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TMI Blog2010 (10) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The appeal is admitted on the above substantial question of law and by consent, the appeal is taken up for final hearing. 3. The facts relevant for the present appeal are that the Respondent-assessee is engaged in the manufacture of cement which is excisable under Chapter 25 of the Central Excise Tariff Act, 1985. 4. On scrutiny of the CENVAT register, it was noticed by the Excise Authorities that, during the period 2004-08, the assessee had availed credit of service tax paid on outdoor catering services under the provisions of Cenvat Credit Rules, 2004 (In short, "the 2004 Rules") & utilized the same in paying excise duty, that is, central value added tax on clearance of cement manufactured by the assessee. 5. The Assistant Commissioner, Central Excise, Chandrapur was of the opinion that outdoor catering services was not a "Input service" under Rule 2 (l) of the 2004 Rules and therefore, the assessee was not entitled to take credit of service tax paid on outdoor catering services. On issuance of show-cause notices, the assessee contended that, under the Factories Act, 1948, it was mandatory for the assessee to provide canteen facilities to the employees working in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... citor General appearing on behalf of the Revenue submitted, firstly, that the Tribunal was wrong in placing reliance on the larger Bench decision of the Tribunal in the case of GTC Industries Ltd. (supra) because, in that case, duty on the final product was payable on the assessable value; whereas in the present case, duty on the final product is payable on tonnage basis. Therefore, the larger Bench decision of the Tribunal in GTC Industries Ltd. (supra) being distinguishable on facts, the Tribunal ought not to have applied the ratio of the said decision to the facts of the present case. Secondly, the credit under Rule 2(l) of the 2004 Rules is available only if the taxable service tax is used in or in relation to the manufacture of the final products. The outdoor catering service is not a service used in or in relation to the manufacture of cement and therefore, the assessee could not avail credit of service tax paid on outdoor catering services. Thirdly, recent decision of the Apex Court in the case of M/s Maruti Suzuki Ltd. vs. CCE, Delhi reported in 2009 (240) ELT 641 (SC) squarely applies to the facts of the present case and in the light of the above decision of the Apex Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cture. Counsel for the assessee further submitted that the expression "such as" in Rule 2 (l) of the 2004 Rules is merely illustrative and not exhaustive. Therefore, credit of service tax paid on any service used by the assessee in relation to the business of manufacturing cement has to be allowed. In support of the above contention, Counsel for the assessee referred to the meaning of the word "such as" in Concise Oxford Dictionary and Chambers Dictionary. He also relied upon the decisions of the Apex Court in the case of Good Year Ltd. vs. Collector of Customs, 1997 (95) ELT 450 and Royal Hatcheries (P) Ltd. vs. State of Andhra Pradesh reported in 1994 SUPP (1) 429. 12. Counsel for the assessee further submitted that the business activity is an integrated/continuous activity and is not confined/ restricted to mere manufacturing activity. Therefore, business activity covers all activities that are related to carrying on the business. Therefore, the term "in relation to business" in Rule 2(l) of the 2004 Rules cannot be given a restricted meaning so as to cover only those activities which churn out the final product from the raw materials. In support of the above contention, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacture of the final products, then excise duty was again leviable on the manufacture of final products. This resulted in levying duty on duty. To avoid this cascading effect of duty, proforma credit scheme was introduced under the Central Excise Law. Under the proforma credit scheme, excise duty and counter vailing duty paid on the inputs were allowed as proforma credit while paying excise duty on the final products, provided both the inputs as well as the final products were liable to duty under the same tariff item. Originally excise duty was payable at the rate prescribed under the Schedule to the 1944 Act. With the introduction of the Central Excise Tariff Act, 1985 ("1985 Act" for short), excise duty became payable at the rate prescribed under the schedule to the 1985 Act. 18. Since the benefit under the proforma credit scheme was limited to a very small area, the Government introduced the Modified Value Added Tax Scheme (MODVAT scheme) with effect from 01-3-1986. The basic object of the MODVAT scheme was to shift the burden of excise duty from the inputs to the final products so that the duty paid on inputs as well as the final products is ultimately passed on to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules, 2002 and Service Tax Credit Rules, 2002. The object of 2004 Rules is to extend the credit of service tax and excise duty across goods and services. 22. As per Rule 3 of 2004 Rules a manufacturer or producer of final products is entitled to take credit of duty of excise, additional duty of excise, national calamity contingent duty, education cess, secondary education cess etc. paid on any input or capital goods received in the factory of manufacturer of final products on or after 10-9-2004 as well as credit of service tax paid on any input service received by the manufacturer of the final product or by the provider of output service on or after 10-9-2004. The said credit called "CENVAT Credit" can be utilized in paying excise duty (CENVAT) on the final products/service tax on any output service. 23. Rule 2 (k) and Rule 2(l) of the 2004 Rules define the expression "input" and "input service" as follows : "2(k) "input" means (i) all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the above contention because, if in law the assessee is entitled to take credit of service tax paid on outdoor catering services then the said credit cannot be denied merely because the duty on cement is levied on tonnage basis. Therefore, the fact that the CENVAT on cement is payable on tonnage basis cannot be a ground to deny the credit of service tax if in law the assessee is entitled to the credit of service tax paid on outdoor catering service. 26. The question, therefore, to be considered is, whether the service of an outdoor caterer used by the assessee is an `input service' used in the manufacture of cement? 27. The definition of "input service" as per Rule 2(l) of 2004 Rules (insofar as it relates to the manufacture of final product is concerned), consists of three categories of services. The first category, covers services which are directly or indirectly used in or in relation to the manufacture of final products. The second category, covers the services which are used for clearance of the final products up to the place of removal. The third category, includes services namely; a) Services used in relation to setting up, modernization, ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nition of "input service" postulates activities which are integrally connected with the business of the assessee. If the activity is not integrally connected with the business of the manufacture of final product, the service would not qualify to be a input service under Rule 2(l) of the 2004 Rules. 30. The Apex Court in the case of Maruti Suzuki Ltd. (supra) has considered the expression `used in or in relation to the manufacture of final product' in the definition of "input" under Rule 2(k) of 2004 Rules and held as follows : "14. .......... Moreover, the said expression, viz, "used in or in relation to the manufacture of the final product" in the specific/substantive part of the definition is so wide that it would cover innumerable items as "input" and to avoid such contingency the Legislature has incorporated the inclusive part after the substantive part qualified by the place of use. For example, one of the categories mentioned in the inclusive part is "used as packing material". Packing material by itself would not suffice till it is proved that the item is used in the course of manufacture of final product. Mere fact that the item is a packing material whose valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclusive part of the definition would constitute relevant consideration per se. They become relevant only when the above crucial requirement of being "used in or in relation to the manufacture" stands complied with. In our view, one has to therefore read the definition in its entirety." 31. In our opinion, the ratio laid down by the Apex Court in the case of Maruti Suzuki Ltd. (supra) in the context of the definition of 'input' in Rule 2(k) of 2004 Rules would equally apply while interpreting the expression "activities relating to business" in Rule 2(l) of 2004 Rules. No doubt that the inclusive part of the definition of `input' is restricted to the inputs used in or in relation to the manufacture of final products, whereas the inclusive part of the definition of input service extends to services used prior to/during the course of/after the manufacture of the final products. The fact that the definition of `input service' is wider than the definition of `input' would make no difference in applying the ratio laid down in the case of Maruti Suzuki Ltd. (supra) while interpreting the scope of `input service'. Accordingly, in the light of the judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nput service' is restricted to the services used in relation to the manufacture of final products, because the definition of `input service' is wider than the definition of `input'. 34. Therefore, the definition of input service read as a whole makes it clear that the said definition not only covers services, which are used directly or indirectly in or in relation to the manufacture of final product, but also includes other services, which have direct nexus or which are integrally connected with the business of manufacturing the final product. In the facts of the present case, use of the outdoor catering services is integrally connected with the business of manufacturing cement and therefore, credit of service tax paid on outdoor catering services would be allowable. 35. The argument of the Revenue, that the expression "such as" in the definition of input service is exhaustive and is restricted to the services named therein, is also devoid of any merit, because, the substantive part of the definition of `input service' as well as the inclusive part of the definition of `input service' purport to cover not only services used prior to the manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e revenue which runs counter to stand taken by the C.B.E.C. cannot be accepted. 37. In the case of Coca Cola India Pvt. Ltd. (Supra) a Division Bench of this Court has considered scope of the expression "input service' as defined in rule 2(l) of 2004 Rules. In that case, the question for consideration was, whether a manufacturer of non alcoholic beverage bases (concentrates) is eligible to avail credit of service tax paid on advertisement, sales promotion, market research etc. The argument of the revenue in that case was that the advertisements are not relatable to the concentrate manufactured by Coco Cola India Pvt. Ltd. (supra) and hence, the credit in respect thereof cannot be allowed. Considering the Finance Minister's Budget Speech for 2004-05, press note issued by the Ministry of finance along with the Draft 2004 Rules and various decisions of the Apex Court, this Court held that the expression 'activities in relation to business' in the inclusive part of the definition of 'input service' further widens the scope of input service so as to cover all services used in the business of manufacturing the final products and that the said definition is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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