelers manufactured by it. The two wheelers carry an initial warranty for specified time period or specified kilometers of distance coverage, say for e.g. 24 months from the date of sale or until the vehicle covers 32,000 km., commonly referred to as warranty period. During the subsistence of warranty period, appellant undertakes that two wheeler shall be free from the manufacturing defect. In case of a defect, the appellant through its authorized service station undertakes to replace the defective part free of charge subject to fulfillment of prescribed conditions.
(iii) Thus, herein 2 contractual arrangements are at play, viz. one between the appellant and customer for provision of free of charge after-sale services in lieu of free service coupons and during subsistence of warranty policy. Second between authorized service station and the appellant for provision of after-sale services in return of consideration arising from the appellant.
(iv) In terms of the second contractual arrangement referred above, the authorized service stations are obligated to provide after-sale services to customers. In consideration of these services, the authorized service stations raise invoices on the appellant alongwith applicable service tax.
(v) The appellant avails credit on the above mentioned services received from authorized service stations. The Revenue has sought to deny credit on the ground that these services were not received by the appellant”.
2. The learned Counsel has relied on the decisions of this Tribunal which support his point of view with regard to the afore-mentioned issue. The case laws referred are as that of M/s Carrier Airconditioning & Refrigeration Ltd. vs. CCE, Gurgaon – 2016 (41) S.T.R. 1004 (Tri. – ), CCE, Nashik vs. Mahindra & Mahindra Ltd. – 2012 (28) S.T.R. 382 (Tri. – Mumbai), Samsung India Electronics Pvt. Ltd. vs. CCE & ST, Noida – 2017 – TIOL – 05 – CESTAT – ALL. and Leroy Somer India Pvt. Ltd. vs. CCE, Noida – 2015 (39) S.T.R. 466 (Tri. – Del.). The learned Counsel has further added that since the cost of after sale service as well as warranty charges are included in the assessable value of the goods for computation of the excise duty and the services provided by the authorized service stations are in fact on behalf of the appellant and, therefore, the service tax paid by authorized service station has ultimately been incurred and borne by the appellant.
3. With regard to the second point of demand, wherein the Department has alleged that service tax paid by the appellant on the renting of the immovable service in the form of civil infrastructure services taken by them from M/s Honda Siel Cars Ltd. The basic contention of the learned Advocate has been that appellant has been granted a right to use and enjoy the common infrastructural facility developed by M/s Honda Cars for a consideration which is being paid by the appellant and by virtue of which they have obtain a right to use and enjoy the common infrastructural facilities. It is further been added that appellant cannot undertake manufacturing activity in the absence of infrastructural such as availability of electricity, water, road, the boundary wall for the manufacturing premises for the safety purpose because for making use of the factory premises the common infrastructural facilities are dovetailed with the main manufacturing facility and thus become integral for the purpose of creating manufacturing capability in the factory and, therefore, the services used by them in the form of common infrastructural facility are very much integral to the creation of infrastructural for manufacturing. It has further been added that :-
(i) this service is covered under the „inclusive’ clause of the definition of ‘input service’, since this is a service in relation to ‘procurement of inputs’ and „clearance of the final product’.
(ii) It is further submitted that the appellant’s factory premises forms a part of the whole industrial area. The security of appellant’s factory premises is intricately connected with the security of the industrial area. Any compromise with the security of the industrial area, including the common infrastructure area, will severely impinge on the security of the appellant’s factory premises. The boundary wall forms a necessary measures to prevent encroachment, trespassing, theft etc. Its absence would cause threat to the safety of appellant’s premises. Thus, such services are in relation to „security’ as well. Similarly, ’inclusive’ clause of the definition of term „input service’ also includes within its ambit services received in relation to „inward transportation of inputs or capital goods’ and „outward transportation’. Similarly, the appellant is required to gain access to roads, street lighting, drainage ensuring unclogged roads etc. for outward transportation of the manufactured products.
(iii) that these common infrastructure facilities clearly qualify as input service used in or in relation to the manufacture of final product and the appellant is entitled to credit of the service tax paid by Honda Cars on license fee charged for use of these common infrastructural facilities.
(iv) It has further been argued that the Commissioner has erred in holding that the impugned services are excluded from the definition of ‘input service’ vide Rule 2 (l) (A) of the Cenvat Credit Rules. From a perusal of exclusion clause, it reveals that exclusion has been carved out with respect to works contract and construction services which are taxable under Section 66E (b) of the Finance Act. In the instant case, services are taxable under Section 66E (f) and not under Section 66E (b) of the Finance Act.
(v) It is submitted that construction services imply that the activity of construction is undertaken for someone else. This requires that the construction is undertaken by the service provider and the constructed structure is owned by the service recipient.
(vi) As already submitted, the ownership rights in the common infrastructural facilities vest in Honda Cars and not the appellant. The same is duly evidenced by various provisions of License Agreement. In such circumstances, construction activity undertaken by Honda Cars is for itself. The appellant was merely granted license to use and enjoy these common infrastructural facilities. The grant of license cannot be equated with construction and works contract excluded from the definition of input service.
(vii) Further, reliance is placed on the following decisions, wherein credit has been allowed on such services:
