Commissioner of Central Excise vs Ambalal Sarabhai Enterprises Ltd.

Akil Kureshi, J.—The Revenue is in appeal against the judgment of the Customs, Excise and Service Tax Appellate Tribunal dated July 22, 2009 raising the following questions for our consideration:

(i) Whether the CESTAT was right in considering the service, namely, outward transportation in respect of courier service and clearing agents, availed of by the assessee, as eligible services for availing of input service credit as defined under rule 2(1) of the Cenvat Credit Rules, 2004?

(ii) Whether the Tribunal committed an error in overlooking the definition of ''place of removal'' prescribed under rule 4(3)(c) of the Cenvat Credit Rules, 2004, more particularly when goods are cleared by the assessee from the place of manufacturing after payment of duty?

The short facts are as follows. The respondent-assessee had claimed Cenvat credit on service tax paid on the courier service provided by various courier agencies. Service of such courier agencies were utilised for transportation of finished goods from the factory and also for bringing inputs into the factory. These facts emerge clearly from the order-in-original passed by the adjudicating officer in his order dated July 31, 2008, the relevant portion of which reads as under:

On scrutiny of E.R.-I returns for the period from January, 2007 to December, 2007, it was noticed that the assessee has taken service tax credit on courier services paid to courier service providers, namely, M/s. XPS couriers, M/s. Gati couriers and SAFEX Express (P) Ltd., Ab''ad and clearing agent, namely, Gujarat State Export Corporation and UTI Worldwide Export Corporation. The said courier service providers and clearing agents took delivery of the finished goods from the factory and the inputs into the factory. The service tax on courier services paid to the clearing agents and courier service providers is not admissible as per rule 2(1) of the Cenvat Credit Rules, 2004. Therefore, service tax paid on courier services and clearing agents of the goods is not eligible for availment of Cenvat credit. The said assessee had taken credit of service tax of Rs. 75,727, Rs. 1,545 as education cess and secondary higher education cess of Rs. 613 on courier services and clearing agent as per details provided by the assessee on service tax appears to be recoverable along with interest.

The adjudicating officer was of the opinion that the assessee was not entitled to avail of such credit. He therefore, after issuance of show-cause notice and hearing the respondents passed an order dated July 31, 2008. The assessee challenged the order before the appellate authority. The Commissioner (Appeals), by his order dated March 17, 2009, dismissed the appeal upon which the assessee approached the Tribunal. The Tribunal by way of the impugned order dated July 22, 2009 allowed the appeal relying on the decision of the larger Bench of the Tribunal in the case of ABB Ltd. v. CCE and Service Tax reported in [2009] 92 RLT 665 (Trib.-Mum) [LB]. Thereupon, the Revenue has approached this court in the present tax appeal.

From the facts on record, it clearly emerges that the assessee had transported its goods from the factory through courier service. On service tax paid on such courier service, the assessee seeks Cenvat credit. The entire issue revolves around the definition of "input service" contained in rule 2(1) of the Cenvat Credit Rules, 2004. Rule 2(1) reads as under:

(1) ''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 up to the place of removal, and includes services used in relation to setting up, modernisation, 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 up to 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 up to the place of removal;

Issue of similar nature came up before this court in Tax Appeal No. 419/ 2010 Commissioner of C. Ex. and Customs Vs. Parth Poly Wooven Pvt. Ltd., , wherein the assessees were claiming credit of service tax paid on the goods transport agency ("GTA" for short) service on outward transportation of the goods beyond the place of removal relying on rule 2(1) of the Cenvat Credit Rules, 2004. This Bench framed the question in the following manner ( 422 of 12 GSTR):

Whether, in the facts of the case, the Tribunal was justified in holding that the assessee was entitled to avail of Cenvat credit on the service tax paid on GTA service on outward transportation of the goods beyond the place of removal in view of definition contained in rule 2(1) of the Cenvat Credit Rules, 2004 defining the term ''input service''?

This court by the judgment dated April 6, 2011 Commissioner of C. Ex. and Customs Vs. Parth Poly Wooven Pvt. Ltd., , after considering the statutory provisions applicable and series of decisions cited, answered the question in favour of the assessee and against the Revenue. The Tribunal''s judgment was confirmed. The tax appeals were dismissed. Reliance was placed on the definition of "input service" contained in rule 2(1) of the Cenvat Credit Rules, 2004 which was interpreted to be expansive in nature. It was observed as under ( 320 and 321 of 47 VST):

Bearing in mind the above judicial pronouncements, if we revert back to the definition of the term ''input service'', as already noticed, it is coined in the phraseology of ''means and includes''. Portion of the definition which goes with the expression means, is any service used by the manufacturer whether directly or indirectly in or in relation to the manufacture of final products and clearance of final products from the place of removal. This definition itself is wide in its expression and includes large number of services used by the manufacturer. Such service may have been used either directly or even indirectly. To qualify for input service, such service should have been used for the manufacture of the final products or in relation to manufacture of final product or even in clearance of the final product from the place of removal. The expression ''in relation to manufacture'' is wider than ''for the purpose of manufacture''. The words ''and clearance of the final products from the place of removal'' are also significant. Means part of the definition has not limited the services only up to the place of removal, but covers services used by the manufacturer for the clearance of the final products even from the place of removal. It can thus be seen that main body of the definition of term ''input service'' is wide and expansive and covers variety of services utilised by the manufacturer. By no stretch of imagination can it be stated that outward transportation service would not be a service used by the manufacturer for clearance of final products from the place of removal.

When we hold that outward transportation would be an input service as covered in the expression ''means'' part of the definition, it would be difficult to exclude such service on the basis of any interpretation that may be offered of the later portion of the definition which is couched in the expression ''includes''. As already observed, it is held in several decisions that the expression ''includes'' cannot be used to oust any activity from the main body of the definition if it is otherwise covered by the expression ''means''. In other words, the expression ''includes'' followed by ''means'' in any definition is generally understood to be expanding the definition of the term to make it exhaustive, but in no manner can the expression ''includes'' be utilised to limit the scope of definition provided in the main body of the definition. To our mind this was also not the intention of the Legislature in the present case.

The issues being similar, the present tax appeal is also required to be decided similarly relying on the above mentioned judgment dated April 6, 2011 passed in Tax Appeal No. 419/2010 Commissioner of C. Ex. and Customs Vs. Parth Poly Wooven Pvt. Ltd., and connected matters. We may notice that the nature of services used in both cases are though different. In the group of cases decided, the question was with respect to service tax paid on GTA service on outward transportation of goods. In the case on hand we are concerned with courier service utilised by the manufacturer for transportation of goods from factory and also bringing inputs into the factory. Such service would certainly be covered within the expression: any service used by the manufacturer directly or indirectly in or in relation to the manufacture of final products and clearance of final products from the place of removal: used in rule 2(1). In the result, the tax appeal is dismissed.