Presented By J.K. MITTAL (Advocate) Co-Chairman, Indirect Taxes Committee, ASSOCHAM & PHDCCI

1. CENVAT CREDIT Recent Judicial Pronouncements NIRC OF ICAI –18.04.2009 Presented By J.K. MITTAL (Advocate) Co-Chairman, Indirect Taxes Committee, ASSOCHAM & PHDCCI LL.B.,F.C.A., F.C.S. NEW DELHI Ph: 011- 22056635 Fax: 011- 22447420 Email: jkmittal@vsnl.net

2. The CENVAT Credit Rules, 2004 "input service" means any service, - (i) used by a provider of taxable service for providing an output service, or (ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products, upto the place of removal, 2

3. The CENVAT Credit Rules, 2004 and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal. [clause (l) of Rule 2] 3 3

4. The CENVAT Credit Rules, 2004 The Rules have been amended time to time, however there are many doubts and eligibility of CENVAT credit of duty/ service tax paid on various transactions by a manufacturer or a service provider. There are many judicial pronouncements, which have been discussed hereunder, which in various such issues came up before the bench. 4 4

5. The CENVAT Credit Rules, 2004 The Supreme Court, in case of State of Bombay v. Hospital Mazdoor SabhaAIR 1960 (SC) 610, held that while dealing with an inclusive definition, terms of wider denotation should not be interpreted in a restricted manner. The Supreme Court, in the case of Good Year India Limited v. Collector of Customs 1997 (95) ELT 450, held that when the definition uses the term ‘such as’, the words used therein should be construed as only illustrative and not exhaustive. 5 5

6. Recent Judicial Pronouncements • In the case of CCE, Mumbai-V v GTC Industries Ltd. 2008 (12) STR 468 (Tri.-LB),the Larger Bench held that a Service Tax paid on outdoor catering service is an input service relating to the business and CENVAT Credit in respect of the same will be admissible. The Tribunal held that irrespective of the fact that a subsidised food is provided and cost of food is borne by the worker, same will form part of expenditure incurred by the manufacturer and will have a bearing on the cost of production. In view of the same, outdoor catering service is an input service. 6 6

7. Recent Judicial Pronouncements The Tribunal in the case of CCE&C, Aurangabad v Endurance Systems India Pvt. Ltd. 2009-TIOL-210-CESTAT-MUM relying upon the larger bench decision in the GTC Industries’ case held that service tax paid on the expenses of the Group Medical Policy and Workmen’s Accident Policy taken by the manufacturer are allowable as Cenvat Credit. 7

8. Recent Judicial Pronouncements In the case of Keltech Energies Ltd. v CCE, Mangalore 2008-TIOL-419-CESTAT-BANG, the Tribunal held that the Cenvat credit of Service Tax paid on Mobile phones and landline phones installed by the Company at the residence of Director and Company officials’ residence shall be allowed, as input services for business purpose since bills are paid by the Company. 8 8

9. Recent Judicial Pronouncements The Gujarat High Court in the case of CCE v Excel Crop Care Ltd. 2008 (12) STR 436 (Gul) dismissed the appeal filed by the Revenue Record, the disallowance of credit taken on the telephone on the grounds that the phone was not installed in the factory. The High Court held that this is not a ground germane to the provision of the CENVAT Credit Rules. In this case Service Tax paid on mobile phone provided to the employees was taken by the Company. Thus High Court has allowed the credit by declaring that service tax paid on mobile phone is an input service in the hands of company/assessee. 9 9

10. Recent Judicial Pronouncements In the case of Ecoplast Ltd. v CCE, Daman 2009-TIOL-268-CESTAT-AHM, the mobile phone connection was in the name of the company and provided to the employee for use in the course of their employment and the payment was made by the company. The department denied the credit on the ground that the appellant has not established the fact that the mobile phones were used by them in relation to the manufacture of their final product, however, the Tribunal allowed the Cenvat Credit of service tax paid on mobile phone relying upon its several earlier decisions. 10 10

11. Recent Judicial Pronouncements In the case of Manikgarh Cement v CCE&C, Nagpur 2008–TIOL-133-CESTAT-MUM : 2008 (9) STR 554 (Tri.-Mum), the Tribunal held that the Cenvat credit of Service Tax paid on the repair and maintenance of civil construction in the residential colony provided for the employees of the Company is admissible on the ground that it was not necessary to maintain the continuity of activities of manufacturer as well as such expenses were allowed as revenue expenditure to carry on the business. 11 11

12. Recent Judicial Pronouncements The Tribunal in the case of CCE, Rajkot v Rolx Rings Pvt. Ltd. 2008-TIOL-383-CESTAT-AHM held that the Cenvat credit of Service Tax paid on the services of Customs House Agent and Surveyors utilized by them for the export of goods is admissible as much as the same is input services. 12 12

13. Recent Judicial Pronouncements In the case of Metro Shoes Pvt. Ltd. v CCE, Mumbai I 2008-TIOL-417-CESTAT-MUM, the Appellant was manufacturer of shoes and also selling such goods in their own Show Rooms situated at various places. The Appellant in this case availed Cenvat credit in respect of various input services like telephone, internet, courier, insurance, security, warehousing facilities, etc. 13

14. Recent Judicial Pronouncements Department disallowed the credit on the ground that the same were in the nature of post manufacture, i.e. subsequent to the clearance of the goods from the place of removal. The Tribunal in this case held that since the Show Rooms belong to the Company which manufactures shoes and sales have taken place in their Show Rooms, therefore, such Show Rooms shall be considered as place of removal. Therefore, credit of service tax paid on the various services till the sale of goods from the retail Show Room is eligible for Cenvat credit the same have been treated as input services. 14

15. Recent Judicial Pronouncements The Tribunal in the case of Metro Shoes Pvt. Ltd. v CCE, Mumbai I 2008-TIOL-417-CESTAT-MUM held that the Service Tax paid on the service directly and wholly attributable to the trading activities would not be eligible as credit. Further it can be inferred that the Cenvat credit of Service Tax paid on those input services which are commonly used for trading activities as well as manufactured of final product/ providing output services, shall be eligible for credit. 15

16. Recent Judicial Pronouncements The Tribunal in this case of CCE, Goa v V. M. Salgaonkar & Bros Pvt. Ltd. 2008-TIOL-443-CESTAT-MUM held that the services enumerated under Rule 6 (5) shall be eligible for credit of entire/whole amount of service tax paid on such services and there is no need for maintaining separate accounts in respect of such services. Therefore, Cenvat credit in respect of such services cannot be denied on the ground that separate account have not been maintained for such services. 16

17. Recent Judicial Pronouncements The Tribunal in the case of CCE, Rajkot v Rolx Rings Pvt. Ltd. 2008-TIOL-383-CESTAT-AHM held that Sales Tax takes place at the destination point and the ownership of the goods remain with the seller till the delivery of goods, the place of the removal would get extended to the destination point and the credit of service tax paid on the transportation up to such place of sale would be admissible and it was concluded that in such circumstances the place of removal in case of exported goods is the port area and held that all the services availed by the exporter till port are required to be considered as input services. 17

18. Recent Judicial Pronouncements • In the case of Ambuja Cement Ltd v Union of India and Others 2009-TIOL-110-HC-P&H-ST the assessee was supplying the cement to its customer on FOR destination basis and bearing the freight in respect thereof upto the door step of the customer i.e. the destination point. On the said freight, the assessee also bears the Service Tax, which was remained un-disputed. 18 18

19. Recent Judicial Pronouncements • Therefore, in this case the company being the manufacturer and a consignor paying Service Tax on the freight for transportation of its products to the customer place. The High Court in this case relying on the Board’s Circular No. 97/6/2007, dated 23.08.2007 wherein it is clarified that where the sale is on a destination basis, the Service Tax paid on transportation upto such place would be admissible as CENVAT Credit, held that it is a settled principle of law that the Circulars issued by the Board are binding on the revenue authority and in this case the assessee company has fulfilled all the conditions mentioned in the said Circular……….. 19 19

20. Recent Judicial Pronouncements because the supply of the cement by the company to its customer is on FOR destination basis, therefore, Service Tax paid by the company on the entire cost of freight is ‘input service’ within the meaning of Rule 2(l) of CENVAT Credit Rules 2004. Therefore, the Hon’ble Court has decided the question in favour of the company and against the revenue and allowed the CENVAT Credit of Service Tax so paid on freight and set aside the decision of the Tribunal. 20 20

21. Recent Judicial Pronouncements • The High Court in the case of Union of India v Slovak India Trading Co. Pvt. Ltd. 2006 (201) ELT 559 (Kar.): 2008 (10) STR 101 (Kar.) upheld the decision of the Tribunal that refund cannot be rejected when assessee goes out of Modvat scheme or when the Company is closed. The High Court also held that there is no expressed prohibition in terms of Rule 5. 21 21

22. Recent Judicial Pronouncements • Rather Rule 5 is applicable on a manufacturer whereas once the factory is closed there is no manufacturer. Hence, Rule 5 is not available for the purpose of rejection of refund as held by the Tribunal. The Supreme Court dismissed the SLP filed against the said judgment. The P&H High Court has followed the aforesaid decision of the Karnataka High Court in the case of Rama Industries Ltd. v CCE, Chandigarh 2009-TIOL-100-HC-P&H-CX. 22 22

23. Recent Judicial Pronouncements • The Tribunal in the case of General Electric International Inc v CCE, Delhi 2009-TIOL-42-CESTAT-DEL rejected the contention of the commissioner to deny the service tax credit on the ground that the invoice for the input service is addressed to the office of the Appellant outside India. The Tribunal allowed the credit by observing that input service was emanated in India and used for rendering services in India. 23 23

24. Recent Judicial Pronouncements The Tribunal in the case of Jupiter Remedies Pvt Ltd. v CCE, Vapi 2009-TIOL-186-CESTAT-AHM held that credit cannot be varied at recipient’s end on the ground that the supplier should have lesser duty. Therefore, on this ground, credit cannot be denied. 24 24

25. Recent Judicial Pronouncements • The Tribunal in the case of CST, Ahmedabad v Godfrey Philips India Pvt. Ltd. 2009-TIOL-269-CESTAT-AHM held that the input service distributor is not merely a dealer. Input service distributor can be compared to the buyer of the goods or service as he independently received invoices. 25 25

26. Recent Judicial Pronouncements • Input service distributor is entitled to pass the credit and while passing the credit, it does not provide the information of nature of service and the details of service. Therefore, the Tribunal held that whether the credit is eligible or not, it has to be examined at the end of input service distributor. Hence, it was held that jurisdictional officer with whom input service distributor is registered has the jurisdiction to resolve the dispute regarding the eligibility of Cenvat Credit, which input service distributor has taken proposes to pass on. 26 26

27. Recent Judicial Pronouncements • CCE, Vapi v Jindal Photo Ltd. 2009-TIOL-359-CESTAT-AHM - In the instant case, input service distributor did not take the registration and while transferring the credit, registration no. was not mentioned and the department denied the credit. However, the Tribunal allowed the credit as it was merely a procedural lapse and there was no dispute that the input service was received. 27 27

28. Recent Judicial Pronouncements • The Tribunal in the case of CCE, Vapi v Neral Paper Mills Pvt. Ltd. 2009-TIOL-134-CESTAT-AHM : CCE, Vapi v Unimark Remedies Ltd. 2009-TIOL-357-CESTAT-AHM held that substantial benefit cannot be denied under the exemption Notification for minor procedural lapses and held that the requirement of declaration for availing the benefit under the Notification No. 32/2004-ST under GTA service is only procedural one and once there is substantial compliance with requirement of the Notification, CENVAT credit cannot be denied. 28 28

29. Recent Judicial Pronouncements • In the case of M/s Bharat Sanchar Nigam Ltd. v CCE, Salem 2008-TIOL-1989-CESTAT-MAD,the Tribunal held that CENVAT credit is denied on a technical ground whereas it is settled law that a substantive benefit cannot be denied on a procedural or technical ground where the beneficiary has satisfied the substantive condition for the benefit. 29 29

30. Recent Judicial Pronouncements • In the case of CCE, Vapi v Alidhara Textool Engineers Pvt. Ltd. 2009-TIOL-370-CESTAT-AHM, the appellant availed the Cenvat Credit on service tax paid by them on erection and commissioning service received by them for installation of machine at the premises of the buyer of said machine. 30 30

31. Recent Judicial Pronouncements • The Tribunal in this case held that under the Cenvat Credit Rules, it is not necessary that the input service required to be received in the manufacturer premises to take the Cenvat Credit and allowed the Cenvat Credit of service tax paid on the erection and commissioning service carried out through sub-contractor at the buyer’s premises and further held that erection and commissioning service is incidental to the sale of machine by the buyer. 31 31

32. Recent Judicial Pronouncements • BBC World (India) Pvt. Ltd. v CST, New Delhi 2009-TIOL-376-CESTAT-DEL – In the instant case, BBC (India) is a subsidiary of BBC, UK and getting commission from BBC, UK for securing advertisement, etc. and paying service tax on the said commission under Business Auxiliary Service. 32 32

33. Recent Judicial Pronouncements • In this case, the BBC (India) takes the credit on the basis of the debit note raised in the name of BBC, UK. The Department denied the credit on the ground that invoice/ debit note are in the name of BBC, UK, whereas the appellant’s contention was that they are discharging service tax liability on behalf of BBC, UK, therefore, the credit is allowable for utilization of payment on service tax under the Broadcasting Services on behalf of BBC, UK. 33 33

34. Recent Judicial Pronouncements • The Tribunal rejected the contention of the appellant and disallowed the credit by holding that service tax paid on the commission received by BBC (India) from BBC, UK cannot be treated as input service for the Broadcasting Service. 34 34

35. Recent Judicial Pronouncements • In the case of M/s IDEA CELLULAR LTD V CCE, ROHTAK2009-TIOL-387-CESTAT-DEL the Appellant had taken credit of Central Excise duty Additional customs duty paid on various capital goods including BTS Towers and also the credit of service tax paid on various input services used for providing the output services (Telephone Services). The Tribunal in this case held that in erstwhile sub-rule (3)(c) of Rule 6 does not include the 'capital goods credit' and the 'service tax credit in respect of 17 services referred to in sub-rule (5). 35 35

36. Recent Judicial Pronouncements • In the case of M/s IDEA CELLULAR LTD V CCE, ROHTAK2009-TIOL-387-CESTAT-DEL the Appellant contention that inter connectivity services are not ‘exempted service’ as the same were not taxable during the period of dispute. 36 36

37. Recent Judicial Pronouncements • The Tribunal held that “the expression 'exempted services' covers not only the services taxable under Section 66 of the Act, which are fully exempt from service tax by some exemption notification issued under Section 93, but also those services which are not taxable under Section 66 of the Act. In view of the wordings of Rule 2 (e) of Cenvat Credit Rules 2004, the services, in question, have to be treated as 'exempted services’. 37 37

38. Recent Judicial Pronouncements • In the case of M/s MUNDRA PORT & SPECIAL ECONOMIC ZONE LTD V CCE, RAJKOT 2008-TIOL-1691-CESTAT-AHM the Tribunal held that the dispute was whether excise duty paid on steel and cement for construction of building is an input for providing port services, the Tribunal held that such an interpretation would lead to unwarranted results and the definition cannot be so stretch so as to include the use of cement and steel as use for providing the out put service of port services. 38 38

39. Recent Judicial Pronouncements • The Tribunal in this case also held that the services of CHA, surveyors, hiring of cabs, service tax paid on mobile phones are input services and accordingly it was held that “credit in respect of the same is available”. 39 39

40. Recent Judicial Pronouncements • The Tribunal further held that the service tax paid on the club house fees which are meant for recreation of the workers is no available as credit inasmuch as the same cannot be held to be in any way use for providing output services. 40 40

41. Recent Judicial Pronouncements • It was further held that the credit of duty paid on Air-conditioners is available as credit as Air-conditioners are capital goods falling under Chapter 85 of the Central Excise Tariff Act, 1985. 41 41

42. Recent Judicial Pronouncements • In the case of M/s H M T & ORS V CCE, PANCHKULA 2008-TIOL-1884-CESTAT-DEL-LB the Tribunal held that the limited issue was before the bench whether there is any provision in the Rules for reversal of input credit taken and legally utilized when the final product was dutiable, subsequently become exempt. In this case Tribunal held that when the input credit legally taken and utilized on the dutiable final products, need not be reversed on the final product becoming exempt subsequently. 42 42

43. Recent Judicial Pronouncements In the case of Hindustan Zink v Union of India reported in 2008 (223) 149 (Raj.) the Hon’ble Rajasthan High Court held as under: "39. Upshot of this discussion in that prohibition against claiming Modvat credit on exempted goods or subject to nil rate of duty applies in case where such exemption from payment of Duty or nil rate of Duty on end product is predictably known at the time the recipient of inputs is entitled to take credit of duties paid on such inputs. 43 43

44. Recent Judicial Pronouncements • The fact that due to subsequent notification or on contingency that may arise in future, the end product is cleared without payment of duty due to exemption or nil rate of duty does not affect the availing of Modvat credit on the date of entitlement. If on the date of entitlement, there is no illegality or invalidity in taking credit of such Modvat/Cenvat credit, the right to utilise such credit against future liability towards duty become indefeasible and it is not liable to be reversed in the contingency discussed above." 44 44

45. Recent Judicial Pronouncements • In Vikarm Ispat v CCE, Khandeswar, Navi Mumabi 2008-TIOL-1904-CESTAT-MUM there was a dispute about denial of CENVAT credit availed on various input services and the party filed the appeal before the Tribunal in the Form ST-5 prescribed under Service Tax Rules, 1994 whereas the Department raises the demand not under section 73 of the Finance Act, 1994 but under Section 11 A of the Central Excise Act, 1944 45 45

46. Recent Judicial Pronouncements • on the ground that appellant is manufacturer and not a service provider, therefore, appeal should be filed in Form EA-3 under the Central Excise Rules. The Tribunal in this case held that as the issue involved is regarding denial of CENVAT credit on input services and therefore, the appeal in ST-5 Form appears to be maintainable. Therefore Show Cause Notices issued by the Registry to file appeal in EA-3 Form instead of ST-5 Form were discharged. 46 46

47. Recent Judicial Pronouncements • The Tribunal in the case of Nicholas Piramal (India) Ltd. v CCE, Thane-I 2008-TIOL-614-CESTAT-MUM held that if separate accounts are not maintained, as required under Rule 6 (2), then Rule 6 (3) shall apply. In the case of M/s Nicholas Piramel (I) Ltd v Commissioner Of Central Excise, Thane-I 2008-TIOL-1877-CESTAT-MUM-LB; 2008 (232) E.L.T. 37 (Tri. - LB) the Tribunal observed that the provision of Rule 6(2) has indicate that the manufacturer avails CENVAT credit in respect of any inputs, then he is required to maintain separate accounts. The provisions of Rules 6(3)(a) & (b) further indicate how the manufacturer has to follow the procedure if he is not maintaining separate accounts 47 47

48. Recent Judicial Pronouncements • In the case of M/s Nicholas Piramel (I) Ltd v Commissioner Of Central Excise, Thane-I 2008-TIOL-1877-CESTAT-MUM-LB; 2008 (232) E.L.T. 37 (Tri. - LB) a question was referred to the larger bench for consideration whether the provision of Rule 6(3)(b) of the CENVAT Credit Rules are applicable when the amount equivalent to the CENVAT credit attributable to the inputs used in the manufacturing of exempted products has been reversed prior to removal of exempted products. In this case credit availed on input was reversed by the assessee even before the utilization of the same. 48 48

49. Recent Judicial Pronouncements • The Tribunal in this case relied upon Hon’ble Supreme Court’s decision in the case of CCE, Delhi -III v Life Long Appliances Ltd. 2006 (196) E.L.T. A144 (S.C.), Chandrapur Magnet Wires Vs. CCE [ 1996 (81) E.L.T. 3 (S.C.), CCE V Bombay Dyeing & Manufacturing as reported at [2007 (215) E.L.T. 3 (S.C.) and the Tribunal decision in the case of Pharmaceuticals Ltd. Vs. CCE, Aurangabad [2006 (76) RLT 304 (CESTAT-Mum.) and held that the provision of Rules 6(3)(b) of CENVAT Credit Rules are not applicable when the amount equivalent to the CENVAT credit attributable to the common input used in, or in relation to, the manufacturer of exempted final products has bee paid prior to the removal of exempted final products from the factory. 49 49

50. Recent Judicial Pronouncements • In the case of M/s Bharat Sanchar Nigam Ltd. V Commissioner Of Central Excise, Salem 2008-TIOL-1989-CESTAT-MAD, the Tribunal held that in this case BSNL purchased the capital goods at one location and subsequently it transferred it to the other location and took the credit of excise duty paid on such capital goods. The Department denied the CENVAT credit on capital goods on the ground that credit has been taken without being issued by the invoice by the registered first stage dealer. 50 50