SERVICES USED AFTER COMPLETION OFMANUFACTURE AND SALE OF GOODS ARE NOT INPUT SERVICES

[Mr. M. GOVINDARAJAN]

Cenvat Credit Rules, 2004 ('Rules' for short) provides for availing of credit on service tax, excise duty etc., paid by the manufacturer or output service provider on inputs, input services and capital goods against the payment of service tax or excise duty.  Rule 2(l) defines the term 'input service'.  Number of litigations has arised on interpretation of the said rule.  One such case we are going to discuss in this article.

In 'Chemplast  Sanmar Ltd., V. Commissioner of Central Excise, Salem' - 2009 -TMI - 75381 - (CESTAT, CHENNAI) the appellants are engaged in the manufacture of caustic soda and chloromethane.  The Department disallowed the service tax credit utilized by the appellants in respect of the consignment agents' services and selling agents' services on the ground that the credit was availed by them on the basis of ineligible documents namely debit notes issued by the service provider.

The appellants before the Tribunal submitted the following contentions:

* The debit notes show that service tax and education cess have been debited for the commission paid by the appellants to their consignment agents;

* As per section 67 of the Finance Act, 1994, 'the gross amount charged' includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes, etc.;

* When the taxable value itself includes payment by issue of credit notes or debit notes, the credit of tax itself cannot be denied holding the debit notes to be ineligible documents;

The appellants relied on the decision of the Tribunal in 'Pharmalab Process Equipments Private Limited V. Commissioner of Central Excise, Ahmedabad' - 2009 (16) STR 94 (Tribunal) in which it was held that the debit notes issued by the service provider contained details of service tax payable, description of taxable service, value of taxable service and registration number of service provider and name and address of service provider which are the details required as per Rule 9(2) of Cenvat Credit Rules, 2004.

The Revenue reiterated that the order passed by the lower authority holds good.

The Tribunal after hearing both parties observed as follows:

* The appellants are claiming service tax credit in respect of consignment agents' services and selling agents' services;

* The authorities below have examined the case with reference to admissibility of debit notes as valid documents; it does not appear to have been any examination done as to whether the impugned services in respect of which credit is being sought can be considered as input service;

* Prima facie, it appears that the consignment agents' services and the selling agents' services are not in the nature of input services which are used in or in relation to the manufacture of excisable goods;

* While passing stay order in the case of 'Indian Furniture Products Ltd., V. Commissioner of Central Excise, Chennai' - the Division Bench held that Section 37(2) of the Central Excise, 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 paid or payable on taxable services used in, or in relation to, the manufacture of excisable goods;

The Tribunal held that 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 Sec. 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 for credit in respect of service tax paid on input services which is used neither in relation to manufacture of excisable goods nor for providing taxable output service.

* It is settled law that rules framed by the Central Government have to confirm to the rule making powers contained in the statute.

* Hence the definition of input service under the Cenvat Credit Rules which includes 'activities relating to business' cannot be interpreted to include an activity which is post manufacturing activity;

* The services which are used by the manufacturer subsequent to completion of the manufacturing and for sale of the goods cannot, therefore, be considered as input service in or in relation to manufacture.

The appellants contended that the appellants were only put on notice regarding the eligibility of debit note as a valid document for taking credit and not on the question of the impugned taxable service being ineligible input service.

* The Tribunal, keeping in view the above, set aside the impugned orders and remanded the case to the original authority-

(i) examining the matter afresh and for passing fresh order;

(ii) He shall not only examine the validity of the impugned debit notes but also examine as to whether the impugned services can be considered to be eligible input services under the CENVAT Credit Rules read with enabling powers contained under Section 37(2) of the Central Excise Act.   Since the appellants were not put on notice in regard to this aspect the original authority shall put the appellants on notice in this regard and give them adequate opportunity of hearing before passing fresh orders on the issue.