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TMI Blog2019 (3) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacture of two-wheelers and parts thereof. The Appellant (also a subsidiary of Honda Japan) commenced its operations in 2006. In 2009, the spare parts division of HMSI was hived off to Appellant, considering its specialization in spare parts operation management. The Appellant subsequently executed Service Agreement dated February 21, 2009 ('Service Agreement') with HMSI. The Service Agreement was amended vide Amendment to Service Agreement dated December 24, 2010. 3. The Appellant receives various services from HMSI, the scope of which is detailed in Clause 2.1 of the Service Agreement (as amended). In terms of the Service Agreement, HMSI is entitled to a consideration computed at 8.5 percent of Appellant's net sales. The Appellant avails cenvat credit of the service tax paid on impugned services. Salient aspects of these services as referred in Service Agreement are as under: * Development of vendor network; * Development of dealer network; * Support for quality management; * Marketing and promotion support; * Assistance in statutory compliance; * Assistance in collection of funds; * Market information service; and * Business support service 4. The Adjudicating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th dealers for collection of statutory C-Forms; and * HMSI also intimates Noticee about termination or transfer of dealerships and advices Noticee to check liabilities of pending C-Forms and accordingly offers to collect same from such dealers Accounting Assistance in collection of funds * Noticee takes recourse to HMSI's field staff for follow up with dealer for settlement of accounts and balance reconciliations; and * HMSI intimates Noticee before termination of dealership. The Noticee accordingly ensures recovery of balance payable for closure of accounts Services used in or in relation to manufacture and clearance of final products Market information service * HMSI undertakes market research activities of collating data of dealer's performance (sales) and prepares a Key Performance Indicator Report ('KPI Report'); * The KPI Report further records performance of Honda dealership network as against that of competitors; * HMSI provides data in respect of two-wheelers on road which helps Noticee to effectively map resources to achieve short-term and long-term business plans; and * HMSI intimates Noticee of its plans to terminate a model. Noticee ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relation to 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 place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services inward transportation of inputs or capital goods and outward transportation up to the place of removal, but excludes......;" 10. The definition of 'input service' is divided into three parts: * Means clause, covering services used directly or indirectly, in or in relation to manufacture or clearance of final product; * Inclusive clause, covering wide range of services used in relation to the broad heads specified therein; and * Exclusion clause, covering specific services excluded from the definition 11. The above definition is contained in Credit Rules, whose overall objective is to eliminate cascading effect. The cascading effect has degenerative effect on the economy and burdens the ultimate consumer. The beneficent intent of Credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on various parameters. As noted above, the activity of clearance is not possible without presence of dealers in favour of whom sales can be conducted. Wehave been informed that these dealers form the major source of customers to whom Appellant supplies its final products. Thus, the above activity is squarely covered under the Means clause. The above services also qualify under 'sales promotion' specifically mentioned under Inclusive clause. Support for quality management 17. HMSI inspects two-wheelers upon receiving a complaint. In case defect is found in any of the parts, HMSI issues an alert to Appellant for undertaking necessary measures. The Appellant may on such alert identify the stocks kept, cease procurements from certain vendors and hold dispatches. The above services form advance alert mechanism helping the Appellant ensure quality of manufactured final products supplied. Thus, these services squarely qualify under 'quality control' specifically mentioned under Inclusive clause. Marketing and promotion support 18. HMSI promotes use of Honda genuine parts and accessories on its website, through provision of standees at dealers' showroom and organising dealer training ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se impact on manufacturing activity. The above services are part and parcel of business of manufacturing activity covered under Means clause. The above services are also covered under 'procurement of inputs', 'sales promotion' and 'quality control' specifically mentioned under Inclusive clause. 23. We also do not find any merit in the revenue's contention that services must be received within the factory in order to qualify as 'input service'. In this regard, Rule 3 of the Credit Rules allows a manufacturer to avail cenvat credit on 'input services received'. It is noteworthy, that the availment of credit on input service is not qualified by the condition that such service must be received within the factory. The above view has been upheld in following judicial precedents: * CCE v. Ultratech Cement Limited, 2010 (260) ELT 369 (Bom.); * CCE v. Ultratech Cement Limited, 2012 (278) ELT 523 (Tri-Mum.); and * Golden Tobacco Limited v. CCE, 2013 (32) STR 474 (Tri-Mum.) 24. Accordingly, we hold that Appellant rightly availed cenvat credit on impugned services in terms of the Credit Rules. Consequently, the impugned order denying cenvat credit to the Appellant is untenable nor a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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