Service Tax credit eligibility for clearance of final products upto place of removal

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Service Tax credit eligibility for clearance of final products upto place of removal

				By: JAMES PG
				August 4, 2012
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Cenvat Credit Rules, 2004 has been introduced in exercise of the powers conferred by Section 37 of the Central Excise Act, 1944 (Not 23/2004-CE (N.T) dated 10th Sept, 2004) and Section 94 of the Finance Act, 1994

The powers conferred under Section 37 of the Central Excise Act, 1944 are as follows:

Section 37(1) - The Central Govt may make rules to carry into effect the purposes of this Act

(2) – In particular, and without prejudice to the generality of the foregoing power, such rules may-

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(xvia) - provide for the credit of duty paid or deemed to be have been paid on the goods used in or in relation to the manufacture of excisable goods

(xviaa) – provide for credit of Service Tax leviable under Chapter V of the Finance Act, 1994 (32 of 1994) paid or payable on taxable services used in or in relation to the manufacture of excisable goods

Section 94 of the Finance Act, 1994 reads as follows:

“SECTION 94. Power to make rules. -

(1) The Central Government may, by notification in the Official Gazette, make rules for carrying out the provisions of this Chapter.

(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely: -

(a) collection and recovery of service tax under sections 66 and 68;

(aa) the determination of amount and value of taxable service under section 67

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(eee) the credit of service tax paid on the services consumed or duties paid or deemed to have been paid on goods used for providing a taxable service;

Rule 2 (1) of Cenvat Credit Rules, 2004 reads as follows:

(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,

‘clearance of final products upto the place of removal' has been substituted for ‘clearance of final products from the place of removal' by Notification 10/2008 C.E. (N.T.) dated 01-03-2008

By virtue of powers granted under Section 37(1) of Central Excise Act, 1944, Central Government can make rules to provide for credit of Service Tax leviable under Chapter V of the Finance Act, 1994 (32 of 1994) paid or payable on taxable services used in or in relation to the manufacture of excisable goods. Section 94 of the Finance Act, 1944 empowers the Central Govt to make rules to provide the credit of service tax paid on the services consumed or duties paid or deemed to have been paid on goods used for providing a taxable service

In short, the power of Central Govt to make rules is restricted grant of credit of Excise Duty or Service Tax in respect of inputs and input service used in or in relation to manufacture of final products and/or provision of service. Manufacture and clearance of final products are distinct activities and the extension of credit for clearance of final products appears to be without authority of law.

Hence without corresponding amendment in the relevant Sections of the Act, is it proper to enlarge the scope of Cenvat credit by amendment in Rules .Will it be ultravires since Cenvat Credit Rules extends the scope of input service to the clearance of final products upto the place of removal also whereas it is restricted only to manufacture of final products only under the Act?

In the case of Vandana Global Ltd CCE, Raipur , Hon.Larger Bench of CESTAT , New Delhi 2010 (4) TMI 133 - CESTAT, NEW DELHI (LB) held that under the scheme of excise law, the power to grant credit of excise duty paid on goods by a manufacturer is limited and is governed by the rule making power under Section 37(2)(xvia)

The Cenvat Credit Rules, 2004 made by the rule making authority has to necessarily conform to the above rule making power under the main statute.

“The rules can only provide for credit of duty paid on the goods used in, or in relation to the manufacture of excisable goods”

In the case of Indian Furniture Products Ltd. v. CCE, Chennai (2010 (250) E.L.T. 38 (Tri. - Chennai) it was noted by the Division Bench of the Tribunal as follows :-

“Section 37(2) of the Central Excise Act, 1944, allows the Central Government, inter alia to make rules for the following:-

“xvi (a) provide for the credit of duty paid or deemed to have been paid on the goods used in, or in relation to, the manufacture of excisable goods;

xvi (aa) provide for credit of service tax leviable under Chapter V of the Finance Act, 1994 (32 of 1994) paid or payable on taxable services used in, or in relation to, the manufacture of excisable goods;”

It is clear from the above provisions that the Central Government has power to make rules to provide for credit of duty paid on goods and credit of service tax paid on services used in or in relation to the manufacture of excisable goods. Similar powers are available under Section 94 of the Finance Act, 1994 to make Rules to provide for credit in respect of goods and services used for providing taxable service. There is no power with the Government to make rules to provide neither for credit in respect of service tax paid on input services which is used neither in nor in relation to manufacture of excisable goods nor for providing taxable output service.”

Our law making authorities appears to have forgotten the very basic principle in law that “Delegatus non potest delegare” which implies that “an agent to whom an authority or decision making power has been delegated by a principal or higher authority may not delegate it to a sub agent unless the original delegator expressly authorizes it, or there is an implied authority to do so”