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TMI Blog2017 (5) TMI 697X X X X Extracts X X X X X X X X Extracts X X X X ..... t or the clearance of the final product from the place of removal so far as it relates to the electricity that was wheeled out. The service of inward transportation of LNG would be an input service if that LNG was used in the production of electricity to the extent that the electricity was used by the assessee itself for manufacturing its final product. The electricity that was wheeled out to the third parties was, obviously, not used in the manufacture of the assessee’s final product. Therefore on the definition of the words “input service” itself, the LNG, to the extent used for production of electricity wheeled out to third parties, was not an input and the service of inward transportation thereof was not an input service. Moreover, the service of inward transportation of the LNG used by the assessee was not in relation to the manufacture of the final product or the clearance of the final product from the place of removal so far as it relates to the electricity that was wheeled out - The electricity that was wheeled out to the third parties was, obviously, not used in the manufacture of the assessee’s final product. Therefore on the definition of the words “input service” its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent case the Hon ble Appellate Tribunal is correct in confirming denial of Cenvat credit proportionate to service tax paid on the procurement of LPG used in generation of electricity wheeled outside to Joint Ventures/Vendors? iv. Whether in facts circumstances of the present case the Hon ble Appellate Tribunal is correct in confirming demand of ₹ 2,20,23,582/- in respect of both the units (Rs.74,64,840/- pertaining to Gurgaon Unit and ₹ 1,45,58,742/- pertaining to Manesar Unit), when the entire case is covered in favour of the Appellant based on the above submissions? v. Whether in facts circumstances of the present case the Hon ble Appellate Tribunal is correct in disallowing Cenvat credit of ₹ 2,20,23,582/- in respect of both the units (Rs.74,64,840/- pertaining to Gurgaon Unit and ₹ 1,45,58,742/- pertaining to Manesar Unit), as per the prevailing law? vi. Whether in facts circumstances of the present case the Hon ble Appellate Tribunal is correct in disallowing Cenvat credit of service tax paid on transportation of LPG, to the Appellant, when the said services are used in relation to the manufacturing of final product of the Appellant? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties. We have answered the question in the negative in favour of the Revenue but have held that the assessee is not liable either for the extended period or for penalty. All the appeals are accordingly dismissed. 5. During the internal audit of the assessee s factory premises for the year 2008-09 conducted by the Audit Branch of the Central Excise Commissionerate from 09.11.2009 to 14.12.2009, the Department raised objections to the assessee having availed CENVAT credit. The objections were communicated to the assessee who replied to the same. Two show cause notices were issued one dated 01.03.2011 for the period February, 2006 to December, 2010, and the other dated 18.01.2012 for the period January, 2011 to November, 2011, proposing to reverse credit of ₹ 3,45,92,453/- in respect of both the units. In the show cause notices, it was alleged that the assessee wrongly availed the credit of the service tax on transport of gas (LNG); that as a part of the electricity produced was sold to joint ventures and sister concerns, the credit of duty paid on the inputs used for generation of electricity wheeled out of the assessee s factory is not available and that the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service; Explanation 1. - The light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol, shall not be treated as an input for any purpose whatsoever. Explanation 2. - Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer; (l) input service means any service,- (i) used by a provider of taxable service for providing an output service, or (ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal, [and includes services used in relation to] setting up, modernization, 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 upto the place of removal, [procurement of inputs], [activities relating to business], such as accounting, auditing, financing, recruitment and quality control, coaching an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are integrally connected. As stated above, electricity generation is more of a process having its own economics. Applying the said test, we hold that when the electricity generation is a captive arrangement and the requirement is for carrying out the manufacturing activity, the electricity generation also forms part of the manufacturing activity and the input used in that electricity generation is an input used in the manufacture of final product. However, to the extent the excess electricity is cleared to the grid for distribution or to the joint ventures, vendors, and that too for a price (sale) the process and the use test fails. In such a case, the nexus between the process and the use gets disconnected. In such a case, it cannot be said that electricity generated is used in or in relation to the manufacture of final product, within the factory . Therefore, to the extent of the clearance of excess electricity outside the factory to the joint ventures, vendors, grid, etc. would not be admissible for CENVAT credit as such wheeled out electricity, cleared for a price , would not fall within the definition of input in Rule 2( g ) of the CENVAT Credit Rules, 2002. This vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough M/s Maruti Suzuki Ltd. (the appellant) has failed in their civil appeals the Department will not impose penalty. ( Emphasis supplied) Paragraph 21 of the judgment would be relevant while considering the question as to whether penalty ought to be imposed or not. The Supreme Court essentially dealt with the definition of the term input in rule 2(g) of the 2002 Rules and not with the term input service even in the 2002 Rules. That, to our mind, makes a significant difference in so far as the present case is concerned. The ratio of the judgment cannot apply to the definition of input service in the 2004 Rules. One of the contentions raised was that once naptha came to be used in the generation of electricity (in the case before us, it is LNG instead of naptha) which was partly used for captive consumption and partly in other units of the appellant, it was not open to the Department to deny credit on the ground that a part of the electricity was cleared outside the factory to the joint ventures/vendors, etc. It was submitted that a manufacturer of a final product was allowed to take credit of specified duty paid on any input received and there was no condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e definition of the word inputs in Rule 2(g) of the said Rules. Prima facie, we are of the view that the legislature did not intend to restrict the definition of inputs to only those six categories. . .. . . . 16. Thus, as already stated above, having regard to the language of Rule 2(g) of the 2002 Rules, and the analysis of the aforenoted decisions, it appears that by employing the phrase and includes , legislature did not intend to impart a restricted meaning to the definition of inputs and therefore, the interpretation of the said term in Maruti Suzuki Limited (supra), may require reconsideration by a Larger Bench. 11. It is clear that the opinion expressed in the order of reference was on a different aspect and was not on the aspect that falls for consideration before us or the aspect that was dealt with in paragraphs 19, 20 and 21 of the judgment in Maruti Suzuki s case, quoted earlier. The larger Bench comprising of three learned Judges disposed of the matter in Ramala Sahkari Chini Mills Ltd. vs. Commissioner of C. Ex., Meerut-I (supra) by the following order:- We have heard the learned counsels for the parties. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(l)(ii), the service must be used by the manufacturer. The use of the service whether direct or indirect must be by the manufacturer/assessee, who claims the CENVAT credit. Further, the use by such manufacturer, i.e. the assessee, whether direct or indirect, must be in or in relation to the manufacture of the final product. Moreover, this final product must be of the manufacturer concerned i.e. the assessee. Further still, the clearance of such final product must be from the place of removal. The place of removal is the place in relation to the assessee. Thus, the service must be used by the manufacturer/assessee in or in relation to the manufacture of the assessee s final product and clearance of the final product from the place of removal. 14. The entire LNG that is transported and in respect of which service tax is paid is not used by the manufacturer i.e. the assessee in relation to the manufacture of the final product. A part of the LNG is used for the generation of electricity which is wheeled out to the assessee s vendors/joint ventures, etc. It is such electricity that we are concerned with. The final products of the assessee are the vehicles and not the electricity ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of LNG by GAIL to the assessee) constituted components of products sold by the assessee to the third parties (electricity) which the third parties used in their own right for the manufacture of their final products which in turn they sold to the assessee and the assessee used for the manufacture of its final product. 17. Moreover, the service of inward transportation of the LNG used by the assessee was not in relation to the manufacture of the final product or the clearance of the final product from the place of removal so far as it relates to the electricity that was wheeled out. The service of inward transportation of LNG would be an input service if that LNG was used in the production of electricity to the extent that the electricity was used by the assessee itself for manufacturing its final product. The electricity that was wheeled out to the third parties was, obviously, not used in the manufacture of the assessee s final product. Therefore on the definition of the words input service itself, the LNG, to the extent used for production of electricity wheeled out to third parties, was not an input and the service of inward transportation thereof was not an input service. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee selling the electricity to them. 21. Even the copy of one such agreement furnished across the bar does not support the assessee s case. Mr. Amar Partap Singh produced a copy of the Joint Venture Agreement dated 17.09.2007 between the assessee and one of its joint venture companies and relied upon clause 5.2 thereof which reads as under:- JOINT VENTURE AGREEMENT .. .. . 5.2 The sale of Products would be made first and foremost to MARUTI, SUZUKI and Associates. After the production requirements of MARUTI, SUZUKI, Associates, as the case may be, are fully met to their satisfaction, the Company may supply the Products to any other customer. The supply of the Products to any other customer including exports would be jointly and mutually discussed, evaluated and decided on case to case basis between the Parties. Clause 5.2 does not make it compulsory for the third parties to supply all their goods to the assessee. After meeting the production requirements of the assessee, the third parties were free to supply their products to any other customer. The assessee, in any event, has not produced any material that provides the nexus between th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an activity related to the manufacture and sale of concentrate and that the cost of advertisement is relatable to aerated water which forms a part of the value of the concentrate. It is important to note paragraphs 21 and 22 of the judgment which read as under:- 21. That Advertisement of soft drink enhances the marketability of the Concentrate in our opinion is no longer res intergra as it has been recognized in the following judgments: Pepsi Foods Ltd. vs. Collector - 1996 (82) ELT 33 (T) where the Supreme Court affirmed the view taken in Collector vs. Pepsi Foods Ltd . - 1997 (91) ELT 544 and in Pepsi Foods Limited Vs. CCE , 2003 (158) ILT 552 (SC) where the royalty paid by the bottler to the assessee was held to be includable in assessable value. The Respondents on this premise have always been collecting excise duty on full sale price charged by concentrate manufacturer from the bottler. Revenue has never disputed that advertisement of aerated water is an activity related to manufacture and sale of concentrate and that cost of advertisement is relatable to aerated water which forms part of value of concentrate in the hands of concentrate manufacturer and hence shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be available. This would be so even if the assessee does not satisfy other limb/limbs of the above definition. To illustrate, input services used in relation to setting up, modernization, renovation or repairs of a factory will be allowed as credit, even if they are assumed as not an activity relating to business as long as they are associated directly or indirectly in relation to manufacture of final products and transportation of final products upto the place of removal. This would follow from the observation of the Supreme Court in Kerala State Co- operative Marketing Federation Ltd. and Ors. Vs. Commissioner of Income-tax - 1998 (5) SCC 48, which is as under: 7. We may notice that the provision is introduced with a view to encouraging and promoting growth of co-operative sector in the economic life of the country and in pursuance of the declared policy of the Government. The correct way of reading the different heads of exemption enumerated in the section would be to treat each as a separate and distinct head of exemption. Whenever a question arises as to whether any particular category of an income of a co-operative society is exempt from tax what has to be seen is wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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