Case Law Details
NGK Spark Plugs India Private Limited Vs Commissioner of Central Excise (CESTAT Chandigarh)
CESTAT Chandigarh held that in view of the wider scope given in the definition under Section 2(l) of CENVAT Credit Rules, 2004, cenvat credit of all the Input Services used in or in relation to the manufacture and sale of final products or in relation to the business activity cannot be denied.
Facts- The appellants are engaged in the manufacture of auto parts; the appellants have availed CENVAT credit on certain input services i.e. “Commercial and Industrial Construction Service”, “Rent-a-Cab Service”, “Outdoor Catering Services” and “Real Estate Agent Service”. Revenue was of the opinion that the credit is not admissible to them as there was no nexus between the services and the output products cleared on payment of duty.
Show-cause notices were issued to the appellants seeking CENVAT credit of Rs.66,76,056/- along with interest while also seeking to impose penalty u/s. 11AC of the Central Excise Act, 1944. The show-cause notices were adjudicated vide OIO No. 124-127/SA/CCE/2012 dated 26.11.2012. The appellants are before us against this order.
Conclusion- Held that in view of the wider scope given in the definition under Section 2(l) of CENVAT Credit Rules, 2004, the services of which the credit was availed by the appellants, merit to be classified as Input Services used in or in relation to the manufacture and sale of final products or in relation to the business activity of the appellants. In view of the same, credit cannot be denied and accordingly, the impugned order is not legally sustainable. Therefore, we set aside the impugned order and allow the appeal.
FULL TEXT OF THE CESTAT CHANDIGARH ORDER
The appellants, M/s Niterra India Private Limited [formerly known as NGK Spark Plugs (India) Pvt. Ltd.], are engaged in the manufacture of auto parts; the appellants have availed CENVAT credit on certain input services i.e. “Commercial and Industrial Construction Service”, “Rent-a-Cab Service”, “Outdoor Catering Services” and “Real Estate Agent Service”. Revenue was of the opinion that the credit is not admissible to them as there was no nexus between the services and the output products cleared on payment of duty. Show-cause notices dated 05.03.2009, 29.12.2009, 15.12.2010 and 02.10.2011 were issued to the appellants seeking CENVAT credit of Rs.66,76,056/- along with interest while also seeking to impose penalty under Section 11AC of the Central Excise Act, 1944. The show-cause notices were adjudicated vide OIO No. 124-127/SA/CCE/2012 dated 26.11.2012. The appellants are before us against this order.
2. Ms. Krati Singh, learned Counsel for the appellants, submits that the definition of Input Services during the relevant period allowed credit of services which are used by the manufacturer whether directly or indirectly, in relation to the manufacture and clearance of final products up to the place of removal; the definition also included services used in relation to business activity till 01.04.2011; the only exception was to the Outdoor Catering Service used for personal consumption of any employee w.e.f 01.04.2011. She submits that there is no exclusion for allowing credit of input services used for construction; in fact, the services used in setting up of the factory is specifically included in the definition of Input Service; Construction Services were excluded only w.e.f 01.04.2011 whereas the issue pertains to the period February 2008 to December 2008. She further submits that the Service of Rent-a-Cab was used to facilitate the movement of employees between the factory and home or for the visitors coming from abroad; Circular No. 943/4/20-11-CX dated 29.04.2011 merely provides clarifications for amendments w.e.f. 01.04.2011 and it cannot be a basis for denying credit. Learned Counsel further submits that the appellants provided food to its employees so that they do not go out of the factory for having food and as per the requirement under Section 46 of the Factories Act, 1948. She submits that credit of Rs.6,044/-, related to the amount which was collected from the employees, has been reversed by the appellants. Lastly, she submits that the Service of Real Estate Agent were utilised by them for procuring residential accommodation for the Managing Director of the appellant; therefore, it is in relation to business activity and hence, credit is admissible. For all the above submissions, he relies on the following:
- RICO AUTOMOBILES INDUSTRIS LTD.- 2023-TIOL-440-CESTAT-CHD.
- BELLSONICA AUTO COMPONENTS INDIA P. LTD.-2015 (40) S.T.R. 41 (P & H)
- DLF LTD.-2023 (70) G.S.T.L. 237 (P & H)
- CARRIER AIRCONDITIONING & REFRIGERATION LTD.-2016 (41) S.T.R. 824 (Tri. – Chan.)
- HONDA MOTORCYCLE & SCOOTER (I) PVT. LTD.-2016 (45) S.T.R. 397 (Tri. – Chan.)
- MARUTI SUZUKI INDIA LTD.-2017 (49) S.T.R. 261 (P & H)
- MICROSOFT INDIA (R & D) PVT. LTD.- 2022 (56) G.S.T.L. 29 (Tri. – Bang.)
- TRANSPEK INDUSTRY LTD.-2018 (12) G.S.T.L. 29 (Guj.)
- ULTRATECH CEMENT LTD.-2010 (20) S.T.R. 577 (Bom.)
- STANZEN TOYOTETSU INDIA (P) LTD.- 2011 (23) S.T.R. 444 (Kar.)
- ACE DESIGNERS LTD.-2012 (26) S.T.R. 193 (Kar.)
- AXIS BANK LTD.-2017 (3) G.S.T.L. 427 (Tri. – Mumbai)
- TITAL INDUSTRIES LTD.-2018-TIOL-2052-CESTAT-MAD
3. Shri Aneesh Dewan, learned Authorized Representative for the Department, reiterates the findings of the impugned order.
4. Heard both sides and perused the records of the case. We find that as regards the credit related to Commercial and Industrial Construction Service, Hon’ble Punjab & Haryana High Court in the case of Belsonica Auto Components Private Ltd. (Supra) has observed as follows:
7. We are entirely in agreement with Mr. Amrinder Singh’s submission on behalf of the respondents, that the Cenvat credit taken of the tax paid in respect of the said input services can be utilized by the respondents in accordance with the Cenvat Credit Rules. Mr. Amrinder Singh rightly analysed Section 2(l) by dividing it into two parts terming them the „mean‟ part and the „includes‟ part and that the present case would fall under both the parts of the definition as the phraseology is wide enough to cover the said services, the same being directly or indirectly or in any event in relation to the manufacture of the respondents‟ final product.
8. The land was taken on lease to construct the factory. The factory was constructed to manufacture the final product. The land and the factory were required directly and in any event indirectly in or in relation to the manufacture of the final product and for the clearance thereof up to the place of removal. But for the factory the final product could not have been manufactured and the factory needed to be constructed on land. The land and the factory are used by the manufacturer in any event indirectly in or in relation to the manufacture of the final product, namely, metal-sheets. The respondents‟ case, therefore, falls within the first part of Rule 2(l) aptly referred to by Mr. Amrinder Singh as the “means part.”
9. The respondents‟ case also falls within the second part of Rule 2(l) i.e. the “inclusive” part. The definition of the words “input service” also specifically includes the services used in relation to setting up of a factory. Mr. Amrinder Singh rightly contended that it was not the appellant’s case that the services were not used for the setting up of the factory. The doubt in this regard is set at rest by the second part of Section 2(l)(ii) which includes within the ambit of the words „input service’ the setting up of a factory and the premises of the provider of the output service. The inclusive definition, therefore, puts the matter, at least so far as the payment for services rendered by the civil contractor for setting up the factory is concerned, beyond doubt. As the plain language of Section 2(l)(ii) indicates, the services mentioned therein are only illustrative. The words “includes services” establish the same. It can hardly be suggested that the lease rental is not for the use of the land in relation to the manufacture of the final product.
10. This becomes clearer from the fact that by an amendment of the year 2011 to Rule 2(l), construction services were excluded from the definition of “input service.” The amended section in so far as it is relevant reads as under :-
“(l) ”input service” means any service, –
…. ….. ….
(ii) (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” Clause (105)(zzq) of Section 65 of the Finance Act reads as under :-
“(105) “taxable service” means any service provided or to be provided, –
(zzq) to any person, by any other person, in relation to commercial or industrial construction.
Explanation.- For the purposes of this sub-clause, the construction of a new building which is intended for sale, wholly or partly, by a builder or any person authorised by the builder before, during or after construction (except in cases for which no sum is received from or on behalf of the prospective buyer by the builder or the person authorised by the builder before grant of completion certificate by the authority competent to issue such certificate under any law for the time being in force shall be deemed to be service provided by the builder to the buyer.”
11. If in fact the said services were not covered by Rule 2(l), it would not have been necessary to introduce the amendment. It is clear, therefore, that prior to the amendment the setting up of a factory premises of a provider for output service relating to such a factory fell within the definition of „input service.‟ The amendment of 2011 is not retrospective and is not applicable to the respondents‟ case.
5. In respect of Rent-a-Cab Service, Hon’ble High Court of Punjab & Haryana in the case of Maruti Suzuki India Ltd. (supra) observed that:
27. In of C. Ex., Chandigarh-II v. Federal Mogul Goetz (India) Ltd., 2015 (39) S.T.R. 735 (P&H), the question was whether the CESTAT was correct in holding that the service of transportation of employees of the factory to the factory was an input service within the definition of input service in Rule 2(l) of the 2004 Rules. This Court affirmed the finding of the Tribunal that the transportation of the employees from their residence to the factory premises is related to their manufacturing activities and without coming to the factory, the production cannot be started. The provision of transportation facilities increases efficiency and increases the production capacity of the manufacturing unit itself.
28. In Commr. of C. Ex., Bangalore-III v. Stanzen Toyotetsu India (P) Ltd., 2011 (23) S.T.R. 444 (Kar.) the Karnataka High Court held that Rent-a-Cab service provided by the assessee to the workers to reach the factory premises constituted input service for availing Cenvat credit. It observed:-
“10. As is clear from the definition any service used by the manufacturer whether directly or indirectly in or in relation to the manufacture of final products constitutes input service. Various services are set out in the definition expressly, as constituting input service. It also includes transportation of inputs or capital goods and outward transportation upto the place of removal. Therefore, the test is whether the service utilized by the assessee is for the manufacture of final product. Such service may be utilized directly or indirectly. Such may be in the nature of transportation of inputs or capital goods, upto the factory premises or if the final product is removed from the factory premises for outwards transportation upto the place of removal. It is an inclusive definition. The services mentioned in the Section are only illustrative and it is not exhaustive. Therefore, when a particular service not mentioned in the definition clause is utilized by the assessee/manufacturer and service tax paid on such service is claimed as Cenvat credit, the question is what are the ingredients that are to be satisfied for availing such credit. If the credit is availed by the manufacturer, then the said service should have been utilized by the manufacturer directly or indirectly in or in relation to the manufacture of final products or used in relation to activities relating to business. If any one of these two tests is satisfied, then such a service falls within the definition of “input service” and the manufacturer is eligible to avail Cenvat credit of the service tax paid on such service.
13. Rent-a-Cab service is provided by the assessee to these workers to reach the factory premises in time which has a direct bearing on the manufacturing activity. In fact, the employee is also entitled to conveyance allowance. It also would form part of a condition of service and the amounts spent on the conveyance of the employees is also a factory which will be taken into consideration by the employees in fixing the price of the final product. By no stretch of imagination can it be construed as a welfare measure. It is a basic necessity. To ensure that the work force comes on time at the work place, the employers have taken this measure which has a direct bearing on the manufacturing activity. At any rate it is an Activity relating to business.”
This judgment has been followed in Commissioner of C. Ex., Bangalore-III v. TATA Auto Comp. Systems Ltd., 2012 (277) E.L.T. 315 (Kar.), Commissioner of Central Excise, Bangalore-I v. Graphite India Ltd.,2012 (27) S.T.R. 130 (Kar.) and Commissioner of Central Excise, Bangalore-I v. Bell Ceramics Ltd., 2012 (25) S.T.R. 428 (Kar.).
6. In respect of Outdoor Catering Services, Hon’ble High Court of Bombay in the case of Ultranet Cement Ltd. (supra) held as follows:
31. In our opinion, the ratio laid down by the Apex Court in the case of Maruti Suzuki Ltd. (supra) in the context of the definition of „input‟ in Rule 2(k) of 2004 Rules would equally apply while interpreting the expression “activities relating to business” in Rule 2(l) of 2004 Rules. No doubt that the inclusive part of the definition of “input‟ is restricted to the inputs used in or in relation to the manufacture of final products, whereas the inclusive part of the definition of input service extends to services used prior to/during the course of/after the manufacture of the final products. The fact that the definition of “input service‟ is wider than the definition of “input‟ would make no difference in applying the ratio laid down in the case of Maruti Suzuki Ltd. (supra) while interpreting the scope of „input service‟. Accordingly, in the light of the judgment of the Apex Court in the case of Maruti Suzuki Ltd. (supra), we hold that the services having nexus or integral connection with the manufacture of final products as well as the business of manufacture of final product would qualify to be input service under Rule 2(l) of 2004 Rules.
32. As rightly contended by Shri Shridharan, learned Counsel for the respondent-assessee, in the present case, the assessee carrying on the business of manufacturing cement by employing more than 250 workers is mandatorily required under the provisions of the Factories Act, 1948 to provide canteen facilities to the workers. Failure to do so entails penal consequences under the Factories Act, 1948. To comply with the above statutory provision, the assessee had engaged the services of a outdoor caterer. Thus, in the facts of the present case, use of the services of an outdoor caterer has nexus or integral connection with the business of manufacturing the final product namely, cement. Hence, in our opinion, the Tribunal was justified in following the Larger Bench decision of the Tribunal in the case of GTC Industries Ltd. (supra) and holding that the assessee is entitled to the credit of service tax paid on outdoor catering service.
33. It is argued on behalf of the Revenue that not only the ratio but the decision of the Apex Court in the case of Maruti Suzuki Ltd. (supra) must be applied ipso facto to hold that the credit of service tax paid on outdoor catering services is allowable only if the said services are used in relation to the manufacture of final products. That argument cannot be accepted because unlike the definition of input, which is restricted to the inputs used directly or indirectly in or in relation to the manufacture of final products, the definition of “input service‟ not only means services used directly or indirectly in or in relation to manufacture of final products, but also includes services used in relation to the business of manufacturing the final products. Therefore, while interpreting the words used in the definition of „input service‟, the ratio laid down by the Apex Court in the context of the definition of „input‟ alone would apply and not the judgment in its entirety. In other words, by applying the ratio laid down by the Apex Court in the case of Maruti Suzuki Ltd.(supra), it cannot be said that the definition of „input service‟ is restricted to the services used in relation to the manufacture of final products, because the definition of „input service‟ is wider than the definition of „input‟.
34. Therefore, 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 the facts of the present case, use of the outdoor catering services is integrally connected with the business of manufacturing cement and therefore, credit of service tax paid on outdoor catering services would be allowable
7. As regards the credit availed on Real Estate Agent Service, Coordinate Bench at Mumbai in the case of Axis Bank (supra) finds that:
4.1 As regards the service tax paid on the real estate agent services, it is noticed that these services are contracted by appellant in order to scout and procure residential accommodation for a particular class of their employees to whom they are obligated to give free accommodation due to the posts held by them. On a specific query from the Bench it was informed by the learned Counsel that the agreement for Leave and Licence is entered by assessee-appellant with the flat owners and subsequently entitled employees are allowed to occupy the said residential premises till they are posted in a particular station. We find the argument of the learned D.R. as well as the adjudicating authority as eligibility or otherwise to avail the Cenvat credit is not in consonance with the settled law, as this Tribunal in the case of Gateway Terminals (I) Pvt. Ltd. – 2015 (39) S.T.R. 1027 (T) has clearly held that Cenvat credit of service tax paid on the services of real estate agent who help in finding residential accommodation for their employees is permitted, as also the decision of the Tribunal in the case of Toyota Kirloskar Motors P. Ltd. – 2017 (47) S.T.R. 106 (T). In view of this we hold that Cenvat credit availed by appellant is correct.
8. As discussed above, we find that the issues raised in the impugned show-cause notice and the impugned order, on the admissibility of credit on certain input services, are no longer res integra. We also find that in view of the wider scope given in the definition under Section 2(l) of CENVAT Credit Rules, 2004, the services of which the credit was availed by the appellants, merit to be classified as Input Services used in or in relation to the manufacture and sale of final products or in relation to the business activity of the appellants. In view of the same, credit cannot be denied and accordingly, the impugned order is not legally sustainable. Therefore, we set aside the impugned order and allow the appeal.
(Pronounced on 12.09.2023)
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