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TMI Blog2013 (1) TMI 304X X X X Extracts X X X X X X X X Extracts X X X X ..... t for testing and analysis purpose. Under these circumstances, the services availed in respect of technical testing and analysis services are directly related to the manufacture of the final product . Undisputedly, when the goods are removed for testing and analysis, excise duty has been paid thereon, the respondents cannot be heard to contend that CENVAT credit is not admissible on the service tax paid in respect of such service - the assessee was entitled to avail of CENVAT credit in relation to service tax paid in relation to technical testing and analysis services availed by it - in favour of assessee. CENVAT credit on commission paid to the foreign agents - according to the assessee the services of a commission agent would fall within the ambit of sales promotion as envisaged in clause (i) of section 65(19) of the Finance Act, 1994 - Held that:- The words "activities relating to business" are followed by the words "such as". Therefore, the words "such as" must be given some meaning. In Royal Hatcheries (P) Ltd. v. State of A.P. (1993 (10) TMI 85 - SUPREME COURT) it is held that the words "such as" indicate that what are mentioned thereafter are only illustrative and not exh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the C & F agent of clearing the goods from the factory premises, storing the same and delivering the same to the customer would fall within the ambit of rule 2(l) of the Rules as it stood prior to its amendment with effect from 1.4.2008, namely clearance of final products from the place of removal. However, this court is not in agreement with the view adopted by the Tribunal that such services would amount to sales promotion and is, therefore, an input service. For the reasons stated while discussing the issue as regards service commission paid to foreign agent, the services rendered by the C & F agents cannot be said to be in the nature of sales promotion. This issue stands answered in favour of the assessee. Miscellaneous Services - Repair and Maintenance of copier machine, air conditioner, water cooler, Management Consultancy, Interior Decorator, Commercial or Industrial Construction Service - Held that:- The inclusive part of the definition of ‘input service' specifically includes services used in relation to renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, activities relating to business, such as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed by the Customs Excise Service Tax Appellate Tribunal, West Zone Bench, Ahmedabad (hereinafter referred to as the Tribunal ) in Central Excise Appeal No. E/775 and E/1355 of 2008 by proposing the following question: Whether the CESTAT was right in considering the services namely Technical Testing and Analysis Service, Technical Testing and Certification Service, Business Auxiliary Service (Service rendered by the Commission agent), Service rendered by clearing and Forwarding Agent, Courier Service, Commercial and Industrial Construction Service, Maintenance or Repair service, Interior Decorator Service, Management Consultancy Service, availed by the assessee, as eligible services for availing input service credit as defined under Rule 2(l) of the CCR, 2004? 2. The respondent-assessee is engaged in the manufacture of P. P. medicines classifiable under Chapter 30 of the First Schedule of the Central Excise Tariff Act, 1985 and is also availing CENVAT facility as provided under the Central Credit Rules, 2004 (hereinafter referred to as the Rules ). During the course of Audit by the Head Quarters Audit, it was noticed that the assessee had availed CENVAT credit i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in these appeals. 4. Having heard Mr. Darshan Parikh, learned senior standing counsel for the appellant and Mr. J.C. Patel learned counsel for the respondent, this court is of the view that appeals require consideration. Hence Admit. The following substantial question of law arises for determination: Whether the Customs, Excise and Service Tax Appellate Tribunal was justified in holding: (i) Technical Testing and Analysis services (ii) Commission paid to foreign agents, (iii) Courier service, (iv) Clearing and forwarding service, (v) Management and Consultancy service, (vi) Interior Decorator service, (vii) Construction service, (viii) Technical Inspection and Certification, (ix) Repairs and maintenance service, (x) Commercial construction service, to be input service as envisaged under rule 2(l) of the CENVAT Credit Rules, 2004? 5. Each of the above services would be required to be examined independently. For the sake of convenience, where the service in question is common in respect of both the show cause notices, reference is made to the facts rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen such service cannot be treated as an input service and CENVAT credit taken on such service is not admissible. (ii) It was submitted that insofar as input service tax credit in respect of Technical Testing and Analysis services is concerned, the said service was rendered in respect of a final product which was produced on trial basis but has not been manufactured and sold. Hence, the service tax, if any, paid in respect of such services cannot be taken credit of. Reference was made to the definition of manufacture as defined under section 2(f) of the Act, to submit that from the said definition it is clear that the Technical Testing and Analysis service availed by the assessee is not used for manufacture of final product or for clearance of the final product from the place of removal and is also not related to the activities specified in the inclusive part of the definition of input service. The input credit on a service is available in or in relation to the manufacture of final product only and not for Research and Development (R D) of the product of which production has not been started. The definition of input credit is in the context of tax paid on input services us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utilised directly or indirectly. The services mentioned in the section are only illustrative and not exhaustive. Therefore, when a particular service not mentioned in the definition clause, is utilised by the assessee/manufacturer and service tax paid on such service is claimed as CENVAT credit, the question is as to what are the ingredients that are to be satisfied for availing such credit. If the credit is availed by the manufacturer, then the said service should have been utilised by the manufacturer directly or indirectly in or in relation to the manufacture of final product or used in relation to activities relating to business. If any one of these two tests is satisfied, then such a service falls within the definition of input service and the manufacturer is eligible to avail CENVAT credit of the service tax paid on such service. (v) The decision of Karnataka High Court in the case of Commr. of C.Ex. Service Tax, LTU, Bangalore v. Micro Labs Ltd., 2011(24)S.T.R. 272 (Kar) was cited for a similar proposition of law. Reliance was also placed upon the decision of this court in the case of Commissioner of Central Excise v. Excel Crop Care Ltd., 2008(12) S.T.R. 436(Guj.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical testing and analysis as defined under Section 65(106) of the Finance Act 1994 and is liable to service tax. The laboratories which provide the said service to the respondent, pay service tax on the said service and the respondent takes CENVAT credit of the same. (vii) It was further submitted that the process of developing a new drug and getting its approval from the Drug Licensing Authority is an ongoing process which may be spread over a long period of time. If the results of the clinical trials are not satisfactory or are not approved by the licensing authority, the assessee has to carry out the necessary improvements until satisfactory results are obtained on clinical trials/testing. After satisfactory results are obtained on clinical trials/ testing which are approved by the licensing authority, the assessee can manufacture the new drug for sale. It would thus be seen that such service of technical testing and analysis has necessarily to be availed by the assessee for the purpose of carrying out the manufacture of new drugs and without availing such service it is impossible for the assessee to manufacture new drugs. Such service is, therefore, clearly a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of manufacture and sale of drugs. The service of technical testing and analysis is received solely for the purpose of and in the course of the said business activity and for no other purpose. The same is, therefore, clearly in relation to the respondent's business activity. The significance of service received in relation to activity relating to business in the includes portion of the said definition would become apparent if it is borne in mind that service tax is a consumption based tax to be borne by the consumer and which cannot be a charge on the business. In this regard, the learned counsel placed reliance upon the following observations of the Supreme Court in the case of All-India Federation of Tax Practitioners and ors v. Union of India, (2007) 7 SCC 527 = (2007-TIOL-149-SC-ST) : 6. At this stage we may refer to the concept of Value Added Tax (VAT) which is a general tax that applies, in principle, to all commercial activities involving production of goods and provision of services. VAT is a consumption tax as it is borne by the consumer. In the light of what is stated above, it is clear that service tax is a VAT which in turn is destination based con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defined under rule 2(l) of the Rules and as it stood at the relevant time reads thus: (l) input service means any service, - (i) used by a provider of taxable 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 upto the place of removal, and includes services used in relation to setting up, modernisation, 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; (xvii) Before adverting to the merits of the issue, reference may be made to various decisions rendered in the context of the expression input service' as defined under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e duty. (xix) In the facts of the present case the assessee is engaged in the manufacture of medicaments. By their very nature, the drugs manufactured by the assessee prior to final production thereof are required to be subjected to technical testing and analysis before entering into commercial production. For such purpose, the products are manufactured in small trial batches and thereafter, sent for testing and analysis purpose. Undisputedly, when the goods are removed for testing and analysis, excise duty has been paid thereon. Since production of medicaments are subject to approval by the regulatory authorities of various countries to which such drugs are exported, the assessee is required to obtain approval before starting commercial production. Thus the final product can be manufactured only upon approval of the regulatory authority after the product undergoes technical testing and analysis. Under the circumstances, it cannot be gainsaid that the activity of testing and analysis of the trial batches is in relation to the manufacture of final product. Unless such testing and analysis is carried out, it would not be possible to produce the final product inasmuch as unless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of another person and causes sale or purchase of goods. In other words, he is directly responsible for selling or purchasing on behalf of another person and that such activity cannot be considered as sales promotion. According to the Adjudicating Authority there is a clear distinction between sales promotion and sale. A commission agent is directly concerned with sales rather than sales promotion. He, accordingly, held that service provided by commission agent does not fall within the purview of the main or inclusive part of the definition of input service' as laid down in rule 2(l) of the Rules and, therefore, the assessee was not eligible for CENVAT credit in respect of the service tax paid on commission paid to foreign agents. (ii) The Tribunal has held that foreign commission agent service is in the nature of sales promotion and without any elaborate discussion in respect thereof has held that CENVAT credit was admissible on service tax paid in respect of such service. The Tribunal while reversing the findings recorded by the Adjudicating Authority has not given any reasons in support thereof and has merely placed reliance upon its findings in relation to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business auxiliary service' as defined under section 65(19) of the Finance Act, 1994, which to the extent the same is relevant for the present purpose reads thus: Business Auxiliary Service means any service in relation to, - (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or promotion or marketing of service provided on behalf of the client; or and includes services as a commission agent but does not include any information technology service and any activity that amounts to manufacture within the meaning of clause(f) of section 2 of Central Excise Act, 1944 Explanation - For the removal of doubts, it is hereby declared that for the purposes of this clause, - (a) Commission Agent means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person - (i) deals with goods or services or documents of title to such goods or services; or (ii) collects payment of sale price of such goods or services; o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (viii) From the definition of sales promotion', it is apparent that in case of sales promotion a large population of consumers is targeted. Such activities relate to promotion of sales in general to the consumers at large and are more in the nature of the activities referred to in the preceding paragraph. Commission agent has been defined under the explanation to business auxiliary service' and insofar as the same is relevant for the present purpose means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration. Thus, the commission agent merely acts as an agent of the principal for sale of goods and such sales are directly made by the commission agent to the consumer. In the present case, it is the case of the assessee that service tax had been paid on commission paid to the commission agent for sale of final product. However, there is nothing to indicate that such commission agents were actually involved in any sales promotion activities as envisaged under the said expression. The term input service as defined in the rules means any service used by a provider of taxable serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords such as must be given some meaning. In Royal Hatcheries (P) Ltd. v. State of A.P., 1994 Supp (1) SCC 429, the Supreme Court held that the words such as indicate that what are mentioned thereafter are only illustrative and not exhaustive. Thus, the activities that follow the words such as are illustrative of the activities relating to business which are included in the definition of input service and are not exhaustive. Therefore, activities relating to business could also be other than the activities mentioned in the sub-rule. However, that does not mean that every activity related to the business of the assessee would fall within the inclusive part of the definition. For an activity related to the business, it has to be an activity which is analogous to the activities mentioned after the words such as . What follows the words such as is accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security . Thus, what is required to be examined is as to whether the service rendered by commission agents can be said to be an activity which is analogous to any of the said activities. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from where the courier collects the parcel for further transportation. It was held that credit on outward transportation was not permissible. The adjudicating authority also was of the view that the notifications on which reliance was placed by the assessee were exemption notifications and would not be applicable to the present case. He, accordingly, held that the assessee had wrongly availed of CENVAT credit in respect of service tax paid towards courier service. The Tribunal in the impugned order has placed reliance upon other decisions of the Tribunal in respect of courier services and held that CENVAT credit is admissible in respect of the service tax paid on such services. (i) The learned counsel for the appellant submitted that the courier service used by the respondent is not used in or in relation to the manufacture of final product and is also not used for clearance of final product from the place of removal. Such service is also not related to any activity specified in the inclusive part of the definition of input service; hence, CENVAT credit is not admissible on the service tax paid in respect of such service. Per contra, Mr. Patel for the respondent submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oducts from the place of removal. 19. When we hold that outward transportation would be an input service as covered in the expression means' part of the definition, it would be difficult to exclude such service on the basis of any interpretation that may be offered of the later portion of the definition which is couched in the expression includes'. As already observed, it is held in several decisions that the expression includes' cannot be used to oust any activity from the main body of the definition if it is otherwise covered by the expression means'. In other words, the expression includes' followed by means' in any definition is generally understood to be expanding the definition of the term to make it exhaustive, but in no manner can the expression includes' be utilized to limit the scope of definition provided in the main body of the definition. To our mind this was also not the intention of the Legislature in the present case. 20. There, of course, are certain areas which still remain to be cleared. It was vehemently contended before us by the counsel for the Revenue that later portion of the definition which provides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be the sole reason for using such expression by the Legislature. 22. Be that as it may, we are of the opinion that the outward transport service used by the manufacturers for transportation of finished goods from the place of removal upto the premises of the purchaser is covered within the definition of input service provided in Rule 2(l) of the CENVAT Credit Rules, 2004. (iii) Examining the facts of the present case in the light of the aforesaid decision, it may be noted that the period is from 01.02.2007 to 30.09.2007, that is before the definition of the term input service' came to be amended with effect from 1.4.2008 and instead of the words clearance of final products from the place of removal' the words clearance of final products upto the place of removal came to be substituted. Under the circumstances, this case would be squarely covered by the above decision and the courier services availed by the assessee whereby the courier collects the parcel from the factory gate for further transportation would fall within the ambit of the term input service' as defined under rule 2(l) of the Rules. The question, insofar as this issue is concerned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale from the respondent's factory gate. The goods are sold from the premises of the C F agents. Accordingly, in these cases the place of removal is the premises of the C F agents. As per section 4(3)(iii) of the Central Excise Act, where goods are sold from the premises of the consignment agent or any other place or premises after clearance from the factory, such premises from where the goods are sold is the place of removal'. The services of the C F agents are, therefore, received for clearance of goods at the place of removal. The same is, therefore, input service in terms of the means' potion of the definition. (iii) In the backdrop of the above facts and contentions reference may be made to the definition of clearing and forwarding agent as defined under section 65(25) of the Finance Act, 1994 which reads thus: Clearing and forwarding agent means any person who is engaged in providing any service, either directly or indirectly connected with the clearing and forwarding operations in any manner to any other person and includes a consignment agent. (iv) Ordinarily, a C F agent receives goods from the factory or premises of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on paid to foreign agent, the services rendered by the C F agents cannot be said to be in the nature of sales promotion. This issue stands answered accordingly, in favour of the assessee and against the revenue. 5.5 Miscellaneous Services: The assessee availed of CENVAT credit in respect of service tax paid on various services, viz. Repair and Maintenance of copier machine, air conditioner, water cooler, Management Consultancy, Interior Decorator, Commercial or Industrial Construction Service. According to the assessee these services are input services which are categorically covered under sub-rule (5) of rule 6 of the Rules and that the inclusive part of the definition of input service clearly covers services used in relation to renovation or repairs of factory or office relating to factory. The assessee's contention was that in view of rule 6 of the Rules, Interior Decorator, Management Consultant, maintenance and repair and commercial or industrial construction are input services and a manufacturer is allowed to take the credit of the whole of the service tax paid on such input services unless such services are used exclusively in or in relation to the manufacture of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used exclusively in or in relation to the manufacture of exempted goods or providing exempted services. It was pointed out that the services availed by the assessee are specifically mentioned in the said sub-rule and as such the CENVAT credit is admissible in respect of the service tax paid on such input services. (v) In the light of the facts and contentions noted hereinabove, it may be necessary to refer to the provisions of sub-rule (5) of rule 6 of the Rules which read thus: 6(5)Notwithstanding anything contained in sub rules (1),(2) and (3), credit of the whole of service tax paid on taxable service as specified in sub-clause (g), (p), (q), (r),(v), (w), (za), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzh), (zzi), (zzk), (zzq) and (zzr) of clause (105) of section 65 of the Finance Act shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted services. (vi) Thus, sub-rule (5) of rule 6 of the Rules specifically provides that credit shall be allowed in respect of the services mentioned therein unless such service is used in the manufacture of exempted goods. The present case undis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontext of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With these glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place. (ix) Thus, for the purpose of determining the intention of the legislative or the rule making authority, the statute has to be read as a whole. The above principles would also be applicable to subordinate legislation. Therefore, for the purpose of understanding the scope of the definition of input service' it is permissible to look to the provisions of sub-rule (5) of rule 6 which gives an insight of the intention of the rule making body. Sub-rule (5) of rule 6 gives a clear indication that the rule making body intended the services mentioned therein t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness of the assessee. Under the circumstances, no infirmity can be found in the view taken by the Tribunal that such services are eligible services for the purpose of taking CENVAT credit on the service tax paid thereon. 5.6 Technical Inspection and Certification: The assessee had availed CENVAT credit of ₹ 6,08,226/- on input service viz., Technical Inspection and Certification Service in respect of inspection and checking of instruments by the service provider against their known standard and record difference between the actual and the known standard. The adjudicating authority was of the view that certification of instruments has no nexus with the manufacture of final products and, therefore, cannot be considered to be an input service in terms of rule2(l) of the Rules. (i) The learned counsel for the appellant reiterated the reasoning adopted by the adjudicating authority and submitted that such service is not used in or in relation to the manufacture of final products directly or indirectly and is, therefore, not covered by the definition of input service. (ii) On the other hand, Mr. Patel for the assessee submitted that in the course of manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d precise. For the purpose of maintaining such qualities the instruments/equipments are required to be checked and properly calibrated from time to time for which purpose the respondent requires to avail of the services of technical inspection and certification agencies. It cannot be gainsaid that the above instruments are used in or in relation to the manufacture of final products. Considering the fact that it is a requirement of the Drugs and Cosmetics Act and the rules framed there under that such instruments/equipment be properly calibrated and checked from time to time, it would appear that such certification is a statutory requirement and it is necessary for the assessee to avail of such service, inasmuch as in the absence of such certification, the assessee may have to face the consequences of breach of such statutory provisions. When, the above referred instruments/equipment are used in and in relation to the manufacture of the final products, maintenance, checking and calibration of such instruments would as a necessary corollary, also fall within the expression in relation to manufacture of the final products . Under the circumstances, the service of technical inspection ..... X X X X Extracts X X X X X X X X Extracts X X X X
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