R S Sharma : Manufacturers set to face Service tax credit googly
CESTAT Ruling in case of SBL which denied credit of input service to manufacturers can turn out to be googly by Revenue when many can be clean bowled or get caught while trying a free hit as credit is being availed on each and every service received by Industry.
Over a dozen manufacturers claimed credit of service tax paid on outdoor catering service claiming the same to be input service. The original authorities denied the credit of service tax paid on ground that the same was not used in or in relation to the manufacture of the finished excisable goods in the factories. The lower appellate authorities allowed such credit mainly applying the decision of the Larger Bench in the case of GTC Industries.
The Tribunal observed that the decision of the Larger Bench was rendered on 25.9.2008. Subsequently, on 17.8.2009, the Supreme Court has rendered the decision in case of Maruti wherein it stated in para 14 of order as follows:-“For example, one of the categories mentioned in the inclusive part is “used as packing material”. Packing material by itself would not suffice till it is proved that the item is used in the course of manufacture of final product. Mere fact that the item is a packing material whose value is included in the assessable value of final product will not entitle the manufacturer to take credit”
CESTAT in case of Commissioner Central Excise Versus SBL and others held that “the scope of Rule 2(l) defining “input service” including its inclusive part that covers “services relating to activities relating to business” has to be interpreted with reference to Section 37(2)(xviaa) of the Act as the CENVAT Credit Rules, 2004 have been made by the Central Government in exercise of the powers conferred by Section 37 of the Central Excise Act, 1944 and Section 94 of the Finance Act, 1994. The enabling provisions under Section 37(2) allow the Central Govt. to make rules, inter alia, for the following:-
“(xvia) provide for the credit of duty paid or deemed to have been paid on the goods used in, or in relation to the manufacture of excisable goods”
“(xviaa) provide for the credit of service tax leviable under Chapter V of the Finance Act, 1994 (32 of 1994) paid or payable on taxable services used in, or in relation to, the manufacture of excisable goods”
The rules cannot provide for credit of duty or service tax in respect of goods and services which are not used in or in relation to the manufacture of excisable goods.”
It would be worthwhile to refer to decision of CESTAT Mumbai in case of Force Motors Limited Versus CCE, Pune wherein held that “use of aircraft is to be considered as bare requisite for business activities. Any service tax paid on the services rendered by any authority on such an aircraft needs to be allowed as credit to the assessee.
Gujarat High Court decision in case of CCE Ahmedabad-I –Versus Ferromatik Milacron India Ltd wherein held that the service tax paid on outdoor catering services by the canteen located in the respondent's manufacturing premises has to be considered as an input service relating to business and that CENVAT credit is admissible in respect of the same.
Bombay High Court decision in case of M/s. Coca Cola India Pvt. Ltd. Versus CCE Pune-III wherein held that services of
advertising and marketing procured by the Appellants in respect of advertisements for aerated waters are covered by the definition of the words "input services" as defined in Rule 2(1) of the CENVAT Credit Rules, 2004, when admittedly the Appellants manufacture concentrates exclusively used for the manufacture of the respective aerated waters which are advertised by the Appellants, the advertisement or sales promotion of aerated waters undertaken by manufacturer of concentrate is covered by the inclusive part of the definition of "input service" contained in Rule 2(l) of the CENVAT Credit Rules, 2004.
But the issue has taken a U turn since pronouncement of decision of SBL and Others. The Supreme Court Ruling in case of Maruti does not apply as the said Ruling did not decide the issue before CESTAT and a judgment is authority for only what has been decided; but since the Ruling has been applied; the manufacturers will have no option but to face litigation.
The best course open for manufacturers is to avail the Credit of service tax paid on all input services and wait for the Department’s googly as the game is still wide open and the issue will be ultimately decided by the Supreme Court.
The Revenue may not get any Revenue but Consultants are going to make Big Money by handling litigation alleging wrong availment of CENVAT Credit. By alleging that input services have not been directly used by the manufacturers in relation to manufacture of goods; the Revenue will be indirectly helping Consultants in relation to services provided by them.