Dy. General Manager (Finance) @APPELLANT @Hash Commissioner of Customs & Central Excise @RESPONDENT

Dr. Rachna Gupta, J

The appellants are engaged in manufacture of transformers, parts of electric motors etc. They are also engaged in providing business auxiliary service, erection, commissioning and installation service, maintenance repair service, renting of immovable service etc. During the scrutiny of the trial balance/ledgers of the appellant for the year 2016-17 and 2017-18 (upto June 2017), the department observed that the appellant has shown to have received the freight insurance income of Rs.64,91,38,744/- in the year 2016-17 and Rs.13,86,74,606/- for the year 2017-18. The appellant informed that those amounts have been received for providing transportation facility to various clients under a contract entered into with them. On further perusal of their records, department also observed that an amount of Rs.49,05,43,655/- has also been received by the appellant on account of carriage outward inland sales and Rs.83738742/- for the year 2017-18. The said amount was informed to be an expenditure made towards transportation of goods for their clients on which the service tax under GTA services, as per reverse charge mechanism, has already been paid. With respect to receiving the freight charges, the appellant have submitted that the activity of transporting goods by road fall under negative list of section 66D of Finance Act, 1994. Hence there arises no service tax liability on the appellant qua the said amount. However, alleging the said activity as the taxable activity of goods transport agency, the department has proposed the recovery of service tax amounting to Rs.32,79,01,937/- for the period 2016-17 and 2017-18 (upto June, 2017) from the appellant vide the Show Cause Notice No.24/2018-19 dated 12.10.2018. In addition, the appellant is also denied entitled for the availment of Cenvat Credit amounting to Rs.9,17,113/- on the input services of hiring of water tankers, mechanized canteen cleaning, catering services and short term accommodation hotel services. The said proposal has been confirmed vide the Order-in-Original No.33/2019 dated 24.06.2019. Being aggrieved, the appellant is before this Tribunal.

We have heard Shri Z.U. Alvi, ld. Counsel for the appellant and Shri Manoj Kumar and Shri S.K. Meena, Authorised Representatives for the Department.

Ld. Counsel for the appellant has mentioned that appellant entered into contracts with PSUs like NHPC, NTPC & its subsidiaries. The contracts are:

(i) Contract for supply of project equipment FOR

(ii) Contract for transportation of ordered equipment from BHEL works to project site including transit insurance on lump sum basis.

(iii) Contract for site erection, commissioning and trial run.

It is mentioned that vis-à-vis first contract the same is not the subject matter of service tax liability. With respect to 3rd contract, appellant has already paid the service tax. It is only the amount received for facilitating freight and insurance which is in dispute. Ld. Counsel submitted that the appellant not being Goods Transport Agency (GTA) is transporting goods by road. Though partially the appellant has employed GTAs for the purpose, but in those cases the appellant has discharged the service tax liability under Reverse Charge Mechanism (RCM) and has taken credit of such service tax paid in their Cenvat account at appropriate percentage in terms of Rule 6 (3) of Cenvat Credit Rules, 2004. However, as the appellant is simultaneously being transporting goods by road itself, not being GTA, the activity is non-taxable service. Resultantly, there remains no liability upon the appellant. The original authority has wrongly confirmed the demand on this count. Order is therefore liable to be set aside to the said effect.

With respect to disallowance of availment of Cenvat Credit on input services it is mentioned that the services in question have been received by the appellant in terms of the statutory mandate under Factories Act 1948. The strength of workers in appellant’s factory is more than 250, hence, appellants are bound under the Factories Act to make provisions for cleanliness, drinking water facilities for sitting and canteens. Ld. Counsel has also brought to the notice that identical show cause notices have also been issued to the appellant’s sister units involving the same contracts but the demands proposed have already been dropped with respect to various other units of the appellants. The Order-in-Appeal dated 27.05.2020 with respect to Jhansi Unit and the order dated 18.07.2018 with respect to Hyderabad Unit has been impressed upon. Finally submitting that there is no suppression of fact as is alleged by the department, the order under challenge is prayed to be set aside and the appeal is prayed to be allowed.

While rebutting these submissions, ld. DR has mentioned that the appellants have wrongly claimed the amount received by them towards facilitation of freight and insurance as an amount received towards the service mentioned under negative list. As per the contracts executed by the appellants, the appellant has made provision for transportation including services of Port clearance and Port charges, insurance, delivery at site, receipts, unloading, handling, storage and implant transportation at site to their clients for consideration as a facilitator to provide services. Therefore the services provided by them are classifiable under taxable services defined in section 65 B (44) of Finance Act, 1994. With respect to the denial of Cenvat credit amounting to Rs.9,17,113/- ld. DR has mentioned that none of the services on which the Cenvat Credit has been availed qualifies to be called as Input Services. The definition in rule 2 (l) of Cenvat Credit Rules 2004 is impressed upon. The discussions and findings of the original order are being reiterated and the appeal is prayed to be dismissed.

Having heard the rival contentions and perusing the entire record, we observe that the appellant has entered into work contracts with power utilities both in Government, joint venture and private sector for supply of goods manufactured by them upto the destination. The appellants are thus bound to render the service of transportation of all the contracted goods duly ensured upto the site on payment of lump sum value of the transportation contract. To perform their part of transportation the appellant engaged the approved goods transport agencies insuring transportation of the contracted goods upto the site besides covering the transit risk under their open policy. We observe that there is no denial to the fact that towards the liability to pay service tax on GTA Service as fastened upon the appellant under RCM has been duly discharged by the appellant and ST – 3 returns to this effect to have also been filed.

However, with respect to the activity of transportation of goods by the appellant themselves, we observe that the appellant admittedly is not a Goods Transport Agency. We also observe that with effect from 1st July, 2012 the concept of nomenclature of services has been done away and every activity has been made taxable except those which are mentioned in section 66 D of the Finance Act (Amendment Act of 2012). The period in question is post said amendment. Hence in light of the above facts section 66D is perused. We observe that sub-clause (p) of Section 66 D records the services by way of transportation of goods by road except the services of :

(i) A Goods Transport Agency

(ii) A Courier Agency.

Since admittedly the appellant is neither the GTA, nor the Courier agency hence, the activity of transportation of goods by road by them is well covered under the aforesaid provision. The amount in question is an amount towards facilitation of freight and insurance by the appellants themselves. The said perusal of section 66 D (p) in itself is sufficient to hold that the service tax on the said amount has wrongly been demanded. The order to that extent is therefore liable to be set aside.

Coming to the issue of demand of reversal of Cenvat credit on the services of hiring of water tankers, mechanized canteen cleaning, catering services, we observe that as per section 11 of the Factories Act 1948, cleanliness is the statutory mandate for every factory. Section 18 of the Act requires every factory having more than 250 workers to have proper provision for cool drinking water during hot weather. Even the place where drinking water is made available is statutorily required to be six meters away from any washing place, Urinal, open drain or any other source of contamination. Section 44 of the Act requires every factory owner to make suitable arrangements for sitting of all workers obliged to work in standing position and even for all other workers engaged in a particular manufacturing process or working in a particular room. Section 46 of Factory Act requires the existence of canteen in the factory and the cleanliness thereof. In the light of the above discussed statutory mandate the services of hiring of water tankers having mechanized canteen cleaning and that of catering services, to our opinion are the eligible input services. Hence we hold that the Cenvat credit of Rs.9,17,113/- has wrongly been denied to the appellant.

To appreciate the eligibility of Cenvat vis-a-vis the said said services we have perused the definition of input services in Rule 2(l) of CCR, 2004. The said definition has two parts one has inclusive clause and other has the exclusion clause.

Meaning of “Includes”

The inclusive part of the definition cover input services used ‘ in relation to’ various activities. Definition are ‘inclusive’ or ‘exhaustive’. If the definition use the world ‘means’ it means that its restrictive and exhaustive. However if the word ‘includes’ is used in the definition it means that it is not exhaustive but inclusive. [CCE v. Bakelite Hylam reported as (1998) 3 SCR 631 (SC)],

Meaning ‘in relation to’

The word in relation to is very broad expression and is word of comprehensiveness which might have both a direct or indirect significance depending on the context. They are not the word of restrictive content. [State of Karnataka v. Azad Coach Builders reported as 2006 (3) SCC 338 SC]

Services such as outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession have been specifically excluded from the definition of input services. However, this exclusion is only when such services are used primarily for personal use or consumption of any employee. Like mobile phone to employee for business purpose is allowed. Club membership fees of director who is not employee should be eligible. Corporate club membership [without any name of employee] shall be eligible .

Meaning of ‘such as’

The exclusion clause uses the word ‘such as’ . The word such as are used only to illustrate the scope. It is not restrictive. Such as means for ‘example’ [CCE v. JK Cement Works [2009], TTK Pharma Ltd v. CCE [ 1993]

In the present case the services like hotel accommodation etc. were for the personnel called for imparting training to the employees of the appellants. Hence it is clear that services were not meant for personal use of the employee. We hold that the credit of these services has been rightly availed.

The credit on short term accommodation/hotel services was with respect to the visits in factory for inspection and witnesses of the test on the goods ordered by the customers for giving certificate of acceptance. Hence, the expenditure was directly related to the manufacture of goods and rendering of services by the appellant. Resultantly, the denial of availment of Cenvat Credit is not sustainable. The order to this extent is also liable to be set aside. In the light of entire above discussion the Order in Original/ Order under challenge is set aside. Consequent thereto the appeal is hereby allowed.

[Pronounced in the open Court on 27/11/2024]