Service Tax- Guide for taking Credit

“INPUT SERVICES – CENVAT CREDIT”

 

Decisions in Coca Cola and ABB clears mist over definition of ‘input service’

 

Definition of ‘input service’ is very wide. Any service in relation to business is input service. Any relation to ‘manufacture’ or ‘provision of service’ is really of required. However, department was taking a restricted view and even n case of many decisions of Tribunal, restricted view was taken.

 

Recent decisions of division bench of Mumbai high Court in case of Coca Cola  and of 3 member large bench of Tribunal in case of ABB has cleared the mist and has brought out true interpretation of the term ‘input service’.

 

In Coca Cola India v. CCE (2009) 22 STT 130 (Bom HC DB) and ABB Ltd. v. CCE (2009) 21 STT 77 = 15 STR 23 (CESTAT 3 member bench), various aspects of definition of ‘input service’ have been clarified’.

1 Definition of input service

 

Rule 2(l) of Cenvat Credit Rules reads as follows –

 

“Input service” means any service –

 

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

 

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final products and clearance of final products, upto the place of removal; (The words ‘from the place of removal’ have been replaced by ‘, upto the place of removal’ w.e.f. 1-4-2008).

 

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.

 

1-1 Analysis of the definition

 

The definition of ‘input service’ is broadly in two parts – first i.e. main part and second i.e. inclusive part. First part of the definition is restrictive in scope as it covers input services directly or indirectly used for providing output service or used in relation to manufacture or clearance of final product. However, second i.e. inclusive part of the definition expands the scope much beyond the coverage of first part.

 

The inclusive part itself is of two sub-parts. The first sub-part gives some illustrations of input services while second part covers all services used in relation to ‘activities relating to business, such as - -‘. Some illustrations are given in second sub-part of the definition, but these are preceded by the term ‘such as’. It means these are only illustrations. Any service in relation to business would be ‘input service’.

 

Meaning of ‘includes’ and ‘in relation to’ - It is well settled that inclusive part expands the scope of main definition. The inclusive part can cover items which are not getting covered in main part of definition. It is also well settled that ‘in relation to’ widens the scope of definition. It is not restrictive [The case law is well settled and I am not burdening this article with that case law].

 

Any service in relation to business is input service - Thus, input services which have only remote or no nexus with output services or manufacture of goods will get covered so long as these are related to activities of business. This is also clear from the fact that service tax paid at Head Office and branches/depots can be utilised as Cenvat credit through the mechanism of ‘input service distributor’.

 

2. Decision of Bombay HC in case of Coca Cola and large bench of Tribunal in case of ABB

 

Definition of ‘input service’ is very wide. Any service in relation to business is input service. Any relation to ‘manufacture’ or ‘provision of service’ is really of required. However, department was taking a restricted view and even n case of many decisions of Tribunal, restricted view was taken.

 

Recent decisions of division bench of Mumbai high Court in case of Coca Cola  and of 3 member large bench of Tribunal in case of ABB has cleared the mist and has brought out true interpretation of the term ‘input service’.

 

In Coca Cola India v. CCE (2009) 22 STT 130 (Bom HC DB) and ABB Ltd. v. CCE (2009) 21 STT 77 = 15 STR 23 (CESTAT 3 member bench), various aspects of definition of ‘input service’ have been clarified’. These are summarised below.

 

Just when we thought the issue relating to ‘input service’ has been settled, Karnataka High Court has granted stay against operation of CESTAT large bench decision in case of ABB on 10-12-2009 (244 ELT A91). In India Cement Ltd. v. CCE (2010) 249 ELT 530 (CESTAT), the bench did not agree with decision in case of ABB and the matter regarding Cenvat credit of service tax on outward freight was adjourned awaiting decision of Karnataka High Court on stay petition filed by department.

 

Luckily, decision of Bombay High Court is also on same lines as that of ABB decision and that decision continues to be valid.

 

There is no doubt that soon the issue is going to land in Supreme Court.

 

Inclusive part expands scope of definition – The word ‘includes’ is generally used to enlarge the meaning of the preceding words and it is by way of extension, and not restriction [para 23 of decision of Bombay High Court and para 16 of decision of Tribunal in ABB]

 

Five parts of definition of ‘input service’ are independent of each other - The definition of ‘input service’ can be conveniently divided into following five categories, so far as the manufacturers are concerned -

 

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

 

(b) Any service used by the manufacturer, whether directly or indirectly, in or in relation to clearance of final products, from the place of removal (now it is ‘upto the place of removal’ but that does not change the conclusion of decisions of Bombay HC and Tribunal).

 

(c) Services used in relation to setting up, modernization, renovation or repairs of a factory, or an office relating to such factory (or premises in case of service provider).

 

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

 

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

 

Both Bombay High Court (in case of Coca Cola) and Large bench of Tribunal (in ABB) have held that each of the limb of above definition is an independent benefit/concession. If an assessee can satisfy anyone of above, the credit of input service would be admissible even if the assessee does not satisfy the other limbs

 

[Note - In case of service provider, clauses (a) and (b) above change but there is no change in clauses (c), (d) and (e) above and in any case, the basic principle is same].

 

Any activity relating to business is ‘input service’ - There is no qualification to the word ‘activities’. There is no restriction that activities relating to business should be relating to only main activities or essential activities or essential activities [para 27 of Coca cola and para 13 ABB decision]. All activity relating to business fall within the definition of ‘input service’.

 

Meaning of ‘such as’ - The expression ‘such as’ is purely illustrative. ‘Such as’ means ‘for example’ or ‘of a kind that’ (Concise Oxford Dictionary). ‘for example’ (Chambers Dictionary) [para 14 of the decision in ABB and para 24 of decision in Coca Cola]

 

‘Valuation’ and ‘Cenvat Credit’ are independent of each other – Hon. Tribunal held that the two issues namely valuation and Cenvat credit are independent of each other and have no relevance to each other. The submission of revenue that Cenvat credit cannot be allowed for services if value thereof does not form part of value subjected to excise duty is clearly against the fundamental concept laid down by Supreme Court in All India Federation of Tax Practitioners and the OECD guidelines [para 21 of decision of Tribunal in case of ABB].

 

There is additional reason for holding that Cenvat credit is admissible on services even if the value thereof is not part of value subjected to duty. This is because the interpretation of the expression ‘input services’ cannot fluctuate with the change in definition of value in section 4 of Central Excise Act and cannot vary depending on whether goods are levied to duty under section 4A of Central Excise Act or tariff value under section 3(2) of Central Excise Act or the product attracts specific rate of duty [para 22 of decision of Tribunal in case of ABB].

 

If cost included in assessable value, Cenvat credit is available - It was observed by Hon. Tribunal that ‘question of denial of Cenvat credit does not arise if cost of (outward) freight is included in the transaction value’.

 

Thus, if a cost is included in assessable value, its Cenvat credit will be certainly eligible. However, even if it is not included, it will still be eligible if it is in relation to business of assessee.

 

Definition of input service’ is not confined to ‘manufacture’ but has to be interpreted on basis of requirements of business - The definition of ‘input service’ has to be interpreted in the light of the requirements of business and cannot be read restrictively so as to confine only upto the factory or only upto depot of manufacturers [para

 

Outward freight eligible for Cenvat credit – Tribunal, in case of ABB concluded that outward freight is ‘input service’ even if its cost is not included in assessable value of goods [In my view, if outward freight is not included in assessable value, assessee should be very careful while taking Cenvat credit since dispute regarding assessable value may arise].

 

However, the decision of three member bench of Tribunal goes much beyond the issue of ‘outward freight’ and in effect, it has been held that any service in relation to business of assessee is its input service.

 

3 Other Tribunal decisions taking liberal view of ‘input service’

 

Any service whose cost included in assessable value eligible for Cenvat credit - In CCE v. GTC Industries (2008) 17 STT 63 = 2008 TIOL 1634 (CESTAT 3 member bench), it has been held that, in principle, credit of service tax paid on those taxable services would be allowed that go to form a part of the assessable value on which excise is charged [Really, as stated in case of ABB Ltd., valuation and Cenvat credit are independent issues. However, in ABB’s case, it was observed that ‘question of denial of Cenvat credit does not arise if cost of (outward) freight is included in the transaction value’. Thus, if a cost is included in assessable value, its Cenvat credit will be certainly eligible].

 

Outward freight eligible even if its cost is not included in assessable value - Outward freight is ‘input service’ even if its cost is not included in assessable value of goods.- ABB Ltd. v. CCE (2009) 21 STT 77 = 15 STR 23 (CESTAT 3 member bench) – followed in  CCE v. Vasavadatta Cement (2009) 23 STT 284 (CESTAT) [However, in my view, if outward freight is not included in assessable value, assessee should be very careful while taking Cenvat credit since dispute regarding assessable value may arise] [In India Cements Ltd. v. CCE (2007) 10 STT 271 = 216 ELT 81 = 8 STR 43 (CESTAT), the issue relating to service tax on outward freight was referred to a large bench].

 

One doubt is whether decision of large bench of Tribunal will apply after 1-4-2008, when the words ‘from the place of removal’ in the definition of ‘input service’ were replaced by ‘upto the place of removal’. Really, the decision of Tribunal in case of ABB Ltd. is entirely based on basic analysis of definition of ‘input service’. The words ‘from the place of removal’ or ‘upto the place of removal’ have not even been considered while deciding issue relating to eligibility of Cenvat credit on outward freight. Hence, in my view, there is no change in legal position after 1-4-2008 and Cenvat credit on outward freight continues to be eligible.

 

However, in India Cement Ltd. v. CCE (2010) 249 ELT 530 (CESTAT), the bench did not agree with decision in case of ABB and the matter regarding Cenvat credit of service tax on outward freight was adjourned awaiting decision of Karnataka High Court on stay petition filed by department.

 

Outward freight eligible – Outward freight eligible for Cenvat credit -  Triveni Engg v. CST (2010) 24 STT 43 (CESTAT) * Southern Auto Castings v. CCE (2010) 24 STT 108 (CESTAT SMB) * Bharat Alloys v. CCE (2010) 24 STT 113 (CESTAT) (No specific mention in order whether or not it was included in assessable value) .

 

Outward freight eligible if its cost included in assessable value - In Ambuja Cements v. UOI (2009) 20 STT 182 = 236 ELT 431 (P&H HC DB), it has been held that if freight charges form part of assessable value, price is FOR destination, if ownership of goods remains with seller till delivery at customer’s doorstep, transit insurance is borne by assessee and property in goods is not transferred till delivery at doorsteps of customer, outward transportation is ‘input service’ and is eligible for Cenvat credit reversing decision in Gujarat Ambuja Cement Ltd. v. CCE (2007) 8 STT 122 = 212 ELT 410 = 6 STR 249 (CESTAT), where it was held that outward freight is not an input service. Service tax paid on the cost of transportation from the factory/depots to the buyers' premises, would not be available as credit].

 

In PSG & Sons v. CCE (2008) 17 STT 445 (CESTAT SMB), it was held that when ownership and property in goods remained with seller till delivery of goods to purchaser at his doorsteps, assessee can take credit of service tax paid on freight for transportation to such place of delivery – relying on CBE&C circular No. 97/8/2007 dated 23-8-2007.

 

In Vardhman Special Steels v. CCE (2007) 8 STR 374 = 223 ELT 220 (CESTAT), it was held that if outward freight is included in assessable value, service tax paid on outward freight would be available as credit – same view in Hindustan Coca Cola Beverages v. CCE (2009) 22 STT 504 (CESTAT) * CCE v. Modern Laminators (2009) 23 STT 49 (CESTAT) * CCE v. Endurance Systems (2009) 23 STT 422 (CESTAT SMB).

 

In Datafield India v. CCE (2008) 17 STT 295 (CESTAT SMB), assessee had uniform CIF price all over India. The ownership of goods was transferred to buyer only at buyer’s premises. It was held that if excisable goods after removal from factory remain property of manufacturer and are transported on own risk upto premises of buyer, outward freight is ‘input service’ and is eligible for Cenvat credit (In other words, customer’s place is the ‘place of removal’ in such case).

 

In Maihar Cement Unit No. 1 v.  CCE (2007) 8 STR 391 (CESTAT), freight was paid for transport of final products from manufacturing factory to godown of C&F Agent, from where goods were sold. Removal was for ‘self’. It was held that Cenvat credit is available of service tax paid on such freight.

 

Outward freight upto place of consignment agent - Place of consignment agent is ‘place of removal’ and hence service tax paid on GTA service availed upto place of consignment agent will be eligible for Cenvat credit – CCE v. Rajhans Metals (2009) 19 STT 246 (CESTAT SMB).

 

Air travel by executives – Air ticket service charges for company officers is eligible for Cenvat credit - CCE v. Fine Care Biosystems (2009) 244 ELT 372 (CESTAT SMB).

 

Overhaul of DG set – Overhaul of DG set is input service – Sanghi Industries v. CCE (2009) 236 ELT 617 (CESTAT SMB).

 

Input service not related to output service - In CCE v. Shariff Motors (2009) 22 STT 419 (CESTAT), assessee was dealer in two wheelers and also was providing service to old vehicles as authorised service station. He paid service tax on GTA service in respect of inward transport of new vehicles. He availed Cenvat credit on the GTA service. The credit was utilised for payment of service tax on servicing of vehicles which included even old vehicles. It was held that definition of input service is wide enough to cover input service availed by assessee.

 

Insurance charges – Insurance charges are eligible for Cenvat credit – CCE v. CCL Products (2009) 22 STT 36 (CESTAT). Insurance of plant and machinery is eligible for Cenvat credit - Finolex Cables v. CCE (2009) 22 STT 87 (CESTAT SMB). Transit insurance is eligible as input service - CCE v. Raipur Rotocast (2010) 24 STT 58 (CESTAT SMB).

 

Group insurance health policy – Service tax paid on group insurance health policy of workmen/employees is eligible for Cenvat credit - Stanzen Toyotetsu India v. CCE (2009) 21 STT 321 (CESTAT) * CCE v. Endurance Systems (2009) 237 ELT 204 (CESTAT SMB) * Stanzen Toyotetsu India v. CCE (2009) 23 STT 40 (CESTAT) * HEG Ltd. v. CCE (2009) 23 STT 157 (CESTAT SMB) * CCE v. Raipur Rotocast (2010) 24 STT 58 (CESTAT SMB).

 

Banking charges – Banking service is ‘input service’ – prima facie view in Rohit Surfactants v. CCE (2009) 240 ELT 472 (CESTAT SMB).

 

Outward freight upto place of consignment agent - Place of consignment agent is ‘place of removal’ and hence service tax paid on GTA service availed upto place of consignment agent will be eligible for Cenvat credit – CCE v. Rajhans Metals (2009) 19 STT 246 (CESTAT SMB).

 

Canteen, subsidized foods, personal insurance eligible - In Millipore India v. CCE (2009) 22 STT 536 = 236 ELT 145 (CESTAT SMB), it was held that expenses like medical benefit, subsidized food, canteen bill etc. which form part of cost of final product as per CAS-4 will be eligible as input service. Medical and personal accident insurance, catering bills, personal accident policy is ‘input service’. Landscaping of factory garden is also ‘input service’, as definition of input service is very wide.

 

Outdoor catering/canteen service – Catering service is input service and is eligible – CCE v. GTC Industries (2008) 17 STT 63 = 12 STR 468 = 89 RLT 197 = 2008 TIOL 1634 (CESTAT 3 member bench) – followed in Finolex Cables v. CCE (2009) 22 STT 87 (CESTAT SMB) * CCE v. Haldyn Glass Gujarat (2009) 240 ELT 729 (CESTAT SMB) * Thiru Arooran Sugars v. CCE (2009) 23 STT (CESTAT) 18 (CESTAT SMB) * CCE v. Relpol Plastic (2009) 23 STT 32 (CESTAT) * Kirloskar Oil Engines v. CCE (2009) 23 STT 39 (CESTAT) * Cummins Generator Technologies v. CCE (2009) 23 STT 42 (CESTAT) * GKN Sinter Metals v. CCE (2009) 23 STT 71 (CESTAT SMB) * Hindustan Coca-Cola Beverages v. CCE (2009) 23 STT 460 (CESTAT SMB) * Ferromatik Milacron v. CCE (2009) 23 STT 200 (CESTAT SMB) * CCE v. Visteon Powertrain Control Systems (2009) 23 STT 301 (CESTAT SMB) * Dr Reddy’s Lab v. CCE (2010) 24 STT 90 (CESTAT) * CCE v. Panasonic Home Appliances (2010) 24 STT 116 (CESTAT SMB).

 

Hire charges, courier, training, security eligible - In CCE v. Deloitte Tax Services (2008) 16 STT 449 (CESTAT), it was observed that definition of ‘input service’ is very wide. Services like equipment hiring, professional consultation, recruitment, security, telephone, transport, training, facility operation, courier, cafeteria, advertisement are all ‘input services’ (for providing Business Auxiliary Service).

 

Courier charges – Courier charges is ‘input service’ and is eligible – CCE v. CCL Products (2009) 22 STT 36 (CESTAT).

 

Manpower for generating electricity for factory as well as residential colony - In Sanghi Industries v. CCE (2009) 234 ELT 367 (CESTAT SMB), power plant was generating electricity which was supplied to residential colony, clinker unit, jetty and cement plant. It was held that Cenvat credit of service tax paid on manpower supply service supplied to power plant and operation and maintenance of power plant is eligible.

 

Service tax on manpower supplied for operation of power plant - In Sanghi Industries v. CCE (2009) 19 STT 308 = 234 ELT 367 (CESTAT SMB), power plant was generating electricity which was supplied to residential colony, clinker unit, jetty and cement plant. It was held that Cenvat credit of service tax paid on manpower supply service supplied to power plant and operation and maintenance of power plant is eligible [The Cenvat credit was denied by department on the ground that electricity is not excisable goods].

 

All expenses upto port eligible in case of export - In CCE v. Rolex Rings (2008) 16 STT 193 = 230 ELT 569 (CESTAT SMB), it has been held that in case of exports, port is the ‘place of removal’ as exporter continues to be owner of goods till the same are exported. Hence, CHA and surveyor services which are relating to export business are eligible for Cenvat credit - followed in CCE v. Adani Pharmachem (2009) 19 STT 239 = 232 ELT 804 (CESTAT SMB), where it was held that CHA service in respect of export goods  is ‘input service’ and is eligible for Cenvat credit – also followed in Rawmin Mining v. CCE (2009) 18 STT 329 (CESTAT).

 

Port is place of removal and GTA service upto port is eligible – CCE v. Colour Synth Industries (2009) 22 STT 88 (CESTAT SMB) * CCE v. Fine Care Biosystems (2009) 244 ELT 372 (CESTAT SMB).

 

Port is place of removal for exports and hence C&F service is eligible as input service – Adani Pharmachem v. CCE (2009) 238 ELT 179 (CESTAT SMB).

 

Port/airport is place of removal in case of export - In case of exports, the place of removal is port where export documents are presented to customs office – Kuntal Granites v. CCE (2007) 215 ELT 515 = 2007 TIOL 930 (CESTAT) – quoted and followed in Rajasthan Spinning & Weaving Mills v. CCE (2007) 8 STR 575 (CESTAT). Hence, all expenses upto that place should be considered as ‘input service’.

 

Transport charges for bringing employees to factory - In CCE v. Cable Corporation of India (2009) 19 STT 158 (CESTAT SMB), it has been held that scope of definition of input service is much larger than being used directly or indirectly in relation to manufacture. In this case, it was held that rent-a-cab service used to bring employees to work in factory has to be considered as being used indirectly in relation to manufacture  or as part of business activity for promoting the business as any facility given to employees will result in greater efficiency and promotion of business – followed in  CCE v. J K Cement Works (2009) 20 STT 254 (CESTAT SMB) * CCE v. Hindustan Zinc (2009) 21 STT 285 (CESTAT SMB) * Stanzen Toyotetsu India v. CCE (2009) 21 STT 321 (CESTAT).

 

Bus service used for transporting employees to factory is input service - CCE v. Haldyn Glass Gujarat (2009) 240 ELT 729 (CESTAT SMB) * CCE v. HEG Ltd. (2010) 24 STT 9 (CESTAT SMB).

 

Rent-a-cab service – Rent-a-cab service is input service and eligible – Hindustan Coca-Cola Beverages v. CCE (2009) 23 STT 460 (CESTAT SMB) * Dr Reddy’s Lab v. CCE (2010) 24 STT 90 (CESTAT).

 

Expenses on which FBT paid are in relation to business - Fringe benefit tax (FBT) is paid on certain business expenses. If FBT is paid on some services, it means that those are related to business of assessee. Hence, such services are input service eligible for Cenvat Credit – Victor Gaskets v. CCE (2008) 14 STT 403 (CESTAT) [decision with reference to canteen services but applicable to all the input services].

 

Services of commission agent – Commission Agents do promote sale and hence commission paid to them is eligible as ‘input service’ – prima facie view held in Metro Shoes v. CCE (2007) 10 STT 462 = 8 STR 502 (CESTAT) - same view in Bhoruka Gases v. CCE (2008) 224 ELT 449 (CESTAT).

 

Services of commission agent is input service and is eligible for Cenvat credit – CCE v. Bhilai Auxiliary Industries (2009) 21 STT 474 (CESTAT) * Lanco Industries v. CCE (2009) 22 STT 380 (CESTAT) * CCE v. HEG Ltd. (2010) 24 STT 9 (CESTAT SMB).

 

C&F Agent – Services of C&F Agent is el;igible input service for Cenvat credit – Cadilla Healthcare v. CCE (2009) 23 STT 224 (CESTAT).

 

Services of residential colonies eligible – Scope of input service is very wide to cover many activities indirectly used in or in relation to manufacture. Hence, service tax paid in respect of security services provided in colony is eligible -  CCE v. Hindustan Zinc (2009) 21 STT 285 (CESTAT SMB) * GHCL Ltd. v. CCE (2009) 23 STT 89 = 242 ELT 468 (CESTAT SMB).

 

In ITC Ltd. v. CCE (2009) 22 STT 282 (CESTAT), assessee was under obligation to maintain colony for its employees (engaged in plantation of soft wood trees which was input for manufacture of paper) since there was prohibition in acquiring plot/flat in that area as it was a ‘Scheduled Area’. It was held that all services received in maintaining such colony would be ‘input service’ as it has nexus with manufacturing activity.

 

In a contrary view, in CCE v. Ultra Tech Cement (2009) 21 STT 470 (CESTAT SMB), it was held that security services in residential colonies of assessee is not an input service, as it is not in a place and for a purpose connected with business activities of manufacturer.

 

In another contrary view, in CCE v. Manikgarh Cement Works (2010) 24 STT 1 (CESTAT SMB), it was held that services of construction, repairs, cleaning etc. received in residential colony is not input service as it has no relation with manufacture of excisable goods.

 

Landline phones at residences of officers and directors eligible - Landline phones installed in residences of officers and directors of company is for business purpose and Cenvat credit is eligible – Keltech Energies v. CCE (2008) 14 STT  419 (CESTAT SMB) * ITC Ltd. v. CCE (2009) 20 STT 110 (CESTAT SMB) * CCE v. Greaves Cotton (2009) 239 ELT 137 (CESTAT SMB) * HEG Ltd. v. CCE (2009) 23 STT 157 (CESTAT SMB).

 

However, in International Testing Centre v. CCE (2009) 18 STT 153 (CESTAT SMB), it was held that credit is not available in respect of service tax paid on telephones installed at residence of proprietor.

 

Mobile phones eligible for Cenvat Credit – Earlier Service Tax Rules required ‘installation’ of telephones in the business premises. Hence, CBE&C had clarified vide circular No. 59/8/2003-ST dated 20-6-2003 that Cenvat credit will not be available in case of mobile phones. Now there is no such requirement. Hence, service tax paid on mobile phones will be eligible for Cenvat credit w.e.f. 10-9-2004, so long as these are used for ‘activity relating to business’ – view confirmed in Indian Rayon v. CCE 2007 (6) STT 328 = 4 STR 79 (CESTAT SMB) – followed in Nice Telecommunication v. CCE (2007) 8 STT 159 (CESTAT) * Excel Crop Care v. CCE (2007) 9 STT 249 = 7 STR 451 (CESTAT SMB) * Rajasthan Textile Mills v. CCE (2007) 10 STT 349 = 7 STR 400 = 215 ELT 362 (CESTAT SMB) * CST v. Stic Travels (2007) 8 STR 495 (CESTAT) * Maini Precision Products v. CST (2008) 12 STT 182 (CESTAT SMB) * CCE v. Ultra Tech Cement (2008) 15 STT 28 (CESTAT SMB) * Vasavdatta Cement v. CCE (2008) 223 ELT 90 (CESTAT SMB) * CCE v. GKN Sinter Metals (2008) 16 STT 182 (CESTAT SMB) * N K Paper Tube v. CCE (2008) 16 STT 250 (CESTAT SMB) * Mundra Port & SEZ Ltd. v. CCE (2009) 18 STT 314 (CESTAT) * Grasim Industries v. CCE (2009) 18 STT 381 (CESTAT SMB) * Wiptech Peripherals v. CCE (2008) 232 ELT 621 (CESTAT SMB) * CCE v. J K Cement Works (2009) 20 STT 254 (CESTAT SMB) * CCE v. Stanzen Toyotetsu (2009) 20 STT 69 (CESTAT SMB) * ITC Ltd. v. CCE (2009) 20 STT 110 (CESTAT SMB) * CCE v. Hindalco Industries (2009) 21 STT 388 (CESTAT SMB) * CCE v. BSBK P Ltd. (2009) 22 STT 31 (CESTAT SMB) * Finolex Cables v. CCE (2009) 22 STT 87 (CESTAT SMB) * CCE v. Hindustan Coca Cola Beverages (2009) 22 STT 100 (CESTAT) * CCE v. Showa Engineering (2009) 240 ELT 736 = 27 VST 242 (CESTAT SMB) * CCE v. Greaves Cotton (2009) 239 ELT 137 (CESTAT SMB) * CCE v. Wheels India (2009) 23 STT 91 (CESTAT SMB) * CCE v. T G Kirloskar Automotive (2009) 23 STT 99 (CESTAT SMB) * CCE v. Ultratech Cement (2009) 23 STT 241 (CESTAT SMB) * CCE v. HEG Ltd. (2010) 24 STT 9 (CESTAT SMB) * CCE v. K L Steels (2010) 24 STT 22 (CESTAT SMB) * DIC India v. CCE (2010) 24 STT 99 (CESTAT SMB).

 

There is presumption that mobile phones are used in connection with business of assessee. Hence, Cenvat credit of service tax paid on mobile phones is available unless department proves that the use was not for purpose of business of assessee – Telenet Systems v. CCE (2009) 23 STT 205 (CESTAT SMB).

 

In para 8.3 of CBE&C Circular No. 97/8/2007-ST dated 23-8-2007, it is reiterated that Cenvat credit is available of service tax paid on mobile phones.

 

The view has been confirmed in CCE v. Excel Crop Care (2009) 20 STT 164 (Guj HC DB).

 

In Force Motors v. CCE (2009) 22 STT 530 (CESTAT SMB), employees were allowed use of mobile upto a limit and excess use was debited to the account of employees. It was held that Cenvat credit is allowable upto the allowable limit.

 

Mobile phones in name of employees eligible for Cenvat - In Wiptech Peripherals v. CCE (2009) 19 STT 306 (CESTAT SMB), it was held that Cenvat credit on mobile phones will be eligible even if the cell phones are in name of employees, if the phone is used for business of assessee.

 

Internet services eligible – Cenvat credit is available in respect of internet services, as it is utilised for information relating to manufacture, sale and despatch – Universal Cables Ltd. v. CCE (2007) 7 STR 310 (CESTAT).

 

Canteen services – Canteen is in relation to business of assessee. Fringe benefit tax (FBT) is paid on those expense, which means those are related to business of assessee. Hence, canteen service is input service eligible for Cenvat Credit – Victor Gaskets v. CCE (2008) 14 STT 403 (CESTAT).

 

Canteen services eligible for Cenvat credit - Stanzen Toyotetsu India v. CCE (2009) 21 STT 321 (CESTAT) * Stanzen Toyotetsu India v. CCE (2009) 23 STT 40 (CESTAT) * Tata Motors v. CCE (2010) 24 STT 103 (CESTAT SMB)

 

Canteen is a statutory requirement. Hence, credit of service tax paid on canteen bills is allowable as it is ‘input service’ – Indian Card Clothing v. CCE (2008) 15 STT 79 (CESTAT SMB).

 

However, in Bajaj Electricals Ltd. v. CCE (2008) 14 STT 461, it was held that assessee has not made a prima facie case for complete waiver of pre-deposit of tax (in respect of service tax paid on canteen services) and he was asked to pre-deposit certain amount for admission of appeal.

 

Maintenance, AMC services - Maintenance, AMC services are eligible– CCE v. CCL Products (2009) 22 STT 36 (CESTAT). Maintenance and repair services are eligible as without these services factory cannot run – Cadilla Healthcare v. CCE (2009) 23 STT 224 (CESTAT).

 

Garden services – Garden and cleaning services are eligible, if in relation to business - HEG Ltd. v. CCE (2009) 23 STT 157 (CESTAT SMB).

 

R&D and trial manufacture – Even trial manufacture and R&D conducted in respect of drugs which do not reach market have to be considered as part of manufacturing process and business activity and hence input services used are eligible for Cenvat credit – Cadilla Healthcare v. CCE (2009) 23 STT 224 (CESTAT).

 

Courier service – Courier service is eligible as it is in connection with business activities of assessee - CCE v. HEG Ltd. (2010) 24 STT 9 (CESTAT SMB).

 

Security services – Security services for plant area, residential and mining area are eligible - GHCL Ltd. v. CCE (2009) 23 STT 89 = 242 ELT 468 (CESTAT SMB).

 

Showroom is place of removal if sale takes place from showroom, and all services in showroom are eligible for Cenvat - In Metro Shoes v. CCE (2008) 14 STT 280 = 2008-TIOL-417 (CESTAT), assessee was selling shoes from its showrooms. It was held that showroom is the ‘place of removal’. Hence all expenses upto sale of  goods at showroom like GTA, warehousing facilities, C&F agents, insurance, internet services, security, courier services, telecom services, pest control services, bank services etc. are eligible for Cenvat credit. Only services which are directly and wholly attributable for traded goods will not be eligible.

 

Services at depot - In Mangalam Cement v. CCE (2007) 8 STR 639 (CESTAT), strong prima facie view was held that if services relate upto the depot, service tax credit will be available.

 

Place of consignment agent is ‘place of removal’ and hence service tax paid on GTA service availed upto place of consignment agent will be eligible for Cenvat credit – CCE v. Rajhans Metals (2009) 19 STT 246 (CESTAT SMB).

 

Windmills for generation of electricity which are away from factory - In PSG & Sons v. CCE (2009) 243 ELT 411 (CESTAT SMB), assessee availed Cenvat credit in respect of erection, commissioning and installation of windmills for generation of electricity. This was supplied to grid and corresponding quantum was withdrawn at the factory. It was held that the services availed at windmill are not ‘input services’ – relying on L G Balakrishnan v. CCE (2009) 13 STR 498 (CESTAT).

 

Services in relation to aircraft used for conveyance of officers – Assessee was using aircraft for conveyance of its officials. The aircraft was stationed at airport and availed various services from Air port Authority of India (AAI). In Force Motors v. CCE (2009) 23 STT 160 (CESTAT SMB), it was held that these are in relation to business activity of assessee and eligible for Cenvat credit.

4 Tribunal decisions taking restrictive view

 

In many Tribunal decisions as stated below, a restrictive view has been taken that ‘input service’ should have relation with manufacture or provision of service.

 

In view of the 3 member decision of Tribunal in ABB Ltd and GTC Industries , validity of these decisions is now doubtful, particularly because some of these decisions given below are only prima facie views expressed at the time of considering stay application.

 

Cenvat credit cannot extend beyond removal of goods -  In Gujarat Ambuja Cement Ltd. v. CCE (2007) 8 STT 122 = 212 ELT 410 = 6 STR 249 (CESTAT). Hon. Tribunal in para 12 of the decision has observed, ‘Crucial point to be noted in regard to Cenvat Credit is that credit availability is in regard to 'inputs'. The credit covers duty paid on input materials as well as tax paid on services, used in or in relation to the manufacture of the 'final product'. Therefore, extending the credit beyond the point of duty paid removal of the final product, would be contrary to the scheme of Cenvat Credit Rules’.

 

Service should have relation to manufacture - In Colgate Palmolive P Ltd. v. CCE (2008) 12 STT 269 = 7 STR 294 (CESTAT), a prima facie view was expressed that credit of input services which are common to manufactured as well as exempted/traded goods is not available. A prima facie view was also expressed that even services in the inclusive part of definition should be ‘in relation to manufacture’.

 

In Coca Cola India v. CCE (2007) 7 STR 529 = 223 ELT 69 (CESTAT), assessee was manufacturing concentrate for cold drinks. He was incurring expenditure for advertisement of aerated water and not concentrate. It was held that advertisement expenses is not his ‘input service’ since it is not related to manufacture of ‘concentrate’ but related to sale of aerated waters. The reason given was that such advertisement expenses are not includible in assessable value of base essence.

 

Service of CHA is not input service - In Excel Crop Care v. CCE (2007) 9 STT 249 = 7 STR 451 (CESTAT SMB), it was held that services of CHA (Customs House Agent) in relation to export is not in relation to manufacture and clearance and hence Cenvat credit is not eligible. Same prima facie view was held in GHCL Ltd. v. CCE (2007) 10 STT 254 (CESTAT) – this view has been specifically not accepted in CCE v. Rolex Rings (2008) 16 STT 193 = 230 ELT 569 (CESTAT SMB) and CCE v. Adani Pharmachem (2009) 19 STT 239 (CESTAT SMB).

 

Construction services relating to sign boards - In Excel Crop Care v. CCE (2007) 9 STT 249 = 7 STR 451 (CESTAT SMB), it was held that construction services for setting up circles/gardens for putting sign boards is not in relation to advertisement of the product and is not eligible.

 

Club house fees for recreation of workers - In Mundra Port & SEZ Ltd. v. CCE (2009) 18 STT 314 (CESTAT), it was held that service tax paid on club house fees, meant for recreation of workers is not eligible for credit as it is not used for providing output service.

 

Residential quarters is not input service - In VMT Spinning Co. Ltd. In re (2008) 16 STT 514 = 232 ELT 169 = 17 VST 369 (AAR), it has been held that construction of residential quarters for workers inside the factory is not ‘input service’ as it has no relation with manufacturing activity.

 

In GHCL Ltd. v. CCE (2007) 10 STT 254 (CESTAT), prima facie view was held that services received at residential colonies of staff do not qualify as ‘input service’ – similar prima facie view in India Cements v. CCE (2008) 9 STR 65 (CESTAT SMB).

 

Windmills for generation of electricity which are away from factory - In Rajhans Metals v. CCE (2007) 8 STR 498 (CESTAT SMB), assessee availed Cenvat credit in respect of erection, commissioning and installation of windmills for generation of electricity. This was supplied to grid and corresponding quantum was withdrawn at the factory. It was held that electricity is not excisable and hence the services availed at windmill are not ‘input services’ – similar prima facie view in India Cements v. CCE (2008) 9 STR 65 (CESTAT SMB) – same view in Ellora Times Ltd. v. CCE (2009) 19 STT 381 = 235 ELT 661 (CESTAT SMB), but the reason given was that there is no direct nexus between services provided in power plant and items manufactured in factory.

 

Contrary decisions of Tribunal in respect of outward freight - The decision of Tribunal in Gujarat Ambuja Cement was followed in India Japan Lighting P Ltd. v. CCE (2007) 11 STT 498 = 8 STR 124 = 218 ELT 103 (CESTAT) * HEG Ltd. v. CCE (2008) 13 STT 96 (CESTAT SMB) * CCE v. Sound Castings (2009) 18 STT 185 (CESTAT SMB) * Bharat Starch Industries v. CCE (2008) 223 ELT 395 (CESTAT) – same prima facie view in stay petition in Ultratech Cement v. CCE (2007) 8 STT 152 = 6 STR 364 (CESTAT) – view reiterated in para 8.2 of CBE&C Circular No. 97/8/2007-ST dated 23-8-2007. The decision of Tribunal in Gujarat Ambuja Cement was also followed in Universal Cables Ltd. v. CCE (2007) 10 STT 271 = 7 STR 310 (CESTAT SMB), in respect of courier services utilised for despatch of finished goods.

 

In CCE v. NHK Springs Ltd. (2007) 9 STT 548 = 7 STR 63 = 215 ELT 354 (CESTAT SMB) also, it was held that credit of service tax on outward freight is not available - followed in Orissa Concrete v. CCE (2008) 10 STR 16 (CESTAT).

 

In  CCE v. Adishiv Forge (2008) 12 STT 359 (CESTAT SMB), it was held that Cenvat credit can be availed of service tax paid on inward freight but not in respect of outgoing consignments.

 

Now these decisions stand impliedly overruled in view of decision of three member bench of Tribunal and judgment of Punjab & Haryana High Court.

 

5. Summary

 

Apart from the fact that definition of ‘input service’ is very wide and it includes any service in relation to business of assessee, following factors need consideration.

 

Purpose is to move towards GST - The purpose of wide definition of ‘input service’ has been stated by Finance Minister in para 148 of his budget speech on 8-7-2004 as follows, ‘I propose to take a major step towards integrating the tax on goods and services. Accordingly, I propose to extend credit of service tax and excise duty across goods and services’.

 

The integration of Cenvat credit of excise duty and service tax is a pre-cursor to GST (Goods and Service Tax), where intention is to eliminate distinction between goods and services. The whole scheme of credit of ‘input service’ is designed from this point of view.

 

Avoiding cascading effect of taxes - One basic purpose of Cenvat credit is to avoid cascading effect. These purposes cannot be ignored while interpreting the definition of ‘input service’.

 

Conclusion - In my view, decision of large bench of Tribunal in ABB Ltd. and Bombay High court in Coca cola correctly interprets the definition of ‘Input service’ [Unless the definition is changed in next budget]. Thus, any service in relation to business of assessee is ‘input service’ and eligible for Cenvat credit..

CENVAT CREDIT ON TELEPHONES

Previously under Service Tax Credit Rules, 2002, service tax credit in relation to the telephone connection was allowed only if such telephone connections were installed in the business premises from where output services were provided. However, under CENVAT Credit Rules, 2004, no such rule exists. As such, it is not required to be installed in the business premises from where output services is provided. For mobile phones, it is felt that the assessee can claim such costs as input service cost provided that it is proved to the satisfaction of Revenue authorities that such expenditure is for carrying out business or for rendering of taxable output service. In the absence of any prohibition, it is felt that such credit will be allowed.

CENVAT Credit in relation to Telephone Connections/Mobile Phones

CENVAT Credit would be available only when input service has been used or consumed for manufacture of output goods or in rendering of output services. As per rule 9(2), name and address of service receiver is not a essential requirement in the bill. As such, it appears that there should not be any problem in availing credit. Moreover, there is no specific rule which prohibits CENVAT credit in such cases.

Under Rule 9(2), mention of registration number is not an essential condition for availing Cenvat credit. Though service provider may be penalized for issuing an improper invoice, a receiver of service i.e., telephone subscriber cannot be denied CENVAT credit merely because service tax registration number of service provider is missing from the invoice. Service availers should insist on such mention of registration number, both from Government and private service providers.

The credit on mobile/cell phones being input service shall be allowed as there is no restriction in the existing Cenvat Credit Rules, 2004 on taking cenvat credit on mobile phones (unlike earlier restriction in Service Tax Credit Rules, 2002). In Indian Rayon Industries Ltd. v. CCE, Bhavnagar [2006 -TMI - 620 - CESTAT, MUMBAI], it was held that service tax credit is available on mobile phones. Board Circular dated 20.6.2003 cannot be pressed into service in the context of Cenvat Credit Rules, 2004 as there is no stipulation in Rule 4(1) or 4(7) expressly prohibiting such credit availment.

Pune Commissionerate-I in its RAC meeting dated 27.9.2006 also observed that such credit shall be allowed provided it meets all the tests of being an input service and the person availing CENVAT credit of service tax paid on mobile phones has to prove that he satisfies the conditions of using for providing the output service or manufacturing the final products. It may also be noted that in terms of rule 16 of Cenvat Credit Rules, 2004, old Service Tax Credit Rules of 2002 which are consistent with new Cenvat Credit Rules, 2004 alone are to be complied with and hold good in new regime. If any of such rules have been omitted in Cenvat Rules, the same cannot be considered to be valid.

In Vasavandatta Cement v. CCE, Belgaum [2008 -TMI - 2521 - CESTAT, BANGALORE], matter was remanded back to verify use of mobile phones for providing output service or use in relation to manufacture and reconsider the claim. In Excel Crop Care Ltd v. CCE, Ahmedabad [2007 -TMI - 1456 - CESTAT, Ahmedabad], mobile phones used by employees and officers of company and tax paid thereon has been held to be admissible for Cenvat credit (Relied upon Indian Rayon Industries Ltd. v. CCE, Bhavnagar [2006 -TMI - 620 - CESTAT, MUMBAI]

In CCE, Chennai-III V Greaves Cotton Ltd [2009 -TMI - 33811 - CESTAT CHENNAI]. credit of service tax paid towards telephone service for use of mobile phones and landlines installed in residence of managers of assessee company was held to be admissible, even if installed outside the factory [ Relied on CCE v Excel Crop Care Ltd. [2008 -TMI - 31579 - HIGH COURT GUJARAT].

Mobile phones used by whole time directors in relation to business activities of company  were allowed for cenvat purpose [CCE v BSBK Pvt Ltd 2009 -TMI - 32789 - CESTAT, NEW DELHI].

Service tax paid by assessee manufacturer to mobile phone service provider, on mobile phones provided to its employees, is an input service and credit thereof can be utilized for payment of service tax [ CCE v Excel Crop Care Ltd 2007 -TMI - 1456 - CESTAT, Ahmedabad]

Cenvat Credit allowed on mobile phones used in relation to manufacturer of final product where they were standing in the name of company and used by employee. The incidental use of phones for personal work can not by itself be ground for denying cenvat credit [CCE, Bangalore -I versus Conzerve Systems Pvt Ltd 2009 -TMI - 32669 - CESTAT, BANGALORE]

Telephone service- mobile service as well as landline phones installed by the company for business purposes is to be considered as input services, eligible for the benefit of cenvat credit [Keltech Energies Ltd v CCE, Mangalore [2008 -TMI - 4051 - CESTAT BANGALORE]

Mobile phones used for office purpose constitute input service and service tax credit was admissible [CCE, Chennai v Showa Engineering Ltd/ Brakes India Ltd [2009 -TMI - 31940 - CESTAT CHENNAI]; CCE, Allahabad v Hindaco Industries Ltd [2009 -TMI - 33555 - CESTAT NEW DELHI]; CCE, Jaipur-II v J.K. Cement Works [2009 -TMI - 33571 - CESTAT NEW DELHI]

Other favorable decisions

Grasim Industries Ltd v CCE [2008 -TMI - 30053 - CESTAT, NEW DELHI]

Indian Rayon Industries Ltd. v. CCE, Bhavnagar [2006 -TMI - 620 - CESTAT, MUMBAI]

Maini Precision Products Pvt Ltd v CCE [2008 -TMI - 30421 - CESTAT BANGLORE]

Vikram Ispat v CCE, Raigad [2009 -TMI - 34136 - CESTAT, MUMBAI]

CCE (A-II) Bangalore v T.G. Kirloskar Automotive Pvt. Ltd. [2009 -TMI - 32395 - CESTAT, BANGALORE]

ITC Ltd. v CCE & CE , Salem [2009 -TMI - 33960 - CESTAT, CHENNAI]

Assessee was entitled to claim cenvat credit on mobile phones in view of Indian Rayon's judgment (Maini Precision Products Pvt Ltd v. CST, Bangalore [2008 -TMI - 30421 - CESTAT BANGLORE]

It may be noted that basic test for claiming cenvat credit would be that it should be an input service. So long as, use of telephone at residence can be justified as a input in performances of output service, it is immaterial whether the phone is installed at residence or else where.

In International Testing Centre v CCE,  Panchkula [2008 -TMI - 4010 - CESTAT, NEW DELHI], it was held that cenvat credit would be admissible only in respect of telephones installed at business premises and not at residence. Also, Cenvat credit availed on payment against telephone bills installed in  the name of husband of assessee were held to be inadmissible.

 CBEC has clarified as follows vide Circular No 97/8/2007 dated 23.8.2007 —

'A doubt has been raised regarding admissibility of Cenvat credit on service tax paid in respect of mobile phones. In the Service Tax Credit Rules, 2002, it was prescribed that credit of service tax was admissible only on telephone connection installed in the business premises. A clarification to this effect was also issued vide circular No. 59/8/2003-ST, dated 20.6.2003, in the context of the Service Tax Credit Rules, 2002. However, in the Cenvat Credit Rules, 2004 no such condition has been prescribed. Therefore, w.e.f. 10.9.2004, credit of service tax paid in respect of mobile telephone service is admissible, provided the mobile phone is used for providing output service or used in or in relation to manufacture of finished goods'.

It is expected that authorities should appreciate the evidence placed before them as to what amount charged under the telephone bills was attributable to taxable service provided for which CENVAT credit was taken as input service. Thus as a rule, cenvat credit on telephones used at home cannot be denied.