Credit of service tax paid on services used in Business can not be denied

Jurisdiction of Dispute Resolution Panel-Income Tax Order No.3 Delhi High Court directs Army & Air Force to grant Permanent Commission to Women Officers Employment of washing process in the manufacture of agglomerates etc from imported plastic waste and scrap-SEZ Instruction No.48 Haryana Government imposes surcharge ranging from 0.25 per cent to 0.7 per cent on VAT Service Tax Notification No. 17/2010 which exempts the taxable service providing packaged or canned software, intended for single use and packed accordingly amended-Service Tax Notification No.18 Procurement, Import and Export of Prohibited and Restricted Goods by SEZ Units-SEZ Instruction No. 47 Tractors are chargeable to tractor cess in terms of the Tractor Cess Rules, 1992 read with the IDRA Act, 1951-Central Excise Circular No. 916 Authority for Advance Ruling rules the amounts received/receivable by Technopromexport from NTPC under contract for Offshore supply of all plant and equipment including mandatory spares are not liable to tax in India under the provisions of the Income-tax Act, 1961 and DTAA between India and Russia-AIT-2010-79-AAR whether Cess levied under section 5 of Textile Committees Act, 1963 is includable as a component of CVD-AIT-2010-78-HC Export warehousing –Extension of facility at Gautam Budh Nagar in UP and Nagpur in Maharashtra-Central Excise Circular No. 917 Implementation of the provisions of COTP Act, 2003 and The Cigarettes and Other Tobacco Products (Packaging and Labelling) Rules, 2008- Empowering the Customs & Central Excise Officers-Central Excise Circular No. 918 Toilet linen and kitchen linen, of terry toweling or similar terry fabric, of cotton and of other textile materials added in Focus Product Scheme for exports made after 1st Jan 2010-DGFT PN 46 TDS on payment of interest on time deposits under Section 194A of the Income Tax Act by banks following Core-Branch Banking Solutions software-Income Tax Circular No.3 Tariff value for import of Brass scrap is 3732 and for poppy seeds 4640-Customs Non-Tariff Notification No.19 Duty Credit Scrips can also be used / debited towards payment of Customs Duties in case of EO defaults under Authorizations issued under Chapters 4 and 5 of the Policy-DGFT Notification No.32 SC Ruling-the nature of roll over premium charge incurred by the assessee as also the scope and applicability of Section 43A of the Income Tax Act, 1961, in the context of such charges-we find no merit in the contention of the assessee that roll over charges have nothing to do with the fluctuation in the rate of exchange-AIT-2010-75-SC Pre-authentication of excise invoices dispensed with Excise duty on Goggles and OTS cans hiked to 10 per cent av gas and mosquito net impregnated with insecticides subjected to 4 per cent excise Outright exemption from additional duty of customs (of 4%) leviable under sub-section (5) of section 3 of the Customs Tariff Act, 1975 to goods imported in a pre-packaged form and intended for retail sale Benefit of allowing Cenvat credit to be reversed on proportionate basis (when common inputs are used for the manufacture of dutiable and exempt products) extended retrospectively Bad News for flat bookers-unless the entire consideration for the property is paid after the completion of construction (i.e. after issuance of completion certificate by the competent authority), the activity of construction would be deemed to be a taxable service provided by the builder/promoter/developer to the prospective buyer and the service tax would be charged accordingly Bad News for ladies-sanitary napkins & kids diapers subjected to 10 per cent excise excise duty @ 4% imposed on specified IT products like microprocessor other than motherboards, floppy disc drives, CD-Rom drive etc when these items are meant for external use with a computer or laptop as a plug-in device Packaged software or canned software exempted from excise excise duty on Cartons, boxes and cases, of corrugated paper or paperboard manufactured by Standalone manufacturers lowered from 8% to 4% all ceramic tiles, whether manufactured by using electricity for firing the kiln or not, will attract a single excise duty rate of 10% process of drawing or redrawing of aluminium tubes and pipes as amounting to " manufacture" Excise duty on replaceable kits of all domestic water filters except those operating on RO technology reduced from 8% to 4% Excise duty exemption on parts, components and accessories of mobile handsets including cellular phones extended to parts of two accessories namely, battery chargers and hands-free headphones of these devices.

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Credit of service tax paid on services used in Business can not be denied

RS Sharma Advocate

Though Service Tax and Central Excise Department continue to slap notices for denial of CENVAT credit of service tax paid on services used in business; the credit is undoubtedly admissible.

Rule 2 (l) of CENVAT Credit Rules 2004 as amended defines “input service” as under:

“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,

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;”

Thus input service includes services used in activities relating to business. Though some examples have been given in the above said definition by specifying some of the activities “such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security” ; the said specified activities do merely denote some activities related to business which is only illustrative and not exhaustive and the scope and definition of the terms “in relation to” and “as such” is very wide and connotes all the activities related to business.

The meaning assigned to “input service” is divided in two parts, first part giving the specific meaning and the second part gives the inclusive meaning of the same. In the second part an inclusive meaning is given to “input service”, which otherwise would not have been covered in the main first part.

From this, it is a logical conclusion that manufacturer/output service provider can take credit of the service tax paid on all activities related to business, which are specified in the expanded inclusive definition of “input service”.

The decision of Supreme Court in case of Commissioner of Central Excise & Ors Versus M/s. Solaris Chemtech Limited & Ors AIT-2007-270-SC in Appeal (civil) 6465-6475 of 2001 is also to the effect that the expression "in relation to" must be given a wide connotation.

Further, the definition cannot be given a restrictive meaning as held by the Supreme Court in the case of Regional Director vs. High land coffee Works as under:

"The word "include" in the statutory definition is generally used to enlarge the meaning of the preceding words and it is by way of extension, and not with restriction. The word `include' is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used, these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import but also those things which the interpretation clause declares that they shall include.

The credit of the service tax paid on the outdoor catering/canteen service is admissible as input service under Rule 2(l) of the Cenvat Credit Rules, 2004. has been held to be admissible by CESTAT in case of Victor Gaskets Limited, Bosch Chassis Systems India Limited & M/s. Bajaj Electricals Ltd. Versus Commissioner of Central Excise, Pune-I AIT-2008-406-CESTAT on the reasoning that it is covered within the ambit of activities related to business and thus entitled as “input service” under credit rules.

The appellants had provided a canteen facility in their factory for their employees. This was a statutory requirement under Section 46 of the Factory Act. The service provider issued the invoices to the appellants for the said Outdoor Catering Services and the appellants had availed the Cenvat Credit on the strength of such invoices. The appellants contended that they pay fringe benefit taxes on canteen related expenses under Income Tax Act and as the said tax is a levy on business related expenses, the Appellants’ payment of the same on the canteen related expenses would be considered as a business related expenses and hence, the same would get covered under the “activities relating to business” stipulated in the inclusive definition of input service u/r 2(l) of CCR, 2004.

Larger Bench of CESTAT in APPEAL NO. E/ 1279/07-Mum & E/CO-239/07-Mum CCE, Mumbai-V Versus M/s GTC Industries Ltd AIT-2008-407-CESTAT has also ruled that employment of outdoor caterer for providing catering services has to be considered as an input service relating to the business and cenvat credit in respect of the same will be admissible.

Therefore the credit of service tax paid on activities although not directly or indirectly related to manufacture of goods, is admissible as input service credit to a manufacturer of final products as well as to output service provider treating the same as activities in relation to business. The denial of such credit by the authorities is illegal and without any justification.

(The Writer is an Advocate & Consultant based in Delhi. He is advising several MNCs, PSUs and Indian Corporates on service tax, central excise, customs & Foreign Trade matters. He can be mailed at rssharma@gmail.com )

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