Allowed

Commissioner Central Excise Commissionerate, Gurgaon v. M/S Bellsonica Auto Components India, Gurgaon

Punjab & Haryana HC16 Jul 2015CEA/58/2014

Case brief

AI extract

What is this about?

The High Court allowed the petitioner's appeal, upholding the Tribunal's decision that Cenvat Credit was admissible. The court held that civil construction services and lease rentals for factory setup fall within 'input service' definitions under Cenvat Credit Rules, 2004, enabling credit utilization.

What did the court decide?

Appeal dismissed, removing the demand, interest, and penalty; Cenvat credit restored.

Commissioner Central Excise Commissionerate, Gurgaon Vs M/S Bellsonica Auto Components India, Gurgaon — Punjab & Haryana HC (2015) — LawSathi Research

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IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

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C.E.A. No.58of2014(O&M)

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Commissioner Central Excise Commissionerate, Delhi-III

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…..Appellant

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versus

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M/s Bellsonica Auto Components India P. Ltd.

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 .....Respondents

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CORAM:- HON'BLE MR.JUSTICE S.J. VAZIFDAR, ACTING CHIEF JUSTICE HON’BLE MR. JUSTICE G.S. SANDHAWALIA

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Present: Mr. Sukhdev Sharma, Advocate for the appellant
Mr. Amrinder Singh, Advocate for the respondents

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S.J. VAZIFDAR, ACTING CHIEF JUSTICE :

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This appeal under Section 35(G) of the Central Excise
Act, 1944, challenges the order of the Customs, Excise and Service
Tax Appellate Tribunal setting aside the order of the Commissioner
disallowing the assessees/respondents Cenvat Credit in the sum of
Rs.1,45,32,300/- availed by them holding that it was availed on
inadmissible services. The Commissioner ordered recovery of
interest and also imposed a penalty of Rs.1,45,32,300/-. The matter
pertains to the period 2007-08 to 2009-10.

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2. The appeal is admitted on the following substantial

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questions of law:-

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“(i) Whether the Decision of the Tribunal was justified to
allow the Cenvat Credit of Service Tax paid on Civil
Construction service which is an input services to the
immoveable property i.e. Factory whereas the factory is
neither a service nor goods?

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ii) Whether the civil Construction can be defined as an
input under Rule 2(i) of the C C Rules, 2004 as such service

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PARKASH CHAND 2015.07.23 16:12 I attest to the accuracy and authenticity of this document

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CEA-58-2014

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has no relation to the manufacturing process or any business
activity of the Respondent?”

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3. The respondents are registered with the department. They
are entitled to avail the Cenvat Credit facilities as admissible in
law. They manufacture metal-sheet components for motor vehicles
which fall under heading No.87082100 of the Central Excise Tariff
Act, 1985. The department during an audit in the year 2010
observed that the respondents had availed Cenvat Credit for service
tax paid on civil work of constructing a plant/factory in the
premises, namely, the manufacturing plant and for rental of the
immovable property leased by them on which the plant is erected.

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4. Mr. Sukhdev Sharma, the learned counsel appearing on
behalf of the appellant, contended that the Cenvat Credit for
service tax paid on civil work and on lease rental paid by the
respondents is inadmissible. As we mentioned earlier, the
respondents manufacture metal components for automobiles and supply
the same to Maruti Udyog Limited who use the same in respect of the
automobiles manufactured by them. The respondents set up a factory
for the manufacture of this material on the land leased by them.
The respondents paid the service tax in respect of the lease rent.
The respondents set up the factory for which they availed the
service of erection, installation and commissioning engineers who
had paid the service tax in respect of the amounts paid to them.
The respondents availed Cenvat Credit in respect of the said
service tax paid.

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5. It was not contended before us that service tax was not
payable. The only question is whether the said services fall within
the meaning of the term “input service” in Section 2(l)(ii).

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PARKASH CHAND 2015.07.23 16:12 I attest to the accuracy and authenticity of this document

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CEA-58-2014

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 Rule 2(l)(ii) and rule 3(1)(ix) of the Cenvat Credit

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Rules, 2004, in so far as they are relevant, read as under:-

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“Definitions.

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2. In these rules, unless the context otherwise requires,-
(a) to (k) …… ……… …….. …..
(l) “input service” means any service,-
(i) … … …. …..
(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.”

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“CENVAT credit.

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3.(1) A manufacturer or producer of final products or a
provider of taxable service shall be allowed to take credit
(hereafter referred to as the CENVAT credit) of-
(i) to (viii) … … …. …..
(ix) the service tax leviable under section 66 of
the Finance Act;”

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6. The department contended that the said services were not
eligible for Cenvat Credit and accordingly issued show cause notice
for recovery of the credit along with interest and for imposition
of penalty. The Commissioner confirmed the demand along with
interest and imposed penalty. The Commissioner held as follows.
Though the definition of “input service” is wide, it does not cover

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services that remotely or in a roundabout way contribute to the
manufacture of the final products; that any and every connection
however remote and indirect it may be is not contemplated by the
definition of “input service” and that a line has to be drawn
somewhere to avoid undue extension of the phrases ‘directly or
indirectly’ and ‘in or in relation to’ by adopting a common sense

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PARKASH CHAND 2015.07.23 16:12 I attest to the accuracy and authenticity of this document

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CEA-58-2014

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approach. Immovable property is neither service nor goods and,
therefore, input credit cannot be taken. Although civil
construction work is a taxable service under the Finance Act, 1994,
it is basically civil in nature relatable to the immovable property
not chargeable to central excise duty. Immovable property is
neither ‘service’ nor ‘goods’. Input credit is not available to
them. Commercial or industrial construction service or works

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contract service is an input service for immovable property which
is neither subjected to central excise duty nor to service tax. In
this regard, the Commissioner referred to a CBEC Circular dated
04.01.2008. The Commissioner also held that the service tax paid
on lease rentals is not covered under the “input service” as the
same is not remotely connected to the manufacturing activity and
that the nexus thereof with the manufacture of the final product is
far-fetched as the same is not used directly or indirectly in or in
relation to the final product i.e. metal-sheet.

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7. We are entirely in agreement with Mr. Amrinder Singh’s
submission on behalf of the respondents, that the Cenvat Credit
taken of the tax paid in respect of the said input services can be
utilized by the respondents in accordance with the Cenvat Credit
Rules. Mr. Amrinder Singh rightly analysed Section 2(l) by dividing
it into two parts terming them the ‘mean’ part and the ‘includes’
part and that the present case would fall under both the parts of
the definition as the phraseology is wide enough to cover the said
services, the same being directly or indirectly or in any event in
relation to the manufacture of the respondents’ final product.

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8. The land was taken on lease to construct the factory.
The factory was constructed to manufacture the final product. The

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PARKASH CHAND 2015.07.23 16:12 I attest to the accuracy and authenticity of this document

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CEA-58-2014

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land and the factory were required directly and in any event
indirectly in or in relation to the manufacture of the final
product and for the clearance thereof up to the place of removal.
But for the factory the final product could not have been
manufactured and the factory needed to be constructed on land. The
land and the factory are used by the manufacturer in any event
indirectly in or in relation to the manufacture of the final
product, namely, metal-sheets. The respondents’ case, therefore,
falls within the first part of Rule 2(l) aptly referred to by Mr.
Amrinder Singh as the “means part”.

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9. The respondents’ case also falls within the second part
of Rule 2(l) i.e. the “inclusive” part. The definition of the words
“input service” also specifically includes the services used in
relation to setting up of a factory. Mr. Amrinder Singh rightly
contended that it was not the appellant’s case that the services
were not used for the setting up of the factory. The doubt in this
regard is set at rest by the second part of Section 2(l)(ii) which
includes within the ambit of the words ‘input service’ the setting

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up of a factory and the premises of the provider of the output
service. The inclusive definition, therefore, puts the matter, at
least so far as the payment for services rendered by the civil
contractor for setting up the factory is concerned, beyond doubt.
As the plain language of Section 2(l)(ii) indicates, the services
mentioned therein are only illustrative. The words “includes
services” establish the same. It can hardly be suggested that the
lease rental is not for the use of the land in relation to the
manufacture of the final product.

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PARKASH CHAND 2015.07.23 16:12 I attest to the accuracy and authenticity of this document

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CEA-58-2014

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10. This becomes clearer from the fact that by an amendment
of the year 2011 to rule 2(l), construction services were excluded
from the definition of “input service”. The amended section in so
far as it is relevant reads as under:-

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“(l) “input service” means any service, -
(i) .. …. …..
(ii) (A) specified in sub-clauses (p), (zn),
(zzl),(zzm), (zzq), (zzzh) and (zzzza) of clause
(105) of section 65 of the Finance Act (hereinafter
referred as specified services), in so far as they
are used for –
(a) construction of a building or a civil
structure or a part thereof; or”

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Clause 105 (zzq) of Section 65 of the Finance Act reads as under:-

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“105) “taxable service” means any service provided or to be
provided, -
……… …….. …… …..
(zzq) to any person, by any other person, in relation to
commercial or industrial construction.
Explanation.- For the purposes of this sub-clause, the
construction of a new building which is intended for
sale, wholly or partly, by a builder or any person
authorised by the builder before, during or after
construction (except in cases for which no sum is
received from or on behalf of the prospective buyer by
the builder or the person authorised by the builder
before grant of completion certificate by the authority
competent to issue such certificate under any law for
the time being in force shall be deemed to be service
provided by the builder to the buyer.”

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11. If in fact the said services were not covered by Rule
2(l), it would not have been necessary to introduce the amendment.
It is clear, therefore, that prior to the amendment the setting up
of a factory premises of a provider for output service relating to
such a factory fell within the definition of ‘input service’. The
amendment of 2011 is not retrospective and is not applicable to the
respondents’ case.

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12. Our view is supported by the judgment of a Division
Bench of the Bombay High Court in Coca Cola India Pvt. Ltd. vs.

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PARKASH CHAND 2015.07.23 16:12 I attest to the accuracy and authenticity of this document

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CEA-58-2014

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Commissioner of C. Ex., Pune-III, 2009 (242) E.L.T. 168 (Bom.). The

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Division Bench construed Section 2(l) as follows:-

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“39. The definition of input service which has been
reproduced earlier, can be effectively divided into the
following five categories, in so far as a manufacturer is
concerned:

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(i) Any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products

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(ii) Any service used by the manufacturer whether directly or indirectly, in or in relation to clearance of final products from the place of removal

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(iii) Services used in relation to setting
up, modernization, renovation or
repairs of a factory, or an office
relating to such factory,

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(iv) Services used in relation to advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs,

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(v) Services used in relation to activities relating to business and outward transportation upto the place of removal;

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Each limb of the definition of input service can be
considered as an independent benefit or concession
exemption. If an assessee can satisfy any one of the limbs
of the above benefit, exemption or concession, then credit
of the input service would be available. This would be so
even if the assessee does not satisfy other limb/limbs of
the above definition. To illustrate, input services used in
relation to setting up, modernization, renovation or
repairs of a factory will be allowed as credit, even if
they are assumed as not an activity relating to business as
long as they are associated directly or indirectly in
relation to manufacture of final products and
transportation of final products upto the place of removal.
This would follow from the observation of the Supreme Court
in Kerala State Cooperative Marketing Federation Ltd. and
Ors. Vs. Commissioner of Income-tax 1998 (5) SCC 48, which
is as under:

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7. We may notice that the provision is
introduced with a view to encouraging and
promoting growth of co-operative sector in the
economic life of the country and in pursuance
of the declared policy of the Government. The
correct way of reading the different heads of
exemption enumerated in the section would be
to treat each as a separate and distinct head
of exemption. Whenever a question arises as to

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PARKASH CHAND 2015.07.23 16:12 I attest to the accuracy and authenticity of this document

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CEA-58-2014

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whether any particular category of an income
of a co-operative society is exempt from tax
what has to be seen is whether income fell
within any of the several heads of exemption.
If it fell within any one head of exemption,
it would be free from tax notwithstanding that
the conditions of another head of exemption
are not satisfied and such income is not free
from tax under that head of exemption.”

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We are in respectful agreement with the judgment of the

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Bombay High Court.

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13. We approve the findings of the Tribunal as well as the
basis on which they have been arrived at. The Tribunal rightly did
not agree with the Commissioner’s findings that the services in
question had been used for brining into existence an immovable
property and not for the manufacture of the final product. The said
services cannot be said to be remotely connected to the final
product as observed by the Commissioner.

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14. In the circumstances, the questions of law are answered
against the appellant and in favour of the assessees/respondents.
The appeal is dismissed.

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(S.J. VAZIFDAR) ACTING CHIEF JUSTICE

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16.07.2015
parkash*

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 (G.S.SANDHAWALIA)
JUDGE

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Note: Whether reportable: YES

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PARKASH CHAND 2015.07.23 16:12 I attest to the accuracy and authenticity of this document

Commissioner Central Excise Commissionerate, Gurgaon v. M/S Bellsonica Auto Components India, Gurgaon

Case brief

What is this about?

What did the court decide?

Commissioner Central Excise Commissionerate, Gurgaon v. M/S Bellsonica Auto Components India, Gurgaon

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

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