Bank Charges in relation to business of manufacture and export of goods, whether pertaining prior to manufacture or after manufacture, are eligible for credit under rule 2(l) or refund under Notification No. 17/2009-ST
CESTAT, MUMBAI BENCH
Commissioner of Central Excise, Puna-I
Rosy Blue (India) (P.) Ltd.
AND C.J. MATHEW, TECHNICAL MEMBER
ORDER NOS. A/3120-3126/2015/STB AND S/440-446/2015/STB
APPLICATION NO. ST/STAY-91472 TO 92478/2015
APPEAL NO. ST/85337 TO 85343/2015
AUGUST 28, 2015
S.V. Nair, Asstt. Commissioner (AR) for the Appellant. Bharat Raichandani, Adv. for the Respondent.
M.V. Ravindran, Judicial Member – These appeals arc filed by the Revenue against Order-in-Appeal No: PD/786 to 792/ST-I/2014, dated 25/09/2014 passed by the Commissioner of Central Excise (Appeals). Mumbai IV.
2. Revenue has also preferred stay petitions against the impugned order which has allowed the appeals filed by the respondent-assessees and sanctioned them the refund of the amounts. The stay petitions are disposed of as we are disposing of the appeals on merits.
3. Heard both the sides and perused the records.
4. The issue involved in this case is regarding refund of the amount of service tax paid on input service i.e. ‘banking and financial services’ and ‘technical inspection and certification services’. The respondent’s are engaged in the business of import of rough diamonds and manufacture and export of cut and polished diamonds and is a star trading house. The respondent submitted from time-to-time various applications for refund of CENVAT credit which were in respect of service tax paid on ‘clearing and forwarding services’ and ‘banking and other financial services’, ‘technical inspection and certification services’ and ‘general insurance service’. The adjudicating authority has rejected the refund claim filed by the appellant. On appeal, the first appellate authority has upheld the adjudicating authority’s order as to rejection of refund claims in respect of general insurance services and amount for appeal was withdrawn by the appellant, but set aside the impugned order in respect of the non-sanctioning of refund on ‘banking and other financial services’ and ‘technical inspection and certification services’.
5. Learned Departmental representative would draw our attention to the findings recorded by the adjudicating authority and also the grounds of appeals. It is his submission that the refund claims are filed as per Notification 17/2009-S.T. and the said provisions are very specific and there is no scope for allowing refund of CENVAT credit pertaining to those services which were utilised by the respondents for their imported goods. It is his submission that the respondent imported the rough diamonds and the amounts on which service tax was paid by the banks and technical inspection and certification services were also in respect of the imports so made. After making this submission he would draw our attention to the provisions of Notification 17/2009-ST and submit that the said Notification talks about the services received and used for export of goods while the CENVAT credit availed is in respect of the services which were rendered for import of goods also. It is his submission that the Notification 17/2009-ST is an exemption Notification and needs to be strictly followed. It is his submission that in certain cases input invoices could not be correlated with the export documents. He would also draw our attention to the fact that details of the service tax paid on these two services is also in respect of the items which were not in relation to the export like insurance was in respect of furniture and fixtures, local sales, etc.
6. Learned counsel appearing on behalf of the respondent would submit that there is no dispute as to the fact that there were exports of the manufactured diamond jewellery by the appellant and for that purpose they had imported the rough diamonds. It is his submission that the services which are rendered by the banking and other financial services is in respect of the business activity of the respondent of import and export of diamonds and the issue is now squarely covered by the decision of the Tribunal in the case of CST v. Convergys India (P.) Ltd.  21 STT 67 (New Delhi – CESTAT). He would also submit that this bench of the Tribunal in the case of KAPIT Cummins InfoSystems Ltd. v. CCE  43 GST 266/ 38 taxmann.com 340 (Mum. – CESTAT) has also held that any services rendered for the export of goods or services are eligible for refund as per the provisions. He would also submit that the Hon’ble High Court of Bombay in the case of Oil & Natural Gas Corpn. Ltd. v. CCE,ST & C  32 taxmann.com 141 (Bom.) has clearly stated that as to the meaning of the expressions “directly or indirectly” and “in or in relation to” has wide import and the service need not be a service which is directly used in manufacture of final product. He would also submit that Hon’ble Supreme Court in the case of Oblum Electrical Industries (P.) Ltd. v. Collector of Customs 1997 taxmann.com 507 has also asserted that the explanations to Notification must be so construed as not to eliminate the distinction between the words and should be construed keeping in view the object and purpose of the exemption Notification. It is his submission that this Tribunal in the case of Meghmani Dyes & Internationals Ltd. v. CCE [Final Order No. A/2078/2011-WZB/Ahd, dated 22-11-2011] has held banks charges paid in relation to the purchase of raw materials and sale of finished goods relatable to manufacture and hence CENVAT credit can be availed of the service tax paid on such
7. We have considered the submissions made at length by both the sides. On a perusal of the records we do find that the issue is very narrow in compass and the facts are not in much dispute inasmuch as the respondent is an importer of rough diamonds, exports the same after cutting and polishing and also manufactured jewellery. For the purpose of exporting the jewellery and cut and polished diamonds, the respondent used various input services and two of the services which are in dispute are the ‘banking and financial services’ and ‘technical inspection and certification service’. We find that the Revenue’s contention in these appeals that the service tax paid on ‘banking and other financial services’ and ‘technical inspection and certification services’ cannot be correlated to the export of goods manufactured by the respondent and that the services arc also in respect of the rough diamonds imported, are totally baseless. We find that when there is no dispute as to the facts that the respondent had utilised the imported rough diamonds for the purpose of exporting the same after cutting, polishing and manufactured jewellery out if it. In our considered view, the respondent is engaged himself in the business of export of the goods which entitles him to avail CENVAT credit of the various services which are used for rendering the goods exportable. In the case in hand, we find that the banking services are utilised by the respondent for raising finance for import as well as for the purpose of export of the goods manufactured by him. In our view, the interpretation put forth by the learned departmental representative and by the Revenue in the grounds of appeal of Notification 17/2009-ST are very narrow, cannot be accepted. This our above view is fortified by the judgment of the Tribunal in the case of Convergys India Services (P.) Ltd. (supra) wherein this bench at paragraph Nos. 6 and 7:
“6. From the above, it is clear that there can not be two different yardsticks, one for permitting credit and the other for eligibility for granting rebate. Whatever credit has been permitted to be taken, the same are permitted to be utilised and when the same is not possible there is provision for of refund or as rebate. Without questioning the credit taken, the eligibility to rebate can not be questioned.
7.1 In common parlance, if the cost of such and services becomes part of the cost of the final product or the cost of the output services, as the case may be, then they are understood as input and input services in relation to said final products or the output services.”
8. The Hon’ble High Court Bombay in the case of ONGC (supra) in paragraph 13 laid down the law as to what should be construed of the expression ‘input services’ as defined under CENVAT Credit Rules. We reproduce the said paragraph.
“13. The Appeal before the Court raises a question of construction of the Cenvat Credit Rules. 2004. Under Rule 3(1) a manufactures or producer of final products or a provider of taxable service is allowed to take Cenvat credit inter alia of the duty of excise specified in the First and Second Schedules to the Central Excise Tariff Act, paid on the following:—
|(i)||any input or capital goods received in the factory of manufacture of final product or premises of the provider of output service on or after the 10th day of September, 2004; and|
|(ii)||any input service received by the manufacturer of final product or by the provider of output services on or after the 10th day of September, 2004.” (Emphasis Supplied)|
In the present case, it is clause (ii) which is of relevance. Hence, in order to enable a manufacturer to avail of Cenvat credit, the requirement is that the duty of Excise ought to have been paid on any input service received by the manufacturer of a final product. The expression “input service” is defined in Rule 2(1) as follows:—
‘(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 upto the place of removal,|
and includes services used in relation lo 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 or removal.” (Emphasis Supplied)
Here again, clause (ii) is of relevance. Under clause (ii) of Rule 2(1), the expression ‘”input service” is defined in broad terms. In order to be an input service under clause (ii), the following requirements must be satisfied. Firstly, the expression requires the utilisation of “any service”; secondly, the service must be used by the manufacturer; and thirdly, the service may be used, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal. The expression “directly or indirectly” has a wide import. The service, in other words, need not be a service which is directly used by the manufacturer in the manufacture of a final product. The definition of “input service” comprehends within its sweep a service which is used by the manufacturer even indirectly, and in or in relation to the manufacture of a final product. Where the legislature or its delegate uses the expression “in or in relation to” its object and purpose is to widen the scope and purview of the entitlement. When the words “directly or indirectly” and “in or in relation to the manufacture of final products” are used in conjunction that is indicative of the comprehensive sweep and ambit of the statutory provision. Rule 6(1) stipulates that no Cenvat credit shall be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or for provision of exempted services, save in the circumstances which are mentioned in Rule 6(2). Rule 6(2) deals with a situation where inter alia a manufacturer manufactures both dutiable final products as well as exempted goods. In such a situation, in order to avail of Cenvat credit, the manufacturer is required to maintain separate accounts for the receipt, consumption and inventory of inputs and input services meant for use in the manufacture of dutiable final products and the quantity of inputs meant for use in the manufacture of exempted goods. Rule 6(2) stipulates that a manufacturer can take Cenvat credit only on that quantity of input service which is intended for use in the manufacture of dutiable goods. In other words, Cenvat credit is not admissible on that quantity of input or input service which is not intended for use and is not used in the manufacture of dutiable goods. Rule 6(5) confers an option to follow one of two courses of action to a manufacturer not opting to maintain separate accounts. Under Rule 6(5), which has a non-obstante provision overriding sub-rule (1), (2) and (3) credit of the whole of the service tax paid on taxable services of a specified description is allowable unless such a service is used exclusively in or in relation to the manufacture of exempted goods or provision of exempted services. In other words, where a service is of the description which is specified in Rule 6(5). the manufacturer is entitled to credit of the whole of the service tax unless the service is used exclusively, that is to say solely in or in relation to the manufacture of exempted goods or any provision of exempted services.’
9. We also find a strong force in the contention raised by the learned counsel that the Tribunal in the case of Meghmani Dyes & Intermediates Ltd. (supra) has held that definition of ‘input service’ on the banking charges has to be allowed as they are in relation to the business of manufacture whether the same is prior to manufacture or after manufacture. The said ratiowould also apply in the case in hand.
10. In view of the foregoing, we hold that the impugned order is correct and legal and does not suffer from any infirmity. The appeals are devoid of merits and accordingly rejected.