ANY SERVICE WHICH IS APPARENTLY COVERED BY PARAMETERS OF INCLUSIVE PART OF DEFINITION OF 'INPUT SERVICE' SHOULD ALSO SATISFY QUINTESSENTIAL REQUIREMENT OF MAIN PART OF DEFINITION

[Mr. M. GOVINDARAJAN]

Sec. 2(l) of CENVAT Credit Rules, 2004 defines 'input service' as 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 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 any 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.

                 In 'Coca Cola India (P) Ltd., V. Commissioner of Central Excise; - 2009 -TMI - 34433 - (BOMBAY HIGH COURT) the Hon'ble High Court was considering the definition of 'input service'. It was held that this definition could be divided into 5 parts/limbs and that each limb of the definition could be considered as an independent benefit.   It was further held that, if an assessee could satisfy any one of the five limbs of the above definition, credit of the service tax paid on the relevant input service would be available to him. It was further clarified by the court that it was not necessary for the assessee to satisfy other limbs of the definition. 

                 In 'Maruti Suzuki Ltd., V. Commissioner of Central Excise' - (2009) 22 STT 54 the Apex court held that the definition of 'input service' given under Rule 2(l) has to be considered as a whole and that anything mentioned as input service in the inclusive part of the definition should necessarily satisfy the essential requirements of the main part of the definition. In other words no service which does not satisfy the requirement of having been used in or in relation to the manufacture or clearance of final product whether directly or indirectly, would qualify to be an input service. The mere mention of a service in the inclusive part of the definition would not per se entitle the service recipient to claim CENVAT credit.

                 In 'Commissioner of Central Excise, Nagpur V. Manikgarh Cement Works' - 2009 -TMI - 75925 - (CESTAT, MUMBAI) the assessee availed the CENVAT Credit of service tax paid on-

*       construction of buildings;

*       repairs and maintenance of such buildings;

*       manpower recruitment (recruitment of security guards); and

*       cleaning services

all these services undertaken in a residential colony situated outside the factory premises. The Original Authority held that these services are outside the purview of the definition of 'input service' and disallowed the credit in question to the respondent. The assessee filed appeal before Commissioner (Appeals) against the order of the Original Authority. The Commissioner (Appeals) allowed the appeal in favor of the assessee. In an earlier case the case was in favour of the assessee involving identical issue for which an appeal has been preferred by the Department before the High Court. However the High Court has not given stay order against the impugned order.  Before the Tribunal the Department put forth the following submissions:

*       None of the above services can be recognized as input service for want of nexus with the activities of manufacture and clearance of excisable goods;

*       Only those services which are used in or in relation to the manufacture and/or clearance of excisable goods could be held to be 'input services';

*       The items specified in the inclusive part of the definition should necessarily satisfy the essential legal requirements laid down in the main part of the definition so as to qualify as input service.

The Department relied on the decision of the Supreme Court in 'Maruti Suzuki Ltd.,' (Supra)

The assessee put forth the following submissions:

*       In the case of 'Maruti Suzuki Ltd.,' (supra) the Apex court split the definition of 'input' into three parts, viz., main part, the inclusive part and the place of use; 

*       The main part and the inclusive part of the definition of 'input' were held to be qualified by the place of use;

*       In a case involving interpretation of the definition of 'input service' the place of use is irrelevant;

*       The services specified in the inclusive part of the definition of 'input service' are services rendered outside the Factory;

*       The nexus to be established between the main and inclusive parts of the definition of 'input service' is much broader when compared to the nexus between the corresponding parts of the definition of 'input';

*      In the inclusive part of definition of 'input service' any expression of the kind 'in or in relation to the manufacture of final products' is conspicuously absent and expressions like 'in relation to setting up; and 'in relation to activities relating to business' are significantly present and therefore it is not necessary to show any nexus between any of the services mentioned in the inclusive part of the definition and the manufacture/clearance of final products referred to in the main part;

*       The inclusive part should be independently considered as held in 'Coco Cola India (P) Ltd.' (supra);

The Tribunal heard both parties. The services in question were provided by the respective service providers at the residential colony outside the respondent's factory. Employees of the respondent reside in the said colony. Residential buildings were constructed, old residential buildings were repaired and maintained, security guards for the colony were recruited by a manpower recruiting agency and the residential premises were cleaned by another agency. The Tribunal analyzed the provisions of 'input' and 'input service' and also considered the decisions of the Supreme Court relied by the department and the assessee.

         The Tribunal held that where the inclusive part of a definition provides a list of items, any such item should also satisfy the quintessential ingredients of the main part of the definition. In other words, the definition has to be considered in its entirely. The inclusive part is not independent of the main part. It is not a 'standalone' provision. There is nothing in the definition to indicate that the legislative intent behind it different the one underlying the definition of 'input'. Accordingly the Tribunal held that any service which is apparently covered by the parameters of the inclusive part of the definition of 'input service' should also satisfy the quintessential requirements of the main part of the definition, and accordingly, any person claiming the benefit of CENVAT credit on input service in terms of the inclusive part of the definition of 'input service' should establish that such service was used, directly or indirectly, in or in relation to the manufacture of his final products or the clearance of such products from his factory. The Tribunal further held that in a case of this nature, the assessee should not be penalized since this case involves rival interpretations of a provision of law. The order-in-original is sustained except in respect of penalty imposed by the original authority.