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Ahmednagar Forgings Ltd V/S Commissioner of C. Ex., Pune-III

    Final Order No. A/86776/2017-WZB/SMB in Appeal No. E/88/2010-Mum

    Decided On, 22 March 2017

    At, Customs Excise Service Tax Appellate Tribunal West Zonal Bench At Mumbai

    By, THE HONORABLE JUSTICE: M.V. RAVINDRAN
    By, MEMBER

    For Petitioner: Manasi Patil, Advocate And For Respondents: N.N. Prabhudesai, Supdt. (AR)



Judgment Text


1. This appeal is directed against Order-in-Appeal No. P-m/VM/222/09, dated 21-10-2009. Heard both sides and perused the records.

2. The issue that falls for consideration in this case is regarding avail-ment of Cenvat credit on service tax paid on the services provided by M/s. PL Advisory Services Pvt. Ltd. (PLA) under the category of 'Banking & Other Financial Services' on account of advisory and placement charges relating to private placement of equity shares during January, 2007. The said PLA raised bill on the appellant for the services rendered and also charged service tax of Rs. 47,29,436/- of which the appellant took Cenvat credit. Revenue is of the opinion that such Cenvat credit is not eligible as the services rendered is not fall under the category of input services and they were not in relation to the manufacturing of the final products and were rendered to appellant's head office as also the same has to be distributed to various manufacturing units.

3. Learned Counsel brings to our notice that similar issue has been decided by this Tribunal in the case of Hinduja Global Solution : 2016 (42) S.T.R. 932 (T) for the proposition that service tax paid on shares issue related activities credit is admissible; for the proposition and that 'Banking & Other Financial Services' are 'input' under definition of input services of Rule 2(1) of Cenvat Credit Rules, 2004, she relies upon the decision of the Tribunal in the case of Semco Electric Pvt. Ltd : 2012 (276) E.L.T. 94 (Tri.) : 2012 (25) S.T.R. 73 (Tri.) and judgment of the Hon'ble High Court of Madras in the case of Sundaram Clayton Ltd. - 2016-TIOL-849-CESTAT-MAD : 2016 (42) 741 (Tri.-Chen.) for the proposition that credit cannot be denied based upon the invoices even if it is in the name of the Head Office she relies upon this Tribunal in the case of Star Drugs and Research Labs : 2016 (45) S.T.R. 88 (Tri.) and DNH Spinners : 2009 (244) E.L.T. 65 (Tri.) : 2009 (16) S.T.R. 418 (Tri.).

4. Learned DR after taking us through the definition of 'input service' under Rule 2(1) of Cenvat Credit Rules, 2004 submits that 'Banking & Other Financial Services' or private placement of services would not fall under the category of input service by any stretch of imagination. He would submit that the decision of the Hon'ble High Court of Karnataka in the case of United Telecoms Ltd : 2014 (33) S.T.R. 357 (Kar.) would apply in this case as private placement of shares is an incidental object of investing and dealing in shares, does not relate to and form part of the main business of the Company and Cenvat credit cannot be allowed.

5. After considering the submissions made by both sides, I find that the issue is in a narrow compass.

5.1 It is undisputed that M/s. PL Advisory Service Pvt. Ltd. have placed preferential equity shares of the appellant for raising of funds/finance for the appellant. It is noticed from the records and more specifically from the order-in-appeal, that appellant had been taking this plea before the adjudicating authority as well as before the first appellate authority that the amounts so raised were used for the manufacturing activity as infusement of capital. In my considered view, the adjudicating authority as well as the first appellate authority have misdirected their entire findings in denying Cenvat credit of the service tax paid under 'Banking & Other Financial Services' by the said M/s. PL Advisory Service Pvt. Ltd.

5.2 Firstly, I find that when the amounts raised by M/s. PL Advisory Service Pvt. Ltd. were undisputedly used by appellant for the manufacturing activity i.e. for the business during the relevant period is itself an indicator that the said services rendered by M/s. PL Advisory Service Pvt. Ltd. has intrinsic relation to the manufacture of business activity of the appellant.

5.3 I also notice that the decision of the Tribunal in the case of Hinduja Global Solution (supra) would directly apply in the case in hand wherein the Tribunal in Paragraphs 5.5 and 5.6 held as under:-

"5.5 The plain reading of the definition of input services (as hereinabove reproduced) would indicate that the activities relating to business which is in the second portion of the definition includes the activity of financing which would mean that if an assessee pays Service Tax for the various services received by them for raising the finance, Cenvat credit can be availed. In our considered view, the Cenvat credit availed by the appellant or Service Tax paid cannot be disputed. In yet another angle, it has to be noted that the Cenvat credit which is availed by the appellant is in respect of the distribution of the Service Tax by their head office as input service distributor. We find nothing on record to indicate that head office of the appellant was issued a show cause notice denying them such Cenvat credit. In the absence of any doubt raised as to the eligibility to avail the Cenvat credit at their head office, the recipient unit, cannot be asked to explain the nexus of such credit to the output service provided by them. In our considered view, and is undisputed that the amounts so raised by the appellant by disinvestment, investment, etc., were recorded in their financial account towards the expansion of the business activity undertaken by the appellant.

5.6 In our considered opinion, the expansion of the business activity is directly connected with the activity of the service provided by the appellant to their service recipient which is nothing but the correlation to the business undertaken by the appellant. We find that our above view that the services which are rendered for the business activities as per the definition of the input service under Rule 2(1) of CCR, 2004 has been fortified by the judgment of the Hon'ble High Court of Bombay in the case of Deepak Fertilizers and Petrochemicals Corpn. Ltd. v. CCE : 2013 (32) S.T.R. 532 (Bom.) and Commissioner v. Ultratech Cement Ltd : 2010 (260) E.L.T. 369 (Bom.) : 2010 (20) S.T.R. 577 (Bom.). Relevant paragraphs, containing the ratio are reproduced:

In the case of Deepak Fertilizers (supra):

"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. 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 definition of the expression 'input service' covers any services used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products. The words 'directly or indirectly' and 'in or in relation to' are words of width and amplitude. The subordinate legislation has advisedly used a broad and comprehensive expression while defining the expression 'input service'. Rule 2(1) initially provides that input service means any services of the description falling in sub-clauses (i) and (ii). Rule 2(1) then provides an inclusive definition by enumerating certain specified services. Among those services are services pertaining to the procurement of inputs and inward transportation of inputs. The Tribunal, proceeded to interpret the inclusive part of the definition and held that the Legislature restricted the benefit of Cenvat credit for input services used in respect of inputs only to these two categories viz. for the procurement of inputs and for the inward transportation of inputs. This interpretation which has been placed by the Tribunal is ex facie contrary to the provisions contained in Rule 2(1). The first part of Rule 2(1) inter alia covers any services used by the manufacturer directly or indirectly, in or in relation to the manufacture of final products. The inclusive part of the definition enumerates certain specified categories of services. However, it would be farfetched to interpret Rule 2(1) to mean that only two categories of services in relation to inputs viz. for the procurement of inputs and for the inward transportation of inputs were intended to be brought within the purview of Rule 2(1). Rule 2(1) must be read in its entirety. The Tribunal has placed an interpretation which runs contrary to the plain and literal meaning of the words used in Rule 2(1). Moreover, as we have noted earlier, whereas Rule 3(1) allows a manufacturer of final products to take credit of excise duty and Service Tax among others paid on any input or capital goods received in the factory of manufacturer of the final product, insofar as any input service is concerned, the only stipulation is that it should be received by the manufacturer of the final product. This must be read with the broad and comprehensive meaning of the expression 'input service' in Rule 2(1). The input services in the present case were 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".

In the case of Ultratech Cement:

"27. The definition of "input service" as per Rule 2(1) of 2004 Rules (insofar as it relates to the manufacture of final product is concerned), consists of three categories of services. The first category, covers services which are directly or indirectly used in or in relation to the manufacture of final products. The second category, covers the services which are used for clearance of the final products up to the place of removal. The third category, includes services namely;

(a) Services used in relation to setting up, modernization, renovation or repairs of a factory,

(b) Services used in an office relating to such factory,

(c) Services like advertisement or sales promotion, market research, storage up to the place of removal, procurement of inputs,

(d) Activities relating to business such as, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit relating, share registry and security, inward transportation of inputs or capital goods and outward transportation up to the place of removal.

Thus, the definition of 'input service' not only covers services, which fall in the substantial part, but also covers services, which are covered under the inclusive part of the definition.

28 .....

29. The expression "activities in relation to business" in the definition of "input service" postulates activities which are integrally connected with the business of the assessee. If the activity is not integrally connected with the business of the manufacture of final product, the service would not qualify to be a input service under Rule 2(1) of the 2004 Rules.

30 to 33 ......

34. Therefore, the definition of 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."

It can be seen that in the above case of manufacturers the Hon'ble High Court has considered the definition of 'input services', a ratio which will be applicable in the case of output service providers also, as it cannot be disputed that the output service providers also need input services for financing of the business act

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ivity. In view of the foregoing, we find that the impugned order is incorrect and unsustainable." 5.4 As regards the reliance placed by learned DR on the decision of the Hon'ble High Court of Karnataka in the case of United Telecoms Ltd. (supra), it is noticed that the Hon'ble High Court has taken that view on the facts of that case wherein appellant therein had invested some amount in the shares in pursuance of the object clause and subsequently sold the shares due to merger of two companies and amount of service tax paid by the share brokers for the sale of such shares was sought to be availed as Cenvat treating the same as part of business activity. The facts are totally different in the case in hand wherein it has been categorically recorded that appellant has availed the service of M/s. PL Advisory Service Pvt. Ltd. for advisory and placement of their own shares for raising capital for infusement for his own business activity. Since the fact in this case are totally different, the reliance placed by learned DR on the decision of United Telecoms Ltd. (supra) may not carry the case of the Revenue any further. 5.5 In view of the foregoing, I hold that the impugned order is unsustainable and liable to be set aside and I do so. The impugned order is set aside and the appeal is allowed with consequential relief, if any.
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