2013 (4) TMI 44 - HC - Service Tax

Cenvat Credit - Input Service -setting up of storage tanks - Held that - Rule 3(1) allows a manufacturer of final products to take credit inter alia of service tax which is paid on (i) any input or capital goods received in the factory of manufacturer of the final product; and (ii) Any input service received by the manufacturer of the final product. Tribunal was not justified in holding that the Appellant would not be entitled to avail of CENVAT credit in respect of services utilized in relation to ammonia storage tanks on the ground that they were situated outside the factory of production. The definition of the expression input service covers any services used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products. The words directly or indirectly and in or in relation to are words of width and amplitude. The subordinate legislation has advisedly used a broad and comprehensive expression while defining the expression input service . Rule 2(l) initially provides that input service means any services of the description falling in sub clause (i) and (ii). Among those services are services pertaining to the procurement of inputs and inward transportation of inputs. The Tribunal, proceeded to interpret the inclusive part of the definition and held that the legislature restricted the benefit of CENVAT credit for input services used in respect of inputs only to these two categories viz. for the procurement of inputs and for the inward transportation of inputs. This interpretation which has been placed by the Tribunal is ex facie contrary to the provisions contained in Rule 2(l). The input services in the present case were used by the Appellant whether directly or indirectly, in or in relation to the manufacture of final products. The Appellant, it is undisputed, manufactures dutiable final products and the storage and use of ammonia is an intrinsic part of that process - in favour of assessee.

Summary

Issues:
1. Entitlement to credit of service tax paid on input services for setting up storage tanks.
2. Eligibility of services used in relation to storage of inputs outside the factory for credit.

Entitlement to credit of service tax paid on input services for setting up storage tanks:
The appellant, engaged in manufacturing excisable goods, claimed CENVAT credit for service tax paid on input services used for ammonia storage tanks at its premises. The appellant availed credit for services like consulting engineers, technical inspection, construction, and installation services for the tanks. A show cause notice demanded credit repayment, which was confirmed post-adjudication. The Tribunal dismissed the appellant's appeal. Rule 3(1) of the CENVAT Credit Rules 2004 allows credit for service tax paid on input services used in relation to the manufacture of final products. The definition of 'input service' is broad, covering services directly or indirectly related to manufacturing. The Tribunal's interpretation restricting credit for input services used in relation to inputs was found contrary to the rule's plain language. The Tribunal's judgment was deemed unsustainable as the input services were used directly or indirectly in the manufacturing process, entitling the appellant to credit.

Eligibility of services used in relation to storage of inputs outside the factory for credit:
The Tribunal's decision denying credit for services used in relation to storage of inputs outside the factory was challenged. Rule 3(1) allows credit for input services received by the manufacturer of the final product, without specifying the location of use. The definition of 'input service' includes services used in or in relation to the manufacture of final products. The Tribunal's interpretation limiting credit to services for procurement and inward transportation of inputs was deemed incorrect. The appellant's use of input services for storing ammonia, an integral part of the manufacturing process, qualified for credit. The judgment was set aside, and the appellant was allowed the credit. The questions of law were answered in the negative, and the appeal was allowed with no costs imposed.

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