CENVAT - Rule 2(l) - Input services should be used by manufacturer in relation to manufacture of his own final products - services availed at end of bottlers who manufacture beverages out of supplied concentrates is prima facie not CENVATable - Pre-deposit ordered: CESTAT
By TIOL News Service
MUMBAI, 15 NOV, 2014: THE appellants manufacture and sell Concentrates to bottlers authorized by Coca Cola Company USA, who in turn manufacture beverages from the Concentrates and sell the same to customers under brand name/trade market owned by Coca Cola Company, USA.
During July 2005 to March 2011, the appellants availed CENVAT Credit on the following services provided by different service providers:
+ Service of QMS audit at bottler's factory;
+ Service of testing of mango pulp provided by third parties to bottlers for manufacture of the beverage Maaza;
+ Service for verification of sales generating assets i.e. refrigerator at retailers end;
+ Service of physical verification of inventory at bottlers premises;
+ Service of maintenance of coffee vending machines owned by appellants at various outlets;
+ Service of event production and management at Mumbai;
+ Security services at Kondhwa Godown;
+ Service of landscaping work in the factory;
+ Service of catering on portion paid by employees through contribution.
A total CENVAT Credit of Service Tax of Rs.74.36 lakhs has been held inadmissible by the lower authorities. Interest and penalties have also been imposed.
In the appeal filed before the CESTAT the appellant submitted that their business is inextricably linked with the manufacturing at bottlers end as they have vested interest in maintaining the product quality of the bottlers which directly affects them as poor quality of beverages would reduce the demand for Concentrate. Inasmuch as each of the services availed were in relation to business activity and, therefore, credit is admissible. The appellants also produced a C.A. certificate certifying that all the services mentioned above on which credit has been availed form part of the value of the final product (i.e. Concentrates) manufactured at their Pune plant. The following decisions were cited in support viz. VST Industries Ltd. - 2012-TIOL-67-CESTAT-BANG, Endurance Technologies Pvt. Ltd. - 2013-TIOL-587-CESTAT-MUM, Karnataka High Court decision in Millipore India Pvt. Ltd., Hindustan Coca-Cola Beverages Pvt. Ltd. - 2011-TIOL-28-CESTAT-DEL, Strategic Engineering Pvt Ltd - 2014-TIOL-466-HC-MAD-CX, Bill Forge Pvt. Ltd. - 2011-TIOL-799-HC-KAR-CX, Manikgarh Cement - 2010-TIOL-720-HC-MUM-ST.
The AR reiterated the findings of the Commissioner and stated that the judgements relied upon by the appellant only allow CENVAT Credit on input services which are used by the manufacturer in activities relating to business in or in relation to the manufacture of his own final products but which is not the case here.
The Bench extracted the definition of "Input Service" (rule 2(l)) and thereafter observed -
+ Input service should be used by the manufacturer in relation to manufacture of hisown final products. The services of QMS Audit and verification of inventories are rendered at the premises of the bottler. The fact remains that the appellant and bottlers transact on a principal to principal basis. They are separate business entities with separate Central Excise Registration. The appellants may have quality control over the bottlers unit to safeguard their own interest but it does not entitle the appellant to avail CENVAT Credit on activities performed in the factories of bottlers.
+ Judgement in the case of Hindustan Coca Cola Pvt Ltd. is not applicable as in that case the company had borne the expenditure as they owned the brand Coca-Cola. But in the present case the service is provided by third party at the bottlers' end.
+ We cannot ignore the fact that Rule 2(l) speaks of service used by the manufacturer … in relation to the manufacture of theirown final products. The final product of the appellant is Concentrate and the services in question are rendered in the premises of bottlers. Insisting on quality control methods is normal business practice in many products, but that does not mean that in all such cases the activity of business performed and used in the manufacture of products of the customers can be so interpreted to allow CENVAT Credit to appellant.
+ In the case of mango pulp testing service there is hardly any integral connection between manufacture of Concentrate and the testing of mango pulp supplied by a third party directly to the bottling plant.
+ The next service is the verification of sales generating assets in Rajahmundry. Here again the verification of sales generating assets relates to refrigerators/deep refrigerators at the premises of retailers for storing beverages. As the beverages are not the final product of the appellants there appears to be no nexus with the manufacture of Concentrates by the appellant.
+ Prima facie credit of service tax does not appear to be admissible in case of QMS Audit, inventory audit at bottlers' end, mango pulp testing at suppliers' end and verification of assets at retailers.
+ Credit of service tax towards maintenance, charges for coffee vending machines would be admissible because the machines are owned by the appellants and used for dispensing the tea/coffee for retailers as it has nexus to their business activity.
+ Credit of service tax paid by an event management company for organizing events such as functions to honour employees at Bombay whereas the manufacturing activity is at Pune cannot be seen to have any nexus connected with the business of the appellant.
+ Security service at the Kondhwa godown - the godown is outside the factory and no evidence was shown to prove that the godown was the place of removal. Input service under Rule 2(l) includes service used in storage up to the place of removal. No evidence was produced as to show what was stored in the godown and whether it had any relation to the manufacturing activity of the appellant. The CENVAT credit is inadmissible.
+ Landscaping work in the factory - input service has been defined to include services used in setting up of modernization/renovation or repairs of factory etc. The definition of factory in the Central Excise Act, under Section 2(e) "means any premises, including the precincts thereof, wherein or in any part of which excisable goodsare manufactured". Therefore CENVAT credit is admissible for services used in the premises or precincts thereof for landscaping.
+ On the demand of interest, the appellants have a case on merits in view of judgments cited.
Holding that the applicants have not made out a case for complete waiver of pre-deposit of duty, interest and penalty, the Bench directed the applicant make a pre-deposit of 10% of the CENVAT Credit held inadmissible by the lower authority & report compliance.
(See 2014-TIOL-2275-CESTAT-MUM)
