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TMI Blog2014 (8) TMI 713X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The facts in brief for deciding the matter are as under : 2.1 The respondent-assessee is M/s.Dynamic Industries Ltd., which is a manufacturer of dyes and intermediates falling under Chapters 29 and 32 of the schedule to Central Excise Tariff Act, 1985 and is registered with Central Excise. 2.2 During the course of audit of the financial record undertaken by the A.G. Audit Team, it was noticed that the respondent-assessee had taken Cenvat Credit of service tax paid on Custom House Agent Services, Shipping Agent and Container Service for export of finished goods and commission paid to overseas agents. The scrutiny of the record furnished by the respondent-assessee revealed that it had availed services such as Terminal Handling Charges, Documentation, Agency Charges, Transportation, Detention, Repo, Switching Charges, Pallatization Charges, Container Loading, Reposition Charges, Fuel Surcharge, Security Surcharge, etc. under the head of "Custom House Agents Service". The invoices issued by the different service providers indicated that they had charged service tax on Terminal Handling Charges, Documentation, Agency Charges, Transportation, Detention, Repo, Switching Charges, Pal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see preferred a second appeal before the Tribunal challenging the order of Commissioner (Appeals-I) and the Tribunal set aside the impugned order-in-appeal vide its order dated June 11, 2012. 2.8 This has been challenged in the present Tax Appeal proposing the aforementioned question of law for our consideration. 3. The issue thus pertains to availment of cenvat credit of service tax paid on Custom House Agent Service, Shipping Agent and Container Services and services of overseas commission. We have heard in extenso the learned counsel appearing for the Department Mr.Y.N. Ravani, who has vehemently argued that the facts are not in dispute as could be revealed from the letter of the respondent-assessee dated March 07, 2009 that they had availed the services of Terminal Handling Charges, Documentation, Agency Charges, Transportation, etc. under the head of "Custom House Agent Services". The invoices raised by the various service providers clearly indicate that they have charged service tax on these services. However, such services since are rendered at the port of export after the goods have been cleared from the place of removal, the said services are not in relation to the manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Heavy Chemical Ltd., reported in 2011(22) STR 610 (Guj.). (v) Commissioner of Central Excise, Ahmedabad-II v. Cadila Healthcare Ltd., reported in 2013 (30) STR 3 (Guj.). (vi) Commissioner of Central Excise, Nagpur v. Ultratech Cement Ltd., reported in 2010 (260) ELT 369 (Bom.). (vii) Commissioner of Central Excise and Customs v. Parth Poly Wooven Pvt. Ltd., reported in 2012 (25) STR 4 (Guj.). (viii) Deepak Fertilizers and Petrochemicals Corporation Ltd. v. C.C.E., Belapur, reported in 2013(288) ELT 316 (Tri. Mumbai). 4. For and on behalf of the respondent-assessee, the learned counsel Mr.Anand Nainavati fervently argued that the definition of 'input services' did not undergo a change upto Marh 31, 2011. He urged that the respondent- assessee had availed the cenvat credit on all the services in respect of input services for furnished goods which were exported. It is argued that the Tribunal had taken a view that where exports are FOB (Free on Board) basis, the place of removal has to be taken as the port and, therefore, the services availed till the goods reached the port would be admissible and without the assistance of the overseas agents, manufactured goods could n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular form reads as under : 5. Is the credit of Business Auxiliary Service (BAS) on account of sales commission now disallowed after the deletion of expression "activities related to business"? The definition of input services allows all credit on services used for clearance of final products upto the place of removal. Moreover activity of sale promotion is specifically allowed and on many occasions the remuneration for same is linked to actual sale. Reading the provisions harmoniously it is clarified that credit is admissible on the services of sale of dutiable goods on commission basis. 5. Upon thus hearing both the sides and on close perusal of the material on record, at the outset the definition of 'input service' which is enumerated in Rule 2(i) of the Rules requires reproduction, which reads as under : "2(l) 'Input Services' 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, moderni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed in generation of excess electricity cleared for a contractual rate or cleared in favour of grid. In other words, the assessee was found entitled to credit on the eligible inputs utilised in the generation of electricity to the extent to which they were using the produced electricity within their factory (for captive consumption). However, the assessee was not held entitled to the cenvat credit to the extent of excess electricity cleared at the contractual rates in favour of joint ventures, vendors, etc., which was sold at a price. The Apex Court also held that unless and until the said input is used in or in relation to the manufacture of final product within the factory of production, the said item would not be termed as an eligible input. It also held that the said expression "used in or in relation to the manufacture" has many shades and would cover various situations based on the purpose for which the input is used and this specified input would become eligible for credit only when used in or in relation to the manufacture of final product. 7.1 The Apex Court in the case of Ramala Sahkari Chini Mills Ltd. (supra) held quoting the decision in the case of Maruti Suzuki Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid decision as under : "10. Definition of input service is expressed in the form of 'means' and 'includes'. 'Means' part of the definition contains, inter alia, service used by the manufacturer whether directly or indirectly or in relation to the manufacture of final products and clearance of final products from the place of removal. This definition, of course, is worded to include variety of services used not only for, but in relation to manufacture of final products and also for clearance of final products upto the place of removal. This Court in Tax Appeal No.419 of 2010 and connected matters decided on 6th April 2011 held that the said definition is exhaustive in nature. 11. Despite such wide connotation of the term 'input service' as defined in rule 2(l) of the Cenvat Rules, the question is whether the present case would be covered in the said definition. Facts are short and not in dispute. Respondent assessee, manufacturer of soda ash, has provided residential quarters for its workers. In such residential quarters, the assessee also provided security services. Can such security services be stated to be service used by the manufacturer direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered in the case of Gujarat Heavy Chemicals Ltd. (supra). The Tribunal favoured the assessee's version. Therefore, the Revenue challenged it in the form of Tax Appeal before this Court. Such Tax Appeal was allowed and as the issue raised was closely connected to the controversy in the case of Gujarat Heavy Chemicals Ltd. (supra), this Court held thus : "To our mind, though there is somewhat difference in the nature of services involved in the present appeals, in so far as all material aspects are concerned, the entire issue has been discussed threadbare and decided in the above-mentioned judgment in the case of Gujarat Heavy Chemicals Ltd. As already noted, in the case of Gujarat Heavy Chemicals Ltd., the Court was considering the eligibility of the manufacturer to avail Cenvat credit on the service tax credit on security services in residential colony of the Company. In the present case, the issue presented before us pertains to service tax credit on insurance of the vehicles. We may notice that such vehicles are used only for the residents of the colony and not for the business purpose of the Company. Such being the facts, decision of this Court in the the case of Gujar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany and since for compliance of the said statutory requirement, the assessee had engaged the services of a caterer and the costs of the food was reimbursed by the assessee to the employees, it was entitled to take credit of the said service tax and utilise the same in terms of cenvat credit on the cement manufactured by the assessee. The Bombay High Court discussing various decisions, as also the provisions of law, has considered as to whether the outdoor catering service is covered under the inclusive part of the definition of the 'input service'. Such question of law framed by the Revenue was held in favour of the assessee and against the Revenue. By holding that "the definition of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... azdoor Sabha, AIR 1960 SC 610, it was observed that "it is obvious that the words used in an inclusive definition denote extension and cannot be treated as restricted in any sense" ...... "Where we are dealing with an inclusive definition it would be inappropriate to put a restrictive interpretation upon terms of wider denotation". 17.3 In the case of Ramanlal Bhailal Patel v. State of Gujarat, AIR 2008 SC 1246 the Apex Court found that 'person' is defined in an inclusive definition. It was observed that in such a case, the use of word 'includes' indicates an intention to enlarge the meaning of the word used in the Statute. 17.4 In the case of Bharat Cooperative Bank (Mumbai) Ltd. v. Coop. Bank Employees Union, AIR 2007 SC 2320, the Apex Court observed as follows: "On the other hand, when the word "includes" is used in the definition, the legislature does not intend to restrict the definition; makes the definition enumerative but not exhaustive. That is to say, the term defined will retain its ordinary meaning but its scope would be extended to bring within it matters, which in its ordinary meaning may or may not comprise. Therefore, the use of the word "means" f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as under: "7. It is clear that the definition of 'sale price' in Section 2(d) uses the words 'means' and 'includes'. The first part of the definition defines the meaning of the word 'sale price' and must, in our view, be given its ordinary, popular or natural meaning. The interpretation thereof is in no way controlled or affected by the second part which 'includes' certain other things in the definition. This is a well-settled principle of construction. Craies on Statute Law (7th Edn. 1.214) says : "An interpretation clause which extends the meaning of a word does not take away its ordinary meaning . . . . . . Lord Selborne said in Robinson v. Barton Eccles Local Board, (1883) 8 App Case 798 (801): An interpretation clause of this kind is not meant to prevent the word receiving its ordinary,popular, and natural sense whenever that would be properly applicable, but to enable the word as used in the Act .... to be applied to something to which it would not ordinarily be applicable." Therefore, the inclusive part of the definition cannot prevent the main provision from receiving its natural meaning." 17.7.In the case of M/s.Mahalakshmi Oi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and interpret the meaning according to what would appear to be the meaning intended to be conveyed by the use of the words under the circumstances. Sometimes definition clauses create qualification by expressions like "unless the context otherwise require"; or "unless the contrary intention appears"; or "if not inconsistent with the context or subjectmater". "Parliament would legislate to little purpose", said Lord Macnaghten in Netherseal Co. V. Bourne, (1889) 14 AC 228 , "if the objects of its care might supplement or undo the work of legislation by making a definition clauses of their own. People cannot escape from the obligation of a statute by putting a private interpretation on its language." The courts will always examine the real nature of the transaction by which it is sought to evade the tax. (underlined supplied)" 18. Bearing in mind the above judicial pronouncements, if we revert back to the definition of the term 'input service', as already noticed, it is coined in the phraseology of "means and includes". Portion of the definition which goes with the expression means, is any service used by the manufacturer whether directly or indirectly in or in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... later portion of the definition which provides for the inclusion clause limits the outward transportation service up to the place of removal. That being so, according to them, the outward transport service utilized by the manufacturer beyond the place of removal would not qualify as an input service within the definition of rule 2(l). We may only notice two things in this regard. Firstly, in our view, when we find that outward transport service is covered by the main body of the definition which provides for means part, as specifically including any service directly or indirectly in or in relation to manufacture of final product or clearance of final product from the place of removal, no interpretation of the later part of the definition would permit us to exclude such a service form the sweep of the definition. Secondly, we notice that the definition of the term 'input service' came to be amended with effect from 1.4.08 and instead of 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. What would be the position if the case had arisen after 1.4.08 is a situation we are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reinbelow : "5. Now at the outset it must be noted 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. The subordinate legislation in the present case makes a distinction between inputs or capital goods on the one hand and input services on the other other. Clause (i) above provides that the service tax should be paid on any input or capital goods received in the factory of manufacture of the final product. Such a restriction, however, is not imposed in regard to input services since the only stipulation in clause (ii) is that the input services should be received by the manufacturer of the final product. Hence, even as a matter of first principle on a plain and literal construction of Rule 3(1) the 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 definit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 8. In the case of Doypack System Pvt. Ltd. (supra), the Apex Court considered at length the object of interpretation of a statute is to discover the intention of the Parliament as expressed in it, considering it as a whole and in its context; and the words used in the statute, if are plain and unambiguous, they must be applied as they stand. It further held as under : "37. In our opinion Sections 3 and 4 of the Act interpreted either on their own language or along with sections 7 and 8, are not ambiguous; so documents are not relevant. It was further urged, that even if to consture the language is not clear and there is need to resort to aids of construction, it is clear that such aids can be either internal or external. Internal aids of construction are definitions, exceptions, explanations, fictions, deeming provisions, headings, marginal notes, preamble, provisos, punctuations, saving clauses, non-obstante clauses etc. The noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T.T.K. Health Care Ltd. (2007) 11 SCC 796. In M/s. Mahalakshmi Oil Mills Vs. State of Andhra Pradesh, AIR 1989 Supreme Court 335, the Court dealing with the expression means and includes observed as under : As Lord Watson observed in Dilworth v. Commissioner of Stamps [1899] AC 99 the joint use of the words "mean and include" can have this effect. He said, in a passage quoted with approval in earlier decisions of this Court: Section 2 is, beyond all question, an interpretation clauses, and must have been intended by the Legislature to be taken into account in construing the expression "charitable device or bequest," as it occurs in Section 3. It is not said in terms that "charitable bequest" shall mean one or other of the things which are enumerated, but that it shall "include" them. The word "include" is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import, but also those things which the interpretation clause declares that they shall include. Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e words such as stainless steel, nickel monel, incoloy, hastelloy in sub-heading (2) are only illustrative of the various metals from which valves can be made but the said description is not exhaustive of the metals. The words such as therefore are illustrative and not exhaustive. In the context of business, these are services, related to the business. They may not be exhaustive, but are illustrative." 10. Reverting to the facts of the instant case in light of the law discussed hereinabove, as noted hereinabove, the Tribunal has taken a stand that where the exports are Free on Board (FOB) basis, the place of removal has to be taken as port and, therefore, services availed by the respondent-assessee till the goods reach the port would be admissible. The manufactured goods since cannot be sold without the assistance of clearing agents, such input service on commission also has been considered necessary and, therefore, any CENVAT credit availed by the petitioner, according to the Tribunal, relating to the clearance of finished goods upto the place of removal, which is the port in the present case, would fall under the criteria and such amount shall be admissible. No restrictive mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehouse, etc. from where it would be ultimately removed, such service is covered in the expression "outward transportation up to the place of removal" since such place other than factory gate would be the place of removal. It had been in clear terms held that outward transport service used by the manufacturer for transportation of finished goods from the place of removal up to the premises of the purchaser is covered within the definition of 'input service' provided in rule 2(1) of the Cenvat Credit Rules. Taking this analogy further, the cargo handling service is availed essentially for the purpose of exporting the goods and in such case, the services of cargo handling used by the manufacturer for transportation of the finished goods from the place of removal shall have to be essentially the port from where goods are actually taken out of the country. Both the authorities have rightly held that tax paid by the service providers under this category of cargo handling service, therefore, would be inclusive in the definition of 'input service'. There is no dispute on the part of the Revenue that such services were availed by the respondents in clearing the goods from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 2(l) of the Rules and such issue is answered in favour of the assessee and against the Revenue. Relevant also will be to refer to the decision of the Cadila Healthcare (supra) and particularly, the clearing and forwarding services. Such services provided by the Clearing and Forwarding Agents in different States in India for activities relating to sale of goods in domestic market. According to the Revenue, such service would commence only after clearance of final products and the service tax paid in respect thereof was not in relation to manufacture of final product. According to the Tribunal, the Clearing and Forwarding Agents had a definite role to play in promotion of sales by storing goods and supplying the same to customers and, thereby it promotes the sales. In such backdrop of facts, this Court held that the C&F carries out all activities right from promotion of sales to its storage and delivery to the customers. Referring to the expression "upto the place of removal" as defined under sub-clause (iii) of clause (c) of sub-section (3) of section 4 of the Act, the Court held thus : "5.4 xxx xxx xxx (vi) Thus, the clearing and forwarding agent is an agent of the principal. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his category of service, where the service is rendered for overseas commission. This is required to be answered in favour of the Revenue and against the assessee. "5.2 xxx xxx xxx (ix) As regards the contention that in any event the service rendered by a commission agent is a service received in relation to the assessee's activity relating to business, it may be noted that the includes part of the definition of 'input service' includes "activities relating to the business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security". 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., 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, ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of Rules 2(1)(ii) and 9(2) read with Rule 3(1) of the Rules. Admittedly, the respondent-assessee had shown availment of CENVAT credit in Part IV and V of ER-1 returns filed by it. The appellant-Department has sought to justify its action by submitting that during the course of audit by the Office of the Accountant General, when a detailed examination of the material was done, it was realised that the respondent-assessee had availed CENVAT credit on the services of all the three categories. The respondent-assessee has rightly pointed out that all the service providers charge the service tax on all the three services and such services since were rendered at the port of export, which was the place of removal, the services were in relation to manufacturing activities as far as the first two services are concerned. However, insofar as the third service where this Court has held in favour of the Revenue and against the respondent- assessee, we are of the opinion that the extended period of limitation would not be available to the Revenue in absence of any material to indicate suppression on the part of the respondent-assessee. It is not in dispute that there was no suppression nor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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