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TMI Blog2009 (8) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... omotion of aerated waters undertaken by manufacturer of concentrate is covered by the inclusive part of the definition of "input service" contained in Rule 2(1) of the CENVAT Credit Rules, 2004? 2. The main question which is therefore, required to be considered, in the present Appeal, is whether the Appellants, who are manufacturers of non-alcoholic beverage bases (concentrates) are eligible to avail credit of the service-tax paid on advertising services, sales promotion, market research and the like availed by them and utilize such credit towards payment of excise duty on the concentrate. As now judicially recognized, Service tax is VAT which in turn is destination based consumption tax in a sense that it is on commercial activities and is not a charge on the business but on the consumer. Just as excise duty is a tax on value addition on goods. Service tax is on the value addition by rendition of service. See All India Federation of Tax Practitioners Vs. Union of India(2007) 7 SCC 527. 2. Credit has been denied on the ground that the advertisements do not relate to concentrates manufactured by the Appellants. It is not disputed that the advertisement expenses incurred by the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmits that the definition of "input service" in Rule 2(l) contains the words "means &. and includes". When the definition clause contains the words "means" and "includes", the words following the expression "includes" have the effect of enlarging the scope of the part of the definition preceding thereto. The first part of the definition clause in Rule 2(l) covers a service provider and a manufacturer. Clause (i) relates to a provider of output service who can avail credit of the service-tax paid on input services used by the service provider for providing output service. Clause (ii) covers manufacturer who use the input service directly or indirectly, in or in relation to the manufacture of final products. The inclusive part of the definition which follows clause (i) and (ii) has the effect of enlarging the scope of input services in respect of which the credit can be availed by either the service provider or the manufacturer, notwithstanding that such input services may not be covered by clause (i) and (ii). In the instant case, it is submitted that advertisement is an input service. The advertisement of the brand name and / or a combination of brand name with the soft drink has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uding of the House of Lords. It is submitted that service tax like CENVAT is basically value added tax which is operative through credit mechanism. It is consumption tax which ultimately must be borne by the consumer. It is therefore, submitted that in these circumstances, the activities of advertisement and or marketing and similarly other allied activities, even though may not be directly attributed to the advertisement of the final product, i.e. Bottled waters, none the less, is interconnected and as such a manufacturer of concentrate would also be entitled to utilize credit of service tax for payment of Cenvat duty on concentrate. 11. On behalf of the revenue it is submitted that what one has to look is the meaning of "Input service" in Rule 2 under CENVAT Credit Rules, 2004. On the consideration of the said rules, it would be clear that it is only those input services upto the point of outward transportation in respect of which credit can be utilized. Advertisement and or marketing in the instant case is not connected with the manufacture of concentrates but with the sale of aerated water manufactured out of the concentrates by the bottlers and not appellant. As such this wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the manufacture of final products and clearance of final products from the place of removal; Explanation: Input service includes services used in relation to setting up a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, procurement of inputs, activities relating to management of business, such as accounting, auditing, financing, recruitment and quality control. 14. Press Note dt. 12.08.2004 issued by Ministry of Finance, explaining the proposed scheme of Cenvat credit A Press Note dated August 12, 2004, Para (iii) and (iv) 2004 (17) ELT T19, was issued along with the draft rules highlighting the salient features of Cenvat Credit Rules. The Relevant extract thereof is as under: iii. In principle,credit of tax on those taxable services would be allowed that go to form a part of the assessable value on which excise duty is charged. This would include certain services which are received prior to commencement of manufacture but the value of which gets absorbed in the value of goods. As regards services received after the clearance of the goods from the factory, the credit would be extended on servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is simply obtained by diluting the concentrate with water, sugar and carbon dioxide. Essentially the flavour, taste etc. are derived from the concentrate. There is a direct corelation between the concentrate/ base vis-à-vis aerated water. For example, the concentrate from Fanta Orange would be used for manufacturing Fanta Orange brand aerated water only and cannot be used for making Coca Cola or Thumps Up. In addition, concentrate of one brand name holder like Coca Cola is used solely and exclusively for the manufacture of the aerated water of the brand name holder. The dilution ratio between concentrate and aerated water is also pre-determined and fixed. 17. Further there is also a compelling commercial reason as to why concentrate is made in one place and the aerated water is manufactured by the bottler. The aerated water is removed by the bottler to the market in crates and bottles which are durable and reusable. They have to be constantly collected from the market, refilled and dispatched to the market. This involves constant handling and transporting of the crates and bottles. In addition, aerated water contains ordinary drinking water in large volume. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven to enrich the value of the excisable goods and contribute to its marketability, must form part of the manufacturing cost of the goods. The relevant portion of paragraph 49 of the said judgment is reproduced herein: "49. We shall now examine the claim. It is apparent that for purposes of determining the "value", broadly speaking both the old Section 4(a) and the new Section 4(1)(a) speak of the price for sale in the course of wholesale trade of an article for delivery at the time and place of removal, namely, the factory gate. Where the price contemplated under the old Section 4(a) or under the new Section 4(1) (a) is not ascertainable, the price is determined under the old Section 4(b) or the new Section 4(1)(b). Now, the price of an article is related to its value (using this term in a general sense), and into that value how poured several component, including those which have enriched its value and given to the article is marketability in the trade. Therefore, the expenses incurred on account of the several factors which have contributed to its value upto the date of sale, which apparently would be the date of delivery, are liable to be included. Consequently, where the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iched its value and give to the article its marketability in the trade. Accordingly, the Supreme Court held that the expenses for marketing and selling the articles, including advertisement and publicity expenses would be one of the several components poured into the value of the goods under assessment and hence rejected the claim of the assessee, that value for levy of duty, should be only manufacturing cost and profit. Supreme Court therefore held that from the price, advertisement cost cannot be deducted. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 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. But the word "include" is susceptible of another construction, which may become imperative, if the context o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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. 25. The expression Business is an integrated/continuous activity and is not confined restricted to mere manufacture of the product. Therefore, activities in relation to business can cover all the activities that are related to the functioning of a business. The term business therefore, in our opinion cannot be given a restricted definition to say that business of a manufacturer is to manufacture final products only. In a case like the present, business of assessee being an integrated activity comprising of manufacture of concentrate, entering in to franchise agreement with bottlers permitting use of brand name by bottlers promotion of brand name, etc. the expression will have to be seen in that context See (i) Pepsi Foods Ltd. Vs Collector - 1996 (82) ELT 33, (ii) Pepsi Foods Ltd. Vs Collector - 2003 (158) ELT 552 (SC).&nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ressions. In this connection reference may be made to 76 Corpus Juris Secundum at pages 620 and 621 where it is stated that the term relate is also defined as meaning to bring into association or connection with. It has been clearly mentioned that relating to has been held to be equivalent to or synonymous with as to concerning with and pertaining to. The expression pertaining to is an expression of expansion and not of contraction. The expression Relating to thus widens the scope of the definition. 27. Similarly, the use of the word activities in the phrase activities relating to business further signifies the wide import of the phrase "activities relating to business". The Rule making authority has not employed any qualifying words before the word activities, like main activities or essential activities etc. Therefore, it must follow that all and any activity relating to business falls within the definition of input service provided there is a relation between the manufacturer of concentrate and the activity. Therefore, the phrase "activities relating to business are words of wide import. 28. In CIT Vs. Chandulal Keshavlal & Co. (1960) 38 ITR 601 (SC) the Apex Court held as un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court in Eastern Investments Ltd. vs. CIT (1951 ITR 20 ITR 1 SC)). 30. The House of Lords in the context of Credit under VAT itself, in Customs and Excise Commissioners v. Redrow Group Plc. (1999 Simon Tax Cases 161) has taken an identical view relating to input VAT deduction. Facts of that case, briefly stated as under:- Redrow was involved in constructing new houses for sale to the prospective customers. The prospective customer of a Redrow home had an existing home to sell and cannot purchase unless and until they have a buyer for their existing home. Redrow, therefore, declares a sales incentive scheme to deal with this problem. Redrow chooses a real estate agent to value the prospective purchaser's existing home and handle it's sale. Redrow pays the estate agent's fee on the sale of the prospective purchaser's home only if the prospective purchaser completes the purchase of Redrow home. The estate agent charge Redrow his fee plus applicable VAT on that. Redrow claimed input tax credit of the same. The Commissioner disallowed the deduction. Value Added Tax Tribunal allowed Redrow's appeal. On appeal by the Commissioner, the Queen&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e prospective purchaser also received a service as part of the same transaction does not deprive the person who instructed the service and who has had to pay for it of the benefit of the deduction. & (emphasis supplied) Then in the speech of Lord Millet it was thus observed : " The solution lies in two features of the tax to which I have already referred. The first is that anything done for a consideration which is not a supply of goods constitutes a supply of services. This makes it unnecessary to define the services in question. The second is that unless the services are rendered for a consideration they cannot constitute the subject matter of a supply. In fact, of course, there can be no question of deducting input tax unless the taxpayer has incurred a liability to pay it as part of the consideration payable by him for a supply of goods or services. In my opinion, these two factors compel the conclusion that one should start with the taxpayer's claim to deduct tax. He must identify the payment of which the tax to be deducted formed part; if the goods or services are to be paid for by someone else he has no claim to deduction. Once the taxpayer has identi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad as under:- SECTION 3. Duties specified in the [the First Schedule and the Second Schedule] to the Central Excise Tariff Act, 1985 to be levied - (a) a duty of excise on all excisable goods which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986); (b) a special duty of excise, in addition to the duty of excise specified in clause (a) above, on excisable goods specified in the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) which are produced or manufactured in India, as, and at the rates, set forth in the said Second Schedule..... Section 3 of Central Excise Act, 1944 as it stands after 12.05.2000 reads as under:- SECTION 3. Duties specified in [First Schedule and the Second Schedule] to the Central Excise Tariff Act, 1985 to be levied" (a) a duty of excise to be called the Central Value Added Tax (CENVAT) on all excisable goods which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986); (b) a special duty of excise, in addition to the duty of excise specified in clause (a) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion between the input stage goods and services is established. Conceptually as well as a matter of policy, any input service that forms a part of the value of the final product should be eligible for the benefit of Cenvat Credit. Revenues contention, if accepted as in the present case, would go against the very core and genesis of Cenvat credit scheme. In our opinion, such an interpretation would be plainly unacceptable. 35. The guidelines issued by OECD that VAT is a consumption tax, accords with the view taken by the Supreme Court. Guidelines issued by Organization for Economic Co-operation and Development (OECD). The relevant portion is extracted below: INTERNATIONAL VAT/GST GUIDELINES PREFACE " 4. .... In addition, it should be borne in mind that value added tax systems are designed to tax final consumption and as such, in most cases it is only consumers who should actually bear the tax burden. Indeed, the tax is levied, ultimately, on consumption and not on intermediate transactions between firms as tax charged on these purchases is, in principle, fully deductible. This feature gives the tax its main characteristic of neutrality in the value chain and towards inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uts supplied/received by them.If therefore Cenvat is denied to the input service received by the assessee as in the present case, they will become burden to the assessee, which is against the very grain or principle of VAT being a consumption tax. 38. Service tax therefore, paid on expenditure incurred by the assessee on advertisements sales promotion, market research will have to be allowed as input stage credit more particularly if the same forms a part of the price of final product of the assessee on which excise duty is paid. In other words, credit of input service must be allowed on expenditure incurred by the assessee which form a part of the assessable value of the final product. If the above is not done, as sought to be done by the department in the present case, it will defeat the very basis and genesis CENVAT i.e. value added tax. 39. The definition of input service which has been reproduced earlier, can be effectively divided into the following five categories, in so far as a manufacturer is concerned: (i) Any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products (ii) Any service used by the manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng words: 15. From the above decisions, it is clear that even if an applicant does not claim benefit under a particular notification at the initial stage, he is not debarred, prohibited or estopped from claiming such benefit at a later stage. 16. In the instant case, the ground which weighed with the Deputy Director General (Medical), DGHS for non-considering the prayer of the appellant was that earlier, exemption was sought under category 2 of exemption notification, not under category 3 of exemption notification and exemption under category 2 was withdrawn. This is hardly a ground sustainable in law. On the contrary, well settled law is that in case the applicant is entitled to benefit under two different Notifications or under two different Heads, he can claim more benefit and it is the duty of the authorities to grant such benefits if the applicant is otherwise entitled to such benefit. Therefore, non-consideration on the part of the Deputy Director General (Medical), DGHS to the prayer of the appellant in claiming exemption under category 3 of the notification is illegal and improper. The prayer ought to have been considered and decided on merits. Grant of exemption under ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aping machine or any combination thereof. We find that the goods imported were Optical Time Domain Reflectometer which was specifically covered by the already existing Notification No. 59/88-Cus. The description at serial No. 53 of the Table under Notification No. 96/91-Cus. was general in nature and it could not be said that the goods were equally covered by both the Notifications. When there is specific entry, it is settled position in law that the goods would be classified under that specific entry as against the general entry. 10. The learned Advocate had submitted that the Asstt. Collector, Customs had not disputed that the item in question was covered by serial No. 53 of Notification No. 96/91-Cus. We find that the Asstt. Collector, Customs had only referred that entry under Customs Notification No. 96/91-Cus. which was generic in nature and covered broad category of goods of particular nature. We find that he had held that the goods were not covered by serial No. 53 of Notification No. 96/91-Cus. 11. Learned Advocate had also referred that when two notifications were available to an assessee it was the option of the assessee to choose any one which was beneficial to him. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eserving agents, foaming agents, fruit juices, etc. The preparations contain (in whole or in part) the flavouring ingredients which characterise a particular beverage. As a result, the beverage in question can usually be obtained simply by diluting the preparation with water, wine or alcohol, with or without the addition, for example, of sugar or carbon dioxide gas. Some of these products are specially prepared for domestic use; they are also widely used in industry in order to avoid the unnecessary transport of large quantities of water, alcohol, etc. As presented, these preparations are not intended for consumption as beverages and thus can be distinguished from the beverages of Chapter The heading excludes preparations of a kind used for the manufacture of beverages, based on one or more odoriferous substances (heading 33.02) The above extract demonstrates that the concentrates contain the flavouring ingredient are charactertics of a particular beverage. The beverage in question is obtained simply by diluting the preparation with water, sugar and carbon-dioxide gas. The Explanatory Note is therefore clear that there is a link between the concentrate and the beverage made from t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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