Some Recent Judgments

Whether outdoor catering service is ‘input service’?

Substantive question of law raised by the Revenue was, whether CESTAT was correct in considering outdoor catering as input service when catering service does not fall under ambit of the definition of input service. Based on Larger Bench’s decision of CESTAT in the case of CCE v. GTC Industries Ltd., 2008 (12) STR 468 (Tri.-LB), wherein it was held that cost of food borne by the factory would form part of the cost of product and credit of duty paid thereon was allowable, the appeal was allowed by the Commissioner (A) and upheld by the Tribunal. According to the Revenue, decision of GTC (supra) ought not to have been applied to this case as in that case, duty was paid on assessable value whereas in the instant case, the duty on cement was payable on tonnage basis and therefore, it was distinguishable. Further, the more recent Apex Court’s decision in Maruti Suzuki Ltd. v. CCE, 2009 (240) ELT 641 (SC) squarely applied and therefore the Revenue had a case.

Detailed submissions were provided and analysis of wide scope of ‘input service’ and the expression ‘in relation to’ were made by the assessee. Meaning of the words ‘such as’ and which was followed by an illustrative list also was discussed at length citing and relying on various decisions which inter alia included, Federation of Tax Practitioners Association v. Union of India, 2007 (7) SCC 527 and Division Bench judgment in Coca Cola India P. Ltd. v. CCE, 2009 (242) ELT 268 (Bom.).

The Court observed that the Apex Court in Maruti Suzuki’s case (supra) considered the expression ‘used in relation to the manufacture of final product’ in the definition of ‘input’ and held that the ratio laid down by the Apex Court equally applied while interpreting ‘activities relating to business’ in Rule 2(1) of the CENVAT Rules. However, there lay difference as inclusive part of the definition of ‘input’ was restricted to inputs used in or in relation to ‘manufacture of final products’, whereas inclusive part of the definition of ‘input service’ extended to services used prior, during the course of and after the manufacture of final products and that the definition of ‘input service’ was wider than that of ‘input’. However, there was no difficulty found in applying the ratio laid in the said case of Maruti Suzuki (supra) and held that services having integral connection with manufacture as well as business of manufacture of final product would qualify to be ‘input service’.

The Revenue’s contention that not only the ratio but the decision in the case of Maruti Suzuki (supra) must be applied ipso facto to the instant case was not accepted. It was further observed by the Court that the definition of ‘input service’ read as a whole made it clear that it not only covered services used directly/indirectly in relation to manufacture, but also other services integrally connected with the business of manufacturing final product and as such, credit of service tax paid as outdoor catering service would be allowable and the question of law raised was answered in affirmative in favour of the assessee.

2    Mandap keeper’s service:

(i)    Can letting out lawn by a members’ club to its member be taxable under ‘Mandap Keeper Services’?
(ii)    Is ‘member’ a ‘client’ of the club?

The appellant is a members’ club registered under the provisions of the Companies Act, 1956. It does not have any shareholders. It makes available facilities to its members and their guests and recovers the expenses. Persons are made members against payment of subscription.

The Court observed the following:

To make the activity of the above club taxable under ‘Mandap Keeper Services’, the members of the club should fall within the definition of ‘client’.

After referring to various definitions of ‘client’, the Court inferred that a client is a one who applies for service or advice or who retains a solicitor in the management of his suit. Since the principle of mutuality is squarely applicable in the current case, a member cannot be said to be a ‘client’ of the club.

Held that the activity of the club cannot be taxable under ‘Mandap Keeper Services’.

(P.S.?: The above case pertains to the period prior to 16-5-2008. With effect from 16-5-2008, the word ‘client’ has been replaced with ‘any person’ vide Circular 334/1/2008)

3    Rebate:

Whether a procedural lapse could result denial of rebate claim?

The question before the Tribunal was that whether the Department was justified in rejecting the rebate claim for want of declaration prior to making exports as provided in Notification No. 12/2005 ST, dated 19th April 2005. The High Court noticed that delay in filing of declaration, in the present case, was due to the respondents considering many options after introduction of such Notification and also delay in obtaining management’s approval for the same. The Supreme Court in the case of Mangalore Chemicals & Fertilisers v. Deputy Commissioner, [1991 (55) ELT 437] has held that the procedural requirement can be condoned for valid reasons and as such dismissed the appeal of the Revenue.

4    Registration:

•    Whether centralised registration is deemed to be granted within seven days?

•     Can the Department grant registration under the category other than what the assessee applied for?

•     Whether Circulars, which are challenged but the outcome is pending, are binding on the Department?

Karamchand Thapar & Bros. v. Union of India, 2010 (20) STR 3 (Cal.)

The petitioner applied for registration under ‘business auxiliary services’ under which he was covered with effect from 16th June 2005. Further, it also applied for a centralised registration to the Commissioner in November 2005. However, the Department granted centralised registration under the category of ‘clearing and forwarding agent’ on 11th September 2007.

The issues before the High Court were whether registration certificate is deemed to be granted within seven days, whether the Circulars, which were challenged by the Department, were binding on the Department. The High Court observed as follows:

•     Rule 4(5) of the Service Tax Rules, 1994 which portrays such deeming fiction is applicable only to the Superintendent and the same was not applicable to the Commissioners in case of centralised registration under Rule 4(2). Therefore, the centralised registration could not be deemed to be granted within seven days.

•    Further, there was no such time limit prescribed for the Commissioners to issue centralised registration certificate. However, the registration should be granted within a reasonable time. In the present case, in view of Circulars, seven days was a reasonable time.

•     The High Court also made a note that although S. 69 requires all registration applications to be submitted to the Superintendent, it does not dilute the authority of the Commissioner to grant such registration under Rule 4.

•     There are no provisions under the Service Tax Rules to refuse application for registration. Circular No. 72/2/2004 ST, dated 2nd January 2004 provides that the jurisdictional officer cannot question the correctness of declaration made by the applicant.

•    As held in various judgments, the Circulars are binding on the Department. Though the Supreme Court in the case of CCE, Bolpur v. Ratan Melting and Wire Industries [2008 (12) STR 416] has held that the Circulars can be challenged by the Department, the said judgment did not apply to facts of the case since neither there were contrary decisions nor was the Circular contrary to the statute.

•     Even when the Circular is challenged, the binding effect continues until the challenge succeeded.

•     Therefore, the registration should be granted under the category of ‘Business Auxiliary Services’ and the Commissioner did not have power to grant registration on his own without receiving any application for registration under that specific category.

•     There are no provisions in the service tax laws which lay down the consequences of delay in application for registration. Therefore, though there was a delay in application for registration by the petitioner, the Department could not reject the application, nor could he grant registration under a different category. However, recovery and/or penal proceedings might be initiated for non-payment of service tax.

II.    TRIBUNAL:

Whether executory work like false ceiling, partitions, flooring, etc. undertaken without any advice, consultancy or technical assistance be covered as interior decorator services?

Spandrel v. Commissioner of C. Ex., Hyderabad/Kochi, 2010 (20) STR 129 (Tri.-Bang.)

The appellants were engaged in executing interior works such as pest control, demolition and dismantling, masonry work, wall preparation, partition of banks, firms, etc. The said work was intended to be taxed as ‘Interior Decorator Services’ by the Department.

The appellants put forth the claim that interior decorator means any person engaged in the business of providing by way of advice, consultancy and technical assistance. Further, the appellants referred to Circular No. B1/6/2005 TRU, dated 27th July 2005 and contended that execution of the above work falls under the category of ‘Commercial or Industrial Construction Services’ introduced from 16th June 2005. The appellants relying on various judgments claimed that these services were notified from 16th June 2005 and therefore, were not taxable earlier.

The Department argued that the scope of interior decorator was not only restricted to advice, consultancy or technical assistance, but also extends to beautification of spaces.

The Tribunal held as follows:

The Department did not have findings that the appellants were engaged in advice, consultancy and technical assistance or planning work and designing. The executory work of the appellants was specifically covered by commercial or industrial construction services and therefore, the same could be held to be covered under any other category prior to introduction of commercial or industrial construction services and allowed the appeal.

6 Appeal:

Whether legal representative can file the appeal on behalf of deceased assessee?

The appellants challenged the levy of penalty on dissolved proprietorship firm after death of the proprietor and relied on various decisions. The Tribunal observed that the ratio laid down in those decisions is that the appeal filed by a legal representative against penalty on deceased is not maintainable. However, the penalty being personal in nature can be recovered only from the person on whom it was imposed and as such it could not be recovered from a legal representative.

7 CENVAT Credit:

7.1 Whether CENVAT credit be allowed on Garden Maintenance Services?

ISMT Ltd. v. Commissioner of C. Ex. & Cus., Aurangabad, 2010 (20) STR 68 (Tri.-Mumbai)

The limited issue before the Tribunal was whether CENVAT credit was allowed on garden maintenance services. The appellants relied on Millipore India Ltd. v. CCE, Bangalore II [2009 (13) STR 616 (Tribunal); 2009 (236) ELT 145 (Tri-Bang.)], which held that modernisation, renovation and repairs, etc. of office premises and landscaping, the surroundings of factory can be considered as input services.

The Department relied on Kirloskar Oil Engines Ltd., [2009 (241) ELT 474 (Tribunal)] which held that ‘garden maintenance services’ do not have any nexus with the manufacture or clearance of final product. They also relied on the decision given in Maruti Suzuki Ltd. v. CCE, Delhi III [2009 (240) ELT 641] (SC) and stated that ‘input’ and ‘input services’ were identical and therefore, CENVAT credit was not admissible.

The Tribunal observed as follows:

•     Mumbai High Court in case of Coca Cola [2009 (15) STR 657] has held that input services include services used in relation to business. The Tribunal would look whether garden maintenance was related to business activities. It was also observed in the said case that the term ‘activities relating to business’ used in ‘input services’ widens the scope of such definition and conceptually any input service which forms part of the assessable value of final product should be eligible for CENVAT credit.

•     Maruti Suzuki case cited by the Department relates to definition of ‘input’. The definitions of ‘input’ and ‘input service’ are not comparable at all. Therefore, ratio of such judgment cannot be considered for the present case. The intention of the Legislature is very clear to have different definitions of ‘input’ and ‘input service’. The words ‘used in or in relation to manufacture of final product’ deployed in ‘input’ are not used in the definition of ‘input service’. Further, the Revenue has relied on the judgment of this Tribunal in the case of Kirloskar Oil Engines (supra) and Vikram Ispat (2009 (16) STR 195), but both these cases did not take a note of Coca Cola case (supra) delivered by the Mumbai High Court.

•     In Force Motors Ltd. v. CCE, Pune [2010 (18) STR 150], the Tribunal had observed that the definition of ‘input service’ should be considered in two parts, one inclusive and another exclusive part. Further, the activities specified after the phrase ‘such as’ are only illustrations and there fore the activities other than those illustrated may get covered.

•     A good garden increases the working efficiency and consumer also feels good and therefore, garden maintenance services are in relation to business activity. CENVAT credit was, therefore, allowed.

Kirloskar Oil Engines Ltd. v. Commissioner of C. Ex., Aurangabad, 2010 (20) STR 30 (Tri.-Mumbai)

The issue before the Tribunal again related to CENVAT credit on garden maintenance services. The Department put forth that there were contrary judgments on the disputed issue and therefore, the same should be referred to the Larger Bench. The Tribunal observed that the contrary judgment was given in case of the appellants itself and such matter was remanded back for fresh adjudication but the law was already settled in Coca Cola India Pvt. Ltd. v. CCE, [2009 (151) STR 657, 2009 (242) ELT 168]. The Tribunal allowed the CENVAT credit on garden maintenance following the decision given in ISMT Ltd. case discussed above.

7.2 Whether interest is leviable for wrong avail-ment of CENVAT credit?

The manufacturer availed but not utilised CENVAT credit of inputs and capital goods and also availed benefit of exemption Notification No. 30/2004, dated 9th July 2004. However, the CENVAT credit on inputs lying in the factory and inputs in process etc. was not reversed.

The Department claimed that interest was payable even on wrong availment of CENVAT credit in view of Rule 14 of the CENVAT Credit Rules, 2004. However, the respondents alleged that there was sufficient balance in the CENVAT credit account and therefore, it has not got any pecuniary benefit. The respondents also relied on the judgment delivered by P & H High Court in the case of CCE, Delhi-III v. Maruti Udyog Ltd., (2007 (214) ELT 173) which was affirmed by the Apex Court in (2007 (214)    ELT A50) wherein it has been held that in the absence of utilisation of CENVAT credit, interest shall not be leviable.

The Tribunal observed that for interpreting Rule 14 of the CENVAT Credit Rules, 2004, the words ‘taken or utilised’ should be construed as ‘taken and utilised’. It was held that in the present case, interest is not justifiable. However, in case when the CENVAT credit balance is less than the credit to be reversed, then the balance should be paid in cash with interest.

7.3 Whether CENVAT Credit is allowed on capital goods received in the factory before the assessee becoming liable to service tax?

ABC Engineering Works v. Commissioner of C. Ex., Guntur, 2010 (20) STR 145 (Tri.-Bang.)

The appellants were engaged in providing site formation and clearance, excavation and earth-moving and demolition services. The appellants took CENVAT credit on excavators during 30th September 2005 and 31st March 2006. However, such excavators were purchased prior to 16th June 2005 i.e., prior to the introduction of the above service in the service tax net.

The appellants submitted that the excavators were purchased after introduction of the CENVAT Credit Rules, 2004 and put to use after introduction of service. Such capital goods were not used in providing exempted services and therefore, CENVAT should be allowed. The appellants relied on the Tribunal’s judgment in the case of ACE Timez v. CCE, Bangalore, [2004 (170) ELT 371]. The Tribunal observed and held that in case of Spenta Interna-tional Ltd., [2007 (216) ELT 133], the Larger Bench of Tribunal held that eligibility of CENVAT credit has to be determined based on dutiability of final product on date of receipt of capital goods in the factory, instead of date of utilisation of CENVAT credit. Further ACE Timez case (supra) is based on different facts and ratio thereof cannot be applied to the present case. The assessee therein was availing exemption and therefore, provisions of Rule 6(4) of the CENVAT Credit Rules, 2004 did not apply to the assessee. The ratio laid down by the Board’s Circular No. 137/120/2008-CX-4, dated 24th June, 2008 relied on by the Commissioner provides that the CENVAT credit of CVD paid on the aircrafts before introduction of such services cannot be available to assessee even when the same is included in the definition of capital goods in view of Rule 6(4). Eventually, the Tribunal denied the CENVAT credit on excavators. However, since the question related to interpretation of law, the penalty was waived.

7.4 Whether CENVAT credit is available for input services utilised outside the factory premises?

The appellants were denied CENVAT credit on erection, installation and commissioning services of wind mills for generation of electricity outside the factory premises.

The?Tribunal?observed?that?the power generated at the wind mills was not directly used by the appellants. It also relied on the decision given in Rajhans Metals (P) Ltd., [2007 (8) STR 498] and held that wind mill firm unit being not a part of the appellant’s factory premises, CENVAT credit cannot be allowed.

7.5 Whether CENVAT credit is allowed on agricultural work, on levelling of children park and tree plantation and construction of toilet in village?

The Tribunal held that service tax paid on agricul-tural work is allowed relying on the decision given in the case of Millipore India Ltd. v. CCE, [2009

(13)    STR 616, 2009 (236) ELT 145). However, since levelling of children park and tree plantation and construction of toilet in village are not relating to business of the respondent, CENVAT credit was held to be disallowed.

8  Export of services:

Whether procuring orders for parent company abroad be considered as export of services?

The appellants were procuring orders for their foreign parent company classifiable under ‘Business Auxiliary Services’ and were receiving commission for such services. Rebate was claimed under Rule 5 of the CENVAT Credit Rules, 2004 for service tax paid on such commission. The Department rejected the rebate claim on the ground that the appellants promote the product of Singapore-based parent company in India, therefore the said services are rendered in India and they do not qualify to be considered exports. Further, it also claimed that services are rendered to its own concern and the appellant’s office can be considered as office of foreign parent company. Therefore, the recipient of service is not located outside India.

The appellants claimed that they and the parent company were separate entities. Moreover, the recipient was located outside India and parent company does not have an office in India. Therefore, they argued that the services were utilised abroad. The appellants also took support of Blue Star v. CCE, Bangalore, [2008 (11) STR 23] and ABS Ltd. v. CCE, Bangalore, [2009 (13) STR 65] delivered by the Bangalore Tribunal. Since the issue was squarely covered by the said judgments, the ap-peal was allowed.

9 Refund of CENVAT:

Can credit on input services received for consultancy on acquisition of a business be disallowed because that business is not yet acquired? Whether credit can be disallowed in the absence of specified evidence as to why the credit was not admitted?

Commissioner of Central Excise, Mysore v. Chamundi Textiles (Silk Mills) Ltd., 2010 (20) STR 219 (Tri.-Bang.)

The respondent is a 100% EOU engaged in the business of manufacturing and exporting silk and allied fabrics. They had availed CENVAT credit of service tax paid on services received by them. But the Revenue rejected the claim of refund of the above CENVAT credit on the following grounds:

•     CENVAT credit was taken on the goods which were not manufactured in the month in which the claim was made.

•    The invoices were raised on a person acting as a Pure Agent, credit could not be allowed.

•    The commission received for acquisition of business outside India would not qualify as input service as the business was not acquired till that date.

•     The assessee failed to prove the nexus of invoices that were addressed to the Head Office but actually related to the Mysore Unit.

The Tribunal’s observations were as follows:

•     If some credit is admissible in a particular month, it shall be admissible in the succeeding month too. It is natural that there will be a time lag between availment of credit on the goods manufactured and the export of those goods. CBEC has prescribed a time limit of one year for filing the refund claim and the refund should be filed on a quarterly basis. Hence, it is natural that if an exporter is claiming refund after 9 months, it would not be relating to the goods of that month.

Thus, the claim of refund cannot be denied on this ground.

•     The invoice had been raised on a person acting as Pure Agent on account of the appellant. The Pure Agent had discharged liabilities which would otherwise have been discharged by the appellant.

Thus, the credit cannot be denied on this ground also.

•     In regard to the Consultancy Service (Commission) received for acquisition of business outside India, it was observed that the company was yet to be acquired and pending such acquisition, it could not be concluded if the consultancy received has been used in the business activity. Hence, CENVAT credit on the said service was not admissible.

•     The Tribunal also perused the invoices that were raised on the Head Office. It was found that they related to the activities of Mysore Unit. The respondent also submitted that no explanation was given by the Revenue regard-ing the inadmissibility of credit relating to such invoices. The Court thus dismissed the appeal of the Revenue on the grounds that there was no special evidence as to why the credit could not be allowed.

9.2 Whether airfreight services received by appellants till goods are loaded onto aircraft are eligible for CENVAT credit? Whether Department is justified in denying refund in months of no export?

Fine Care Biosystems v. Commissioner of C. Ex., Ahmedabad, 2010 (20) STR 193 (Tri.-Ahmd.)

The Department rejected the refund claim for the months where no export took place. Further, it also rejected the refund claim for the CHA and airfreight services.

The Tribunal made the observations that in Delhi Tribunal’s decision in case of Philco Exports v. CCE, New Delhi [2009 (234) ELT 568] it was held that the time lag between the date of receipt of inputs, the date on which they are used and the date of export are not relevant. The issue to be looked into is whether the input services were used in relation to manufacture of export goods. Accordingly, there is no restriction on availment of CENVAT credit for exporters and only when adjustment is not permissible, Rule 5 allows for refund of CENVAT credit. Therefore, for the months where no export sales were made, CENVAT credit cannot be denied. Further, in case of export sales made on FOB or CIF basis, the place of removal has to be the port of export. Therefore, the Com-missioner rightly allowed CENVAT credit on CHA services. Taking the same analogy, CENVAT credit on airfreight services till load port is allowable.

9.3 Whether Department justified in denying claim of refund on the basis of declaration in ARE-1 that the CENVAT credit was not availed by the assessee?

Fine Care Biosystems v. Commissioner of C. Ex., Ahmedabad, 2010 (20) STR 241 (Tri.-Ahmd.)

The Department denied refund claim to the ap-pellants, a 100% EOU, on the basis that the appellants had declared in ARE -1 that it has not availed CENVAT credit and such declaration should be treated as final. The Tribunal held that Rule 5 of the CENVAT Credit Rules, 2004 requires that goods should have been exported, the CENVAT credit taken should be eligible CENVAT credit and credit could not have been utilised for payment of duty of finished goods by way of adjustment. Further, there is no requirement under Rule 5 for giving any declaration in ARE-1. The declaration requirements are made to facilitate exporters to have their legitimate export benefit entitlement without delay and the same should not be used to deny the legitimate entitlement.

10 Remand:

Whether Commissioner (Appeals) has power to remand back the service tax cases? Commissioner of Service Tax, Delhi v. World Vision, 2010 (20) STR 49 (Tri.-Delhi)

The Tribunal held that the Commissioner (Appeals) can remand the matter u/s.85(4) and the provisions of S. 35, S. 35A and S. 35B of the Central Excise Act were not made applicable to service tax vide S. 83 of the Finance Act, 1994. It also concluded that S. 85(5) related to procedural aspects only and it cannot be interpreted to restrict the powers of the Commissioner (Appeals).

11 Unjust enrichment:

Whether booking of space or time in media are ‘Advertising Agency services’?? Whether unjust enrichment is applicable in case when Department does not have clear finding?

C.S.T., Ahmedabad v. Poornima Advertising & Pro-motion Pvt. Ltd., 2010 (20) STR 107 (Tri.-Ahmd.)

The assessee claimed refund of excess service tax paid without considering discount. The Commissioner (Appeals) held that though the assessee is eligible for refund on merits, refund cannot be allowed in the present case applying doctrine of unjust enrichment. The Tribunal held that refund is eligible on merits on the grounds that:

•    The Department contended that the scope of ‘Advertising Agency Services’ covers services in connection with advertisement including services connected with display or exhibition of advertisement and the services. However, Master Circular was against such interpretation. Therefore, merely canvassing advertisement for public on commission basis is classifiable under ‘Business Auxiliary Services’ and not under ‘Advertising Agency Services’. In respect of unjust enrichment, the Tribunal observed that the issue of credit note was sufficient to prove repayment of excess service tax and further that the Department did not have clear finding that such amount was not refunded. Thus, the appeal was allowed.