Vikram Ispat Vs. Commissioner of Central Excise, Raigad - Court Judgment

1. The appellant is engaged in the manufacture of hot briquetted iron and sponge iron, for which iron ore pallets and lumps are used as their main raw material. The issue involved in this case is whether the appellant was entitled to avail CENVAT Credit of the Service Tax paid on certain services viz., repair and maintenance services, insurance services, surveys, technical inspection and certification services, and manpower recruitment agency services all relating to vessels, namely tugs and barges, owned by the appellant. The appellant’s factory is situated around the port of Revdanda. This port belongs to the appellant. The ships carrying the raw material are anchored at some distance in the sea. The tugs and barges belonging to the appellant are used for bringing ashore the raw material unloaded from the ships. Sometimes these tugs and barges are also used for carrying sponge iron (final product) from the jetty to the ships anchored in the sea. Survey was also done. It appears, the appellant availed repair and maintenance services for the repair and maintenance of these tugs and barges. They also availed insurance services in respect of these vessels. Technical inspection and certification services were also used in respect of these vessels. It appears from the records that what was undertaken by the appellant was hydrographic survey of Revdanda channel/port for dredging etc. During the period of dispute (August to October 2006), the appellant availed the above services and utilized the service tax paid thereon, for payment of duty on their final products. According to the department, the benefit was not admissible to them. They issued two show-cause notices, one for August 2006 and the other for September, October 2006, proposing to recover the credit taken on the above services, as also to impose penalty. These proposals were contested. In adjudication of the dispute, the Assistant Commissioner ordered recovery of Rs 4,89,439.03 (service tax + education cess) from the appellant under Rule 14 of the CENVAT Credit Rules, 2004 read with Section 11A of the Central Excise Act. Equal amount of penalty was imposed on them under Rule 15 read with Section 11AC. Interest on duty was also demanded under Rule 14 read with Section 11AB. The appeal filed by the assessee was rejected by the Commissioner (Appeals). Hence the present appeal of the assessee.

2. There is no representation for the appellant today. However, their written submissions are available on record. They have, inter alia, pointed out that they do not want to be personally heard. They have requested for a decision on merits. I have examined the records and heard the learned JDR.

3. On the last occasion, I had directed the D.R. to produce a copy of the order dated 3.11.2009 passed by this Bench in Appeal E/516/08 (Commissioner vs Manikgarh Cement Works. The order (No.A-632/2009/SMB/CIV) has been produced. In the written submissions filed by the party, it has been submitted, inter alia, that they have satisfied the test set out by this Tribunal in Manikgarh Cement Work’s case. On this basis, it is claimed that the appellant is entitled to CENVAT Credit on the services in question. It is further submitted that the Hon’ble Supreme Court’s judgment in Maruti Suzuki Ltd vs CCE, Delhi 2009 (240) ELT 641 (SC) is not applicable to the present case. According to the appellant, the decision of the Bombay High Court in the case of Coca Cola India Pvt Ltd vs CCE, Pune 2009 (15) STR 657 is squarely applicable to this case. It is further submitted that the principles laid down by the Tribunal’s Larger Bench in the case of Commissioner vs GTC Industries Ltd 2008 (12) STR 468 (T-LB) are binding on this Bench and that, according to those principles, the CENVAT Credit, in question, should be allowed to the appellant.

4. The learned SDR submits that the applicability of the Hon’ble Supreme Court’s judgment in Maruti Suzuki Ltd’s case and of the Hon’ble High Court’s judgment in Coca Cola India Pvt Ltd’s case to the facts of a case similar to the facts of the instant case was examined by this Bench in Manikgarh Cement Work’s case and, accordingly, the ruling of the apex court in Maruti Suzuki Ltd’s case will have to be followed by this Tribunal. It is also submitted that the applicability of the Tribunal’s Larger Bench decision in GTC Industries case was considered by this Tribunal in Vikram Ispat Ltd vs Commissioner 2009 (16) STR 195 (Tri-Mum) and, accordingly, the relevant plea raised by the appellant in their written submissions should be rejected.

5. I have considered the grounds of this appeal, the written submissions of the appellant and the argument of the learned SDR. The lower authorities have found that the barges and tugs were used in the sea and the channel and not in the jetty. In other words, it has been found that these vessels were operated in the sea and channel beyond the jetty. On the other hand, the appellant has claimed in the memorandum of appeal that the said vessels were used not only for bringing raw materials from the ships anchored in the sea to their own jetty but also for conveying the goods from the jetty to their factory. It is claimed that the jetty is located within the precincts of their factory. There is no evidence in support of these claims. In other words, the aforesaid findings of the lower authorities cannot be interfered with. Even according to the appellant, the ships laden with iron ore were anchored in the sea away from the jetty and the tugs and barges were used for transporting the goods from the ships to the jetty. The services in question were availed in respect of these tugs and barges. One service was used for repairs and maintenance of these vessels, another for insuring the vessels, and the third one for inspection and certification of the vessels. The fourth one was used for recruiting persons as crew of the vessels. Yet another service was availed for hydrographic survey of Revdanda channel/port for dredging etc. The question before me is whether these services would qualify to be input services defined under Rule 2 (l) of the CENVAT Credit Rules, 2004. In the context of considering a similar question in the case of Manikgarh Cement Work (supra), I held that a nexus should be established between the services in question and the manufacture/clearance of excisable goods by the assessee for claiming the benefit of CENVAT Credit of the service tax paid on such services. Paras 4 to 7 of the order passed in that case are reproduced below:

“4. The Hon'ble High Court, in the case of Coca Cola (supra), examined the scope of the above definition. It held that the definition could be divided into five categories and that each category/limb of the definition could be considered as an independent benefit or concession/exemption. Their Lordships clarified that, if an assessee could satisfy any one of the five categories/limbs, credit of the service tax paid on the relevant services would be available to him. The assessee need not satisfy the other limb(s) of the definition. According to the ld. counsel, the question whether CENVAT credit of service tax paid on the aforesaid four services rendered at the residential colony outside the factory is admissible to the respondent is squarely covered by the Hon'ble High Court’s decision, in their favour. On the other hand, ld. DR has heavily relied on the Hon’ble Supreme court’s decision in Maruti Suzuki case. According to him, the Hon'ble Supreme Court’s decision impliedly overrules the High Court’s decision. I agree. In the case of Maruti Suzuki, the Supreme Court was considering the definition of input given under the CENVAT Credit Rules. The definition reads as under:-

(k) input means

(i) all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production;

(ii) all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service;

Their Lordships considered the above definition to be divisible into three parts: 1) specific part (main or substantive part); 2) inclusive part; 3) place of use. Further discussion relevant to the instant case can be had from para 14 of the judgment and the same reads as under:-

“It may, however, be noted that in the definition of input the expression used in or in relation to the manufacture of final products is not a standalone item. It has to be read in entirety and when so read it reads as used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not. These words whether directly or indirectly and whether contained in the final product or not indicates the intention of the legislature. What the legislature intends to say is that even if the use of input (like electricity) in the manufacturing process is not direct but indirect still such an item would stand covered by the definition of input. In the past, there was a controversy as to what is the meaning of the word input conceptually. It was argued by the Department in a number of cases that if the identity of the input is not contained in the final product then such an item would not qualify as input. In order to get over this controversy in the above definition of input, the Legislature has clarified that even if an item is not contained in the final product still it would be classifiable as an input under the above definition. In other words, it has been clarified by the definition of input that the following considerations will not be relevant:

(a) use of input in the manufacturing process be it direct or indirect;

(b) even if the input is not contained in the final product, it would still be covered by the definition.

These considerations have been made irrelevant by the use of the expression goods used in or in relation to the manufacture of final products which, as stated above, is the crucial requirement of the definition of input. Moreover, the said expression, viz, used in or in relation to the manufacture of final products in the specific/substantive part of the definition is so wide that it would cover innumerable items as input and to avoid such contingency the Legislature has incorporated the inclusive part after the substantive part qualified by the place of use. 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. Oils and lubricants mentioned in the definition are required for smooth running of machines, hence they are included as they are used in relation to manufacture of final product. The intention of the Legislature is that inputs falling in the inclusive part must have nexus with the manufacture of the final product. (emphasis supplied)

The above judgment of the Supreme court hands down an important ruling, which it is to the effect that, where the inclusive part of a definition provides a list of items, any such item should also satisfy the quintessential ingredients of the main part of the definition. In other words, the definition has to be considered in its entirety. The inclusive part is not independent of the main part. It is not a stand-alone provision. This ruling is applicable to input service, given the definition of this expression under Rule 2(l) of the CENVAT credit Rules. There is nothing in this definition to indicate that the legislative intent behind it is different from the one underlying the definition of input. Accordingly, I hold that any service which is apparently covered by the parameters of the inclusive part of the definition of input service should also satisfy the quintessential requirements of the main part of the definition and, accordingly, any person claiming the benefit of CENVAT credit on input service in terms of the inclusive part of the definition of input service should establish that such service was used, directly or indirectly, in or in relation to the manufacture of his final products or the clearance of such products from his factory.

5. I am not impressed with the way the ld. counsel has sought to distinguish Maruti Suzuki case from Coca Cola case. He argued that the apex court’s decision relating to input could not be applied to input service. This argument is not acceptable, given the definition of input and input service. Whether it be input or input service, the main part of the definition contains the quintessential ingredients and the inclusive part provides a non-exhaustive list of items each of which should satisfy the requirements of the main part. Ld. counsel has pointed out that, in the case of input, place of use is a third part of the definition, which is conspicuously absent in the definition of input service. It has been argued that an input service need not necessarily be rendered within the factory premises whereas an input should normally be used within the factory. Broadly, this distinction sounds valid. But, again, it doesn’t offer an answer to the question whether the service (which is rendered within the factory or outside) satisfies other essential requirements laid down in the main part of the definition. Even if it be held that there is no place of use in relation to input service, the basic requirement remains to be that anything mentioned as an input service in the inclusive part of the definition should be shown to have been used in or in relation to the manufacture or clearance of final products, whether directly or indirectly.

6. In the earlier cases of the same assessee, coordinate benches held in their favour. According to the ld. counsel, the Hon'ble High Court’s decision in Coca Cola case should be followed as binding precedent in this case. I find that the Hon'ble Supreme Court’s ruling in Maruti Suzuki case is to the contra and the same is constitutionally binding on this Tribunal.

7. In the result, the view taken by the lower appellate authority by following an earlier decision of this Tribunal which is presently under challenge before the Hon'ble High Court cannot be accepted. On the other hand, the view taken by the Ld. DR on the strength of the Hon’ble Supreme Court’s ruling in Maruti Suzuki case should be followed. Accordingly, it is held that, as the respondent has not established nexus between any of the four services and the manufacture or clearance of excisable goods, the benefit of CENVAT credit in respect of such service cannot be allowed. It is ordered accordingly. However, I think, in a case of this nature, the assessee should not be penalised. This case involves rival interpretations of a provision of law. In typical cases of interpretative nature, penalties have been waived by this Tribunal. In this view of the matter, the order-in-original is sustained except in respect of penalty imposed by the original authority. The appeal is disposed of accordingly.”

6. Following the above view, I have to reject the appellant’s plea that the Hon’ble High Court’s decision in Coca Cola India Pvt Ltd’s case be followed in preference to the Hon’ble Supreme Court’s ruling in Maruti Suzuki Ltd’s case. Accordingly, in terms of the ruling of the apex court, it is held, on the facts of this case, that none of the services in question is liable to be classified as input service as defined under Rule 2 (l) ibid inasmuch as the quintessential requirements of input service laid down in the main part of the definition have not been established by the appellant.

7. The appellant has claimed support from the Tribunal’s Larger Bench decision in GTC Industries case to their limited proposition that the definition of input service should be construed liberally. The said definition can be construed only as per the ruling of the apex court given in Maruti Suzuki Ltd’s case and that is a strict construction.

8. In the result, this appeal of the assessee fails on the substantive issue. The penalty on them is set aside, following the aforesaid precedent. The appeal stands partly allowed.