Case Law Details

Case Name : ISMT Ltd. Vs. Commissioner of Central Excise & Customs (CESTAT Mumbai)
Appeal Number : Appeal No. E/1239/08
Date of Judgement/Order : 17/12/2009
Related Assessment Year :
Courts : All CESTAT (657) CESTAT Mumbai (129)

The appellant is entitled to Cenvat Credit availed on the garden maintenance service which are used in or in relation to the manufacture of final products or used in relation to the business activity and in this case the services used by the appellants are in relation to the business activity, he is entitled for Cenvat Credit.

CESTAT, WEST ZONAL BENCH, MUMBAI

Appeal No. E/1239/08

ISMT Ltd.

Versus

Commissioner of Central Excise & Customs

Date of Order: December 17, 2009

ORDER NO. A/744/2009/SMB/C-IV

O   R   D   E   R

Per: Ashok Jindal:

The appellant filed this appeal against the order of denial of CENVAT credit on garden maintenance service.

2. The issue before me is whether the garden maintenance service is an input service as per the definition 2(l) of the CENVAT Credit Rules, 2004 or not.

3. To support his contention, the learned Advocate for the appellant relied on the judgment in the case of Millipore India Ltd. vs. CCE, Bangalore-II, 2009(236)ELT 145(Tri-Bang wherein the Tribunal held that “modernization, renovation and repair etc. of office premises are included and even the landscaping the surroundings of factory to be considered as “input service” within the definition of 2(l) of CENVAT Credit Rules, 2004. Hence, the credit of garden maintenance service is eligible and the appellant has rightly availed the same.

4. On the other hand, the learned DR appearing for the Revenue relied on the decision of this Tribunal in the case of Kirloskar Oil Engines Ltd. in Appeal no. E/386/08 vide Order no. A/158/2009/SMB/C-IV dated 06.04.2009 it was held that “garden maintenance service has no nexus, even remotely, to manufacture or clearance of excisable goods. The above services was not used, directly or indirectly, in relation to the manufacture or clearance of excisable goods”. Therefore, the credit was denied. The learned DR further relied on the decision in the case of Maruti Suzuki Ltd. vs. CCE, Delhi III 2009(240) ELT 641(SC) and submitted that ‘input’ and ‘input service’ are identical and in the case of Maruti Suzuki Ltd. (supra), the Apex Court has held that the input would become eligible for credit only when used in or in relation to the manufacture of final product.

5. Heard both sides and perused the records.

6. On going through the submissions made by both the sides, I found that the main issue is relating to disallowance of Cenvat credit on service tax paid on garden maintenance service on the ground that these services are not used in or in relation to the manufacture, whether directly or indirectly of the final product and clearance of final products from the place of removal.

7. The main contention of the learned DR in this case is that these services are not covered within the definition of Rule 2(l) of the Cenvat Credit Rules, 2004. To examine the same, the definition of input service under Rule 2(l) is to be reproduced here 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 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,]

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 upto the place of removal;

8. The learned DR submitted that in the case of Coca Cola reported in AIT-2009-335-HC , the Hon’ble Bombay High Court has observed as follows :-

39. The definition of input service which has been reproduced earlier, can be effectively divided into the following five categories, in so far as a manufacturer is concerned:

(i) Any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products

(ii) Any service used by the manufacturer whether directly or indirectly, in or in relation to clearance of final products from the place of removal

(iii) Services used in relation to setting up, modernization, renovation or repairs of a factory, or an office relating to such factory,

(iv) Services used in relation to advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs,

(v) Services used in relation to activities relating to business and outward transportation upto the place of removal;

And further stated that to claim Cenvat credit in all the limb of the above definition on satisfying any one of the limbs of the above categories Cenvat credit is available and they are all independent as considered by the Hon’ble Bombay High Court. But the Ld. DR emphasized to the illustrations put by the Hon’ble High Court which is reproduced below:-

“To illustrate, input services used in relation to setting up, modernization, renovation or repairs of a factory will be allowed as credit, even if they are assumed as not an activity relating to business as long as they are associated directly or indirectly in relation to manufacture of final products and transportation of final products upto the place of removal.”

 9. But according to the Hon’ble High Court, credit can be denied only when assessee fails to become eligible in any one of the categories. I find that in category V, service used in relation to activities relating to business is covered and therefore what I have to examine is whether the appellants are covered under this category or not?

10. Moreover, in the case of Coca Cola, the Hon’ble High Court has discussed the issue in detail and with reference to the expression used in the input service definition. The references are as follows:-

Reference of “Expressions” used in the input service definition

1.  “Means and includes”

2.  “Such as”

3.  “Business”

3.  “Activity relating to business”

4.  “Services”

Observations of the Hon’ble High Court on each of the above is as under –

1. To answer the questions framed, Hon’ble Court relied upon the SC judgement in the case of Bombay Tyres to answer as to what constitutes manufacturing cost. It was held that all elements given to enrich the value of excisable goods and contribute to its marketability must form part of the manufacturing cost of the goods. It was held:

“Revenue has never disputed that advertisement of aerated water is an activity related to manufacture and sale of concentrate and that cost of advertisement is relatable to aerated water which forms part of value of concentrate in the hands of concentrate manufacturer and hence, should be included in the sale price of concentrate charged by the concentrate manufacturer…. Since advertisement of aerated water promoted marketability of concentrate, manufacturers of concentrate are subject to excise duty, in terms of principles laid down in Bombay Tyres case without excluding it from sale price of concentrate charged by the concentrate manufacturer”

2. “Means and includes” – is generally used to enlarge the meaning of the preceding words and it is by way of extension and not with restriction. Considering the various judicial pronouncements, it is clear that the expression “means and includes” is exhaustive. By the word “includes” services which may otherwise have not come within the ambit of the definition clause are included and by the word “means” these are made exhaustive.

3. “Such as” – The words “such as” are illustrative and not exhaustive. In the context of business, these are services, related to business. They may not be exhaustive, but are illustrative.

4. “Business” – The expression is an integrated/continuous activity and is not confined/restricted to mere manufacture of product. Therefore, activities in relation to the functioning of a business. The terms “business” therefore, cannot be given a restricted definition to say that business of manufacturer is to manufacture final products only.

5. “Activity relating to business” – The words “relating to” further widens the scope of expression “activities relating to business”. The expression “in relation to” (so also “pertaining to”) is very broad expression which pre-supposes another subject matter. Similarly, the use of the word “activities” in the phrase “activities relating to business” further signifies the wide import of the phrase “activities relating to business”. The Rule making authority has not employed any qualifying words before the word “activities”, like “main” activities or “essential” activities etc. Therefore, it must follow that all and any activity relating to business falls within the definition of “input service” provided there is relation between the manufacturer of concentrate and the activity.

6. “Services” – The word “services” is given such a wide meaning for the purposes of value added tax that it is capable of embracing everything which a taxable person does in the course or furtherance of business carried on by him which is done for consideration.

Finally, the Hon’ble High Court has held that –

(i)  Service tax like Cenvat is basically a value added tax which is operated through credit mechanism. Service Tax is Vat. Just as excise duty is a tax on value addition on goods, service tax is on value addition by rendition of services.

(ii)  Broadly, “services” fall into two categories, namely, property based services and performance based services.

(iii)  Service Tax is VAT which in turn is both a general tax as well as destination based consumption tax leviable on services provided within the country.

(iv)  Credit of input services must be allowed on expenditure incurred by the assessee which form a part of the assessable value of the final products.

(v)  The benefit of Cenvat credit on input stage goods and services must be ordinarily be allowed as long as a connection between the input stage goods and services is established. All and any activity ‘relating to business’ falls within the definition of “input service” provided there is a relation between manufacture of a product and the said activity.

(vi)  Conceptually, any input service that forms a part of the value of the final product should be eligible for the benefit of Cenvat credit.

11. The learned DR further relied on the decision in the case of Maruti Suzuki Ltd. vs. CCE, Delhi III  wherein the Hon’ble Apex Court discussed the definition of input service which is defined in Rule 2(k) of the Cenvat Credit Rules, 2004. For the sake of convenience the same is reproduced here as under :-

Rule 2(k) input means –

(i) all goods , except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production ;

Similarly, I am of the view that consideration such as input being used as –

“Packing material, input used as a fuel, input used for generation of electricity or steam, input used as an accessory and input used as paint are per se” also not relevant. All these considerations become relevant only when they are read with the expression “used in or in relation to the manufacture of final product” in the substantive/specific part of the definition. In each case it has to be established that inputs mentioned in the inclusive part is “used in or in relation to the manufacture of final product”.

The Apex Court in this has observed that –

“It is the functional utility of the said item which would constitute the relevant consideration. Unless and until the said input is used in or in relation to the manufacture of final product within the factory of production, the said item would not become an eligible input. The said expression “used in or in relation to the manufacture” have many shades and would cover various situations based on the purpose for which the input is used.”

12. The contention of the Ld. DR is that input and input service are identical and in the case of Maruti Suzuki Ltd., the Hon’ble Apex Court has held that the input should be used in or in relation to the manufacture of final product in the substantive/specific part of the definition. In each case it has to be established that inputs mentioned in the inclusive part is “used in or in relation to the manufacture of final product”. The main emphasis of the Apex Court in Maruti Suzuki Ltd. case is on input only when used in or in relation to the manufacture of the final product.

13. I have gone through the definition of ‘input’ and ‘input service’ both. In the definition of “input” the definition is mainly emphasized for input and after the word includes the definition reads as lubricating oils, greases, cutting oils, coolants, accessories of for the final products cleared along with final product, goods used as paint, or as packing material, or as fuel or for generation of electricity or steam used in or in relation to the manufacture of final product or for other purpose within the factory of production.

14. Both the definitions are not at all comparable or para material and coverage of the “input service” is definitely wider.

15. The definition of input is exhaustive and is restrictive in scope. It treats all goods used in or in relation to manufacture of final products or for any other purpose within the factory of production. But certain goods which would be eligible as per definition have been excluded and certain goods which could be interpreted as not includable have been specifically included ie. Packing material, lubricating oil, accessories etc. Therefore, all goods other than specified as includable have to be shown to be used in or in relation to manufacture of final product or for any other purpose within the factory of production. In fact, the Apex Court has held that input and capital goods used in captive means are covered by the definition expanding the scope of definition.

16. But in the definition of “input service” the word after includes the definition read like as under:-

“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 etc.”

17. The legislature has not used the word in the include part that it is to be used in or in relation of the final product.

18. From the above, it is clear that the intention of the Legislature was that these activities should be relating to the business. But in then case of Maruti Suzuki, the Hon’ble Apex Court has considered the word “input” in Rule 2(k) of Cenvat Credit Rules, 2004 and there is no finding with regard to “input service”. Therefore, the reference of Ld. DR in the case of Maruti Suzuki is no help to him.

19. The Ld. DR further relied on Kirloskar Oil Engines Ltd. and Vikram Ispat wherein the Tribunal has held that “the above service was not used directly or indirectly in relation to manufacture or clearance of final product”. I concur with the lower authorities on this point.” In the above cases also the issue was of admissibility of Cenvat Credit of garden maintenance service.

20. But in both the cases, the decision of the Hon’ble Bombay High Court in Coca Cola case had not been considered, as not available. As already observed earlier, it is not for me to judge whether a garden is essential or used in or in relation to manufacture but to examine whether this service can be considered as an activity relating to business. I cannot or would not like to take a view that a garden is not relating to manufacture. A good garden creates a better atmosphere and environment which increases the working efficiency and the consumer would feel good.

21. I have also gone through the decision of this Tribunal in Force Motors Ltd. vs. CCE, Pune 2009(23)STT 160(Mum-CESTAT) )wherein this Tribunal has held as under:-

“8. On examination of the records and reliance placed before me, I find that as per the show cause notice there was an allegation against the appellant that these services are not directly or indirectly be linked to any manufacturing activity and clearance of final product from their factory and merely on that ground that these services are not directly or indirectly related to any manufacturing activities and the clearances of the final products from the factory. But on the detailed examination of the definition of the input, I find that this definition is in two parts.

9. Part-I is that the services used by the manufacturer whether directly or indirectly in or in relation to the manufacturing of final products and clearance of final products from the place of removal.

10. And Part-II is that includes services used in relation to setting up, modernization, renovation or repairs of a factory premises of provider of output services 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.

11. The Ld. Counsel had also submitted that the aircrafts in question were used by the officials of the appellant’s company as conveyance between their plants and are essential for the business purposes and these services are related to the business only.

12. I find that it is not denied by the department that these services are not relating to the business activity.

13. I disagree with the contention of the Ld. SDR that the definition of the inputs is to be read as a whole. Further, in the appellant’s own case (supra) this Tribunal has held that the activities specified after the phrase “such as” are only illustrations and examples and not exhaustive. Therefore, an activity other than those illustrated but related to business will also get covered under the definition of input service. The appellant is a manufacturing unit and according to the above definition, the use of the phrase “such as” will mean inclusion of an activity which is of a kind as of the illustrations. The main issue to be decided in this case is whether the services provided by the Airport Authority of India can form the part of business activities. It is clear that the aircraft, which is stationed at airport is used by the appellant for the business activities and this stand is taken by the appellant before the lower authorities, which was not declined by the lower authorities. Therefore, I hold that the services rendered by the Airport Authority of India and the service tax charged by them would get cover under the definition of input services as per rule 2(l) of the Cenvat Credit Rules, 2004.”

22. To conclude the above discussion, the appellant is entitled to Cenvat Credit availed on the garden maintenance service which are used in or in relation to the manufacture of final products or used in relation to the business activity and in this case the services used by the appellants are in relation to the business activity, he is entitled for Cenvat Credit. Accordingly, the appeal is allowed.

(Pronounced in Court on 17.12.2009)

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