ELIGBLE INPUT SERVICE TAX CREDIT AS PER JUDICIAL DECISIONS

[Mr. M. GOVINDARAJAN]

CENVAT Credit Rules, 2004 provides for availing credit for service tax on input services by the manufacturer or provider of output service.   The term ‘input service’ is defined under Rule 2(l) of CENVAT Credit Rules, 2004.  Before 01.04.2011 the term ‘input service’ has been defined as 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, up to the place of removal

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 up to 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 up to the place of removal.

Many a litigation arised in interpreting the terms ‘activities relating to business, such as’ and the quasi judicial tribunals and High Courts in most of the cases decided in favor of the assessees.  Therefore the said definition has been changed with effect from 01.04.2011 vide Notification No. 3/2011-CE (NT), dated 01.03.2011 which read as follows:

“input service” means any service, -

 (i) used by a provider of  output service for providing an output service; or

 (ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal,

and includes services used in relation to 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 up to the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation up to the place of removal; but excludes,-

 (A) service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for -

(a)  construction or execution of works contract of a building or a civil structure or a part thereof; or

(b) laying of foundation or making of structures for support of capital goods,

except for the provision of one or more of the specified services; or

 (B) services provided by way of renting of a motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods; or

 (BA)  service of general insurance business, servicing, repair and maintenance , in so far as they relate to a motor vehicle which is not a capital goods,  except when used by -

 (a) a manufacturer of a motor vehicle in respect of  a motor vehicle manufactured by  such person ; or

 (b) an insurance company in respect of a motor vehicle insured or reinsured by such person; or

(C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee;”

Here some case laws are given in which the Tribunals/High Court allowed CENVAT credit on input services.

Maintenance Charges

In ‘Kiloskar Systems Limited V. Commissioner of Service Tax, Bangalore’ – 2014 (35) STR 552 (Tri. Bang) it is the claim of the appellant that they are paying service tax on the maintenance charges received from their tenants prior to the renting of immovable property came into existence and therefore credit was admissible in respect of real estate agent’s services also.  It was also mentioned that real estate agent’s service is one of the services covered under Rule 6(5) of CENVAT Credit Rules, 2004.   The Tribunal found that the arguments of the appellant are acceptable and appropriate.

Group Insurance policy

In ‘Commissioner of Central Excise & Service Tax V. Micro Labs Limited’ – 2011 (6) TMI 115 - KARNATAKA HIGH COURT  it was held that group insurance health policy, though a welfare measure, is an obligation cast under the statute and the employer has to obey and, therefore the policy taken by the employer is a service constituting activity relating to business which is covered under the ‘input services’ definition.

Car Parking Rentals

In ‘PTC softwares (India) Private Limited V. Commissioner of Central Excise, Pune – III’ – 2014 (35) STR 632 (Tri. Mum) it was held that car parking is part of the business premises of the appellant and is a business expenditure.   Therefore it is an eligible input service as defined in Rule 2(l) of CENVAT Credit Rules, 2004.

Mobile Phone, taxi services

In  ‘Commissioner of Customs & Central Excise V. ACE Glass Container Limited’ – 2013 (10) TMI 194 - UTTARAKHAND HIGH COURT it was held that insofar as the input services namely, mobile phones, phone, taxi services are used in relation to manufacture of final product which is not disputed.   Therefore the impugned order allowing credit on the same is not interfered with.

Transportation charges

In ‘Commissioner of Customs & Central Excise, Hyderabad – III V. Gray Gold Cements Limited’ – 2014 (9) TMI 673 - Andhra Pradesh High Court  it was held that the service tax and excise duty are consumption taxes to be borne by the consumer and therefore if credit is denied on outward transportation services of final products from the place of removal the levy of service tax on transportation will become a tax on business related.   The credit of service tax on transportation charge is proper.

Financial Services

In ‘Jenson & Nicholson (India) Limited V. Commissioner of Central Excise, Noida’ – 2014 (10) TMI 331 - CESTAT NEW DELHI the appellant had filed an application before BIFR and in terms of BIFR’s orders had got a study conducted by SBI Capital regarding techno-economic feasibility of rehabilitation and modalities of finance.  Without such feasibility report from the SBI Capital it was not possible for BIFR to finalize the rehabilitation package for the appellant.   Therefore, the services received by the appellant from SBI Capitals have nexus with their manufacturing business and would be covered by the terms ‘activities’ relating to business.

Annual Maintenance Contract

In ‘ADC India Communication Limited V. Commissioner of Central Excise, Bangalore’ – 2012 (12) TMI 388 - CESTAT, BANGALORE it was held that Annual maintenance contract for air conditioners for instrumentation room for testing of products has nexus with manufacture of excisable products as testing of products was imperative pre-clearance requirement.   In that view the appellant was entitled to take credit of service tax.

It was further held that Annual maintenance contract for computers used for manifold purposes in connection with manufacture and clearance of products.   In view of requisite nexus with manufacture/clearance of excisable goods, assessee was entitled to take credit of service tax paid.

House keeping, Nursery and horticulture services

In ‘Commissioner of Central Excise, Delhi – III V. Hero Honda Motors Limited’ – 2014 (5) TMI 724 - CESTAT NEW DELHI  the issue involved in this appeal is whether the respondent is entitled to CENVAT credit of service tax paid on house keeping, nursery and horticulture services availed by the respondents.   It was held that much importance is given in keeping environment of factory in the proper manner and  therefore credit of service tax paid on these service is allowed.

Installation charges

In ‘DSCL Sugar V. Commissioner of Central Excise, Lucknow’ – 2012 (12) TMI 830 - CESTAT NEW DELHI  the assessee availed CENVAT credit on installation charges of gas rope mask.   The assessee contended that the service is required for the efficient functioning at the place of procurement of raw material and it has got direct nexus in the manufacturing activity.   The Tribunal held that the same cannot be denied.

Insurance of sugar in transit, insurance of cash in transit and insurance of cashier

In ‘DSCL Sugars’ (supra) it was held that such cash disbursement is for procurement of raw material and has direct nexus with the manufacturing activity.   Vehicle hire charges and insurance of company owned vehicles entitled for credit of service tax paid on such services.

Chartered Accountant’s services

In ‘Commissioner of Central Excise, Ludhiana V. DRP Malleables Private Limited’ – 2014 (3) TMI 592 - CESTAT NEW DELHI the Tribunal held that as the service tax on the Chartered Accountant service regarding the accounting and auditing is specifically covered under the scope of input services as provided in Rule 2(l) of CENVAT Credit Rules, 2004.

CHA Services

In ‘Stovec Industries Limited V. Commissioner of Central Excise, Ahamedabad’ – 2011 (3) TMI 1099 - CESTAT, AHEMDABAD the dispute is whether the appellant is entitled to avail credit in respect of services ax paid CHA services availed at the port area for export of goods.  The Tribunal that such services are eligible input services for the purpose of credit.

Gardening service

In ‘Murugappa Morgan Thermal Ceramics Limited V. Commissioner of Central Excise, Ahamedabad – III’ – 2013 (4) TMI 384 - CESTAT AHMEDABAD the Tribunal held that on the issue of admissibility of CENVAT credit on gardening services the appellant has made out a strong case because as per the Gujarat Pollution Control Board permission dated 16.03.2006 the appellant was required to maintain a garden which is therefore an obligation under the relevant pollution control law and CENVAT credit with respect to the services used for maintaining the garden will be admissible and accordingly allowed.

Commission paid to overseas commission agent

In ‘Commissioner of Central Excise, Ludhiana V. Forgings & Chemicals Industries’ - 2014 (10) TMI 281 - CESTAT NEW DELHI it was held that the definition of ‘input service’ during the period of dispute covered the activities of advertisement or sales promotion and also the activities related to business. The service of procuring export order is, obviously, the service of marketing and sales promotion. It is also an activity related to the manufacturing business of the appellant, the Tribunal therefore, hold that the service of procuring export orders received by the appellant from the overseas commission agents is covered by definition of ‘input service’ and the respondent are eligible for CENVAT credit. The Commissioner (Appeals) has rightly held that the definition of input service has to be interpreted in the light of the requirement of the business and it cannot be read restrictively so as to confine only up to the factory or up to the depot of the manufacture

Goods Transport Agency Services

In ‘Commissioner of Service Tax, Raigad V. Dujodwala Products Limited’- 2014 (10) TMI 31 - CESTAT MUMBAI’ it was held that even though the person is not providing service but is paying service tax as per law on reverse charge basis, by the fiction of law the service on which he is discharging service tax shall be deemed to be 'output service'. In the present case also the respondent, since they discharged the service tax on GTA service, the said GTA service became an 'output service'.  Rule 3(4) of the CENVAT Credit Rules, 2004 provides the manner of utilization of the CENVAT credit availed by an assessee - From the above provision for utilization of CENVAT credit, it provides, amongst others, the CENVAT credit can be utilized for payment of service tax on output service. As discussed in above para the GTA service though received by the respondent but paid service tax there upon, the said GTA service is an 'output service'. Therefore the utilization of CENVAT credit for payment of service tax on GTA made by the respondent is legal and correct.