By TIOL News Service
MUMBAI, DEC 19, 2012: FORTUNES fluctuate, but in appeal proceedings!
It shouldn't be so, one would say. Normally, an appellant tries to get a sense of which way his appeal is headed from the result of his Stay application - with exceptions, of course, as happened here.
In the present case, the Stay order of the CESTAT, which we reported almost eight months ago [See 2012-TIOL-486-CESTAT-Mum], gave a fair indication that the appellant may finally win - after all, the CESTAT had granted complete waiver of pre-deposit of the adjudged dues of Rs.2.78 Crores plus.
Without carrying the suspense further, here are the facts and the order -
A show-cause notice was issued for denial of CENVAT credit on the ground that the services were utilized for the construction/erection and installation of Ammonia Storage Tank outside the factory premises (at the port) and hence are not covered under the definition of input services as provided under CENVAT Credit Rules, 2004.
The CCE, Belapur held that the impugned services were received in respect of storage tank which is immovable property and hence they are not capital goods and, therefore, credit is not admissible.
Before the CESTAT Division Bench, when the Stay application was heard, the appellant had submitted thus -
++ as per the definition of 'Input Service' the credit of service tax paid on services received in respect of sales promotion, market research etc. up to the place of removal and activities relating to the business are eligible although the services are rendered outside the factory premises;
++ if the storage tanks were erected in the factory premises then the applicant is entitled for credit of service tax paid on input services in respect of construction of storage tank.
++ Reliance is placed on the decision in CCE, Vapi vs. Alidhara Textool Engineers Pvt. Ltd. 2009-TIOL-370-CESTAT-AHM wherein the credit was allowed in respect of credit of service tax paid on services availed outside the factory premises.
The CESTAT (the Vice President writing for the Bench) had observed -
"6. We find that in this case credit is denied in respect of service tax paid on input services which are used in or in relation to the storage tank which have been installed at a port. As per the provision of CENVAT Credit Rules, 2004 input service means -
"x x x"
6.1 From reading of the above definition, we find that the service tax paid on input services which are used in or in relation with setting up, modernization, renovation or repairs is admissible. The applicant is engaged in manufacture of excisable goods and the inputs were imported which are being stored at the port and subsequently transported to the factory for use with the manufacture of the final product. In the decision, relied upon by the applicant, the Tribunal held that credit cannot be denied in respect of service tax paid on the taxable services received even outside the factory premises if the same are covered under the definition of 'input service'. In view of the definition of 'input service' during the relevant period, prima facie, we find that the applicant has a strong case in their favour.."
Resultantly, the Stay petition was allowed. Please see 2012-TIOL-486-CESTAT-Mum.
The matter was recently heard finally by the Division Bench.
The appellant laid the following defence -
++ Rule 4(1) of the CENVAT Credit Rules only requires that the inputs are to be received in the factory of the manufacturer whereas in respect of input services under Rule 4(7) of the CENVAT Credit Rules there is no such restriction about use of input services inside the factory.
++ only the input services received for outward transportation and storage of final products beyond the place of removal are not eligible for the CENVAT Credit and place of receipt of input service is not relevant for the other services and therefore the ground of service being rendered and availed outside the factory is irrelevant and incorrect for denying the credit of service tax.
++ the definition of input service is very wide and would cover all services required for business of manufacturer.
++ inputs are stored in the storage tanks which are used in the manufacture of dutiable final products and, therefore, services received for setting up of these storage tanks are required for the business of appellants and the finding of the Commissioner that service received by the appellants are not used in the final products is legally unsustainable.
++ cost of production of the final products includes the depreciation on the storage tanks and thus the cost of input services used for setting up of a storage tanks form the part of the assessable value of the final product on which duty is paid.
++ Following decisions were also relied upon -
[i] Endurance Technologies Pvt. Ltd. 2011 TIOL 1045 CESTAT Mum
[ii] CCE Vs. Alidhara Textool Engg. Pvt. Ltd. 2009-TIOL-370-CESTAT-Mum
[iii] Autoprint Machinery Manufactures Pvt. Ltd. Vs. CCE 2010-TIOL-470-CESTAT-Mad
[iv] CCE Vs. Ultratech Cement Ltd. 2010-TIOL-1067-CESTAT-MUM
[v] CCE Vs. Ultratech Cement Ltd.2010-TIOL-1227-CESTAT-Mum
[vi] Maharashtra Seamless Ltd. Vs. CCE 2011-TIOL-1059-CESTAT-Mum
[vii] Commissioner of Central Excise Vs. ICL Sugars Ltd. 2011 (271) ELT 360 (Kar.)
[viii] Commissioner of Central Excise Vs. SLR Steels Ltd. 2011-TIOL-892-HC-KAR-CX
The Revenue representative reiterated the findings of the Commissioner and submitted that the storage tank is located outside the factory premises of the appellants and therefore they cannot avail the CENVAT Credit in respect of input services which are used outside their factory; that since the storage tank is attached to the earth and becomes immovable property and hence not excisable, therefore, the credit of service tax paid on input services used is non-excisable goods cannot be allowed; that the CENVAT credit of service tax has rightly been denied by the Commissioner.
The Bench [Member(T) writing for the Bench] after hearing the submissions observed -
“6. We find that Revenue has denied the credit of service tax paid by the appellant on Consulting Engineer Service, Technical Inspection and Certification Service, Construction Service and erection, commissioning and installation service. These services were used in installation of Ammonia Storage Tank facility at JNPT which is outside registered premises of the appellants. Revenue's contention is that these services used in the installation of storage tanks which is immovable property and is outside the factory premises are not eligible for the service tax credit.
7. The input service are defined under Rule 2(l) of the CENVAT Credit Rules as under:
“x x x”
8. As per definition of final products under Rule 2(h) of the CENVAT Credit Rules final products means excisable goods manufactured or produced from inputs or using input service. Combined reading of the Rule 2(l) and 2(h) shows that input service means any service used by the manufacturer whether directly or indirectly in or in relation to manufacture of excisable goods manufactured or produced from input or said service. That means that only those services will qualify for the input services which are used after input stage or those input services are used in the manufactured or produced from input or said service. That means that only those services will qualify for the input services which are used after input stage or those input services are used in the manufacture of excisable goods by the manufacturer.
9. Further from the definition of input services the inclusive definition covers various services. The services used in respect of inputs are specifically mentioned in the inclusive definition. We find that the procurement of input and inward transportation of input or capital goods are specifically mentioned in the inclusive definition of the input services and will therefore qualify for the eligible input services for the CENVAT Credit. The legislature restricted the benefit of the CENVAT Credit for input services used in respect of inputs for these two categories only. Whenever legislature wanted to give the credit of service tax paid on input services in relation to inputs, it has clearly stated so in the Rule.
10. The learned Advocate has submitted that under Rule 4(7) of the CENVAT Credit Rules, there is no restriction about the use of input services outside the factory premises. We find that under Rule 4(7) there is no such restriction about the use of input services outside the factory but Rule 4(7) is to be read with definition of input service under Rule 2(l) of the CENVAT Credit Rules.
11. We find that Ammonia is imported by the appellant and after goods are cleared from the port and the goods are delivered to the appellants. Procurement of the input is over after taking delivery of the goods. Thereafter appellants are eligible for credit of service tax paid on inward transportation of the inputs as per definitions of the input service.
12. We find that these services are used in installation of storage tanks outside the factory. Inclusive definition of input service also includes input services used in relation to storage upto the place or removal. Storage upto place of removal will include the storage of final products and not storage of inputs because whenever legislature wanted to give the benefit, in respect of inputs it has done so by specifically mentioning as procurement of inputs and inward transportation of the inputs. We therefore, take a view that input services used in relation to storage of inputs outside the factory will not be eligible for the credit.”
Thereafter the Bench noted that the CESTAT decisions cited by the appellant were all Single Member decisions and those were not binding on the Division Bench. As for the Karnataka High Court decisions, those too were distinguished on the ground that the same concerned denial of credit on inputs used in the construction of the storage tank which were inside the factory premises but in the case on hand the storage tanks were outside the factory.
Holding that the appellants were not eligible for the CENVAT Credit and the penalty under Rule 15A was rightly imposed, the CESTAT, Division Bench dismissed the appeal.
Inside Outside: In the present case, the same Division Bench had heard the Stay Petition. The SMB decision in Maharashtra Seamless [2011-TIOL-1059-CESTAT-Mum] granting benefit of CENVAT credit in respect of various services rendered for their wind mill farm situated in Satara District [factory located at Raigad] was relied in another case of Maharashtra Seamless and by a Majority decision [ 2012-TIOL-1225-CESTAT-Mum ], the CESTAT after taking note that contrary decisions were available granted total waiver of pre-deposit. So, are we heading for a Larger Bench on the issue?
(See 2012-TIOL-1888-CESTAT-MUM)
