IS FIRE PROOFING SERVICE A INPUT SERVICE?

[Dr. Sanjiv Agarwal]

Many companies are engaged in the activity of providing fire proofing service to industrial clients. Whether such companies would be entitled to take credit of input service used in fire proofing services and whether such services  are taxable is often a matter of doubt .This write-up attempts to provide some clarity on this issue.

Fire proofing service have been included in the category of erection, commissioning and installation services by the Finance Act, 2005 w.e.f. 16.6.2005. The definition in section 65(28) state that erection commissioning or installation means any service provided by a commissioning and installation agency in relation to, inter alia, thermal insulation, sound insulation, fire proofing  or water proofing. In Firepro Systems  Pvt Ltd. v. CST [2009 -TMI - 32309 - CESTAT, BANGALORE]where the appellant entered into contract with their client in respect of fire proofing, since five proofing service had been specifically included in the category of erection, commissioning or installation services w.e.f. 16.6.2005, it was held that fire proofing activities are taxable from such date and shall not get covered under works contract w.e.f 1.6.2007.

        Input service would mean any service which is received and consumed by service provider in relation to providing an output service, or which is used by manufacturer, directly or indirectly in relation to manufacture of final products and clearance of final products upto the place of removal. Thus, input services could be used by an output service provider or a manufacturer in relation to providing service or manufacturing a final product. Input service will also include services used in relation to any one or more of the following -

(a)   setting up of a factory

(b)   setting up of a premises of output service provider

(c)   setting up of a office relating to any factory or premises

(d)   advertisement or sales promotion

(e)   procurement of inputs

(f)    activities relating to management of business (say, business auxiliary services) such as —

(i)     accounting

(ii)    auditing

(iii)   financing

(iv)   recruitment

(v)    quality control

(vi)   coaching and training

(vii)  computer networking

(viii) credit rating

(ix)   share registry

(x)    security

(xi)   inward transportation of inputs or capital goods

(xii)  outward transportation upto the place of removal

The definition of input service has been amended w.e.f. 11.4.2008 so as to provide that 'clearance of final products up the place of removal' will only be considered as input service. This amendment will avoid disputes in future relating to credit on outward freight on GTA service. The amended definition substitutes the words 'from the place of removal' by 'upto the place of removal'. 

        In Re. DCM Shriram Consolidated Ltd. 2007 -TMI - 819 - COMMISSIONER (APPEALS-I), JAIPUR, it was held that the distinction between services used in manufacture and services used in relation to manufacture is too thin. The definition of input service under rule 2(l) not only includes service used in manufacture of final products but also services used in post-manufacturing activities or activities which are necessary to run day-to-day business. Credit was allowed for security services used by the assessee for security of its assets like building, plant, machinery, tool, equipments etc. as safeguard of such items was necessary and integral to manufacture and clearance of final products. It was also held that photographs taken on various occasions and activities are also part of manufacturing activities and these photography services were also to be considered as input services in relation to manufacture and clearance of final products.

        Please note that any service which is an input service in terms of rule 2(l) of CENVAT Credit Rules, 2004 can be an input service and CENVAT credit claimed as per rules. The services should qualify the test of being an input service. In Universal Cables Ltd. v. CCE, Bhopal [2007 -TMI - 1737 - CESTAT,NEW DELHI], it was held that courier service used by appellant for dispatch of final products was to be allowed as input service under CENVAT Credit Rules, 2004. In view of this, CENVAT credit can be taken in respect of input courier services.

        In Excel Crop Care Ltd. v. CCE Ahmedabad, [2007 -TMI - 1456 - CESTAT, Ahmedabad],where appellant exported some portion of their goods and availed services of Custom House Agents, it was held that CHA services were engaged in relation to activity after removal from factory and in port area and as services availed in respect of export did not have any nexus with manufacture and clearance of products from factory. Hence, input service cannot include services rendered in port area and credit cannot be allowed. In the same case, credit was also disallowed for construction service availed for circles/gardens and putting up advertising signboards thereon as the same were away from factory and could not be considered as relating to activity of advertisement and advertising service and construction service were two different services.

        In HEG Ltd. v. CCE, Raipur, [2009 -TMI - 32856 - CESTAT, NEW DELH]  it was held that service tax paid on personal accident insurance, garden maintenance, canteen building and repairing of street lights do not fall under the definition of input service.

        In Coca Cola India Pvt. Ltd. v. CCE, Pune [2007 -TMI - 1633 - CESTAT, MUMBAI], where assessee was manufacturing concentrates to be used by the bottlers in production of aerated water and advertisements were undertaken for promotion of aerated water, it was held that to be an input service, advertisement must be undertaken for sale and promotion of final products of assessee and not of others and as such, cenvat credit on advertisement charges was inadmissible.

        In Manikgarh Cement v CCE & C, Nagpur [2008 -TMI - 3506 - CESTAT, MUMBAI] where repair and maintenance service were used for residential colony situated in factory premises in remote area and presense of workmen on the spot was required to maintain continuity in manufacture, it was held that repair and maintenance and civil construction of residential colony was input service and credit admissible.

In Colgate Palmolive (I) Ltd. v. CCE [2007 -TMI - 1853 - CESTAT, MUMBAI]it was held that input service has been defined as being used in a relation to manufacture of final product. Words 'input service' wherever they occur will mean 'service used in or in relation to manufacture of final product' and not otherwise. The inclusive definition only suggests that some services which may seemingly not appear to be used in relation to manufacture of final product would nevertheless be deemed to be so used as an input service.

Since fire proofing is a taxable service under erection, commissioning and installation services, it can be said that the service provider of fire proofing service is legally entitled to the benefit of input credit under Cenvat Credit Rules, 2004.