CESTAT, MUMBAI BENCH

Colgate Palmolive (I) Ltd.

v.

Commissioner of Central Excise, Mumbai

MS. JYOTI BALASUNDARAM, VICE PRESIDENT AND K.K. AGARWAL, TECHNICAL MEMBER

STAY ORDER NO. S/208 OF 2007/WZB/C-I/(EB)

APPLICATION NO. E/S/260 OF 2007

APPEAL NO. E/174 OF 2007

MARCH 21, 2007

input service

Rule 2(l), read with rule 6, of the Cenvat Credit Rules, 2004 - Input service - Whether services referred to in inclusive definition of ‘input services’ under rule 2(l) have to be used in or in relation to manufacture of final product and inclusive definition only suggests that some services which may seemingly not appear to be used in relation to manufacture of final product would nevertheless be deemed to be so used - Held, yes - Whether plea that services referred to in inclusive definition of ‘input services’ under rule 2(l) need not be used in or in relation to manufacture of final product, prima facie, could not be agreed with - Held, yes - Whether once input service itself has been defined as being service used in or in relation to manufacture of final product, words ‘input service’ wherever it occurs will mean ‘service used in or in relation to manufacture of final product’ and not otherwise - Held, yes - Assessee had availed and utilized Cenvat Credit on certain common input services which were being used for manufacture of both dutiable as well as exempted product, e.g., advertisement services, market research services, manpower recruitment services, clearing house agent services, goods transport agency services, maintenance or repair services, etc. - Since assessee had not maintained separate account of services used in manufacture of dutiable final and exempted products nor it had paid 10 per cent of value of exempted goods, a show-cause notice was issued proposing to deny credit availed on common input service - Assessee submitted that common input services on which credit was sought to be denied were covered by inclusive definition of input services under rule 2(l) and, therefore, irrespective of fact whether they were used in or in relation to manufacture of final product, credit could not be denied - Whether assessee had not made out prima facie case for complete waiver of pre-deposit and, therefore, it was to be directed to deposit a part of amount of duty - Held, yes [Para 8]

>> Facts

There were certain common input services which were being used by the assessee for the manufacture of both dutiable as well as exempted product, e.g., advertisement services, market research services, manpower recruitment services, clearing house agent services, goods transport agency services, maintenance or repair services, etc. The invoice in respect of those services was raised in the name of the head office which was making the necessary payment and taking the credit of service tax paid in respect of such services. This service tax was then distributed to units. The department contended that since services were used in respect of both exempted and dutiable products, the assessee was liable to maintain separate account of the services used in the manufacture of dutiable final and exempted products and in the absence of the same, it was required to make payment equal to 10 per cent of the total price excluding sales tax and other taxes on the exempted final product at the time of clearance of fully exempted final products in terms of rule 6(3). Since the assessee neither maintained a separate account nor paid 10 per cent of the value of the exempted goods, a show-cause notice was issued proposing to deny the credit availed on common input service.

On appeal, the assessee submitted that common input services on which credit was sought to be denied were covered by inclusive definition of input services under rule 2(l) and, therefore, irrespective of the fact whether they were used in or in relation to the manufacture of final product, the credit could not be denied. Alternatively, the assessee made a plea under rule 6 stating that the services provided by it could not be considered to be used in relation to the manufacture of final exempted product as they were meant only for the purpose of promoting sales and establishment expenses, audit, etc., and, therefore, credit on such services could not be denied.

On appeal :

>> Held

The plea that the services referred to in the inclusive definition of ‘input services’ under rule 2( l) need not be used in or in relation to the manufacture of final product, prima facie, could not be agreed with. The services have to be used in or in relation to the manufacture of final product and inclusive definition only suggests that some services which may seemingly not appear to be used in relation to the manufacture of final product would nevertheless be deemed to be so used. Rule 6(4) seeks to deny Cenvat credit on capital goods which are used exclusively in the manufacture of exempted goods and Explanation III to rule 6(3) also provides that credit shall not be allowed on inputs and input services used exclusively for the manufacture of exempted goods. Surely, it could not be the applicants’ case that even in respect of service used exclusively for manufacture of exempted goods, services which are used in relation to manufacture of exempted goods would nevertheless be entitled to credit. Once input service itself has been defined as being service used in or in relation to the manufacture of final product, the words ‘input service’ wherever it occurs will mean ‘service used in or in relation to manufacture of final product’ and not otherwise. [Para 7]

In view of above, no prima facie case for complete waiver of pre-deposit had been made. Taking into account all the facts, the applicant was to be directed to deposit Rs. 50 lakhs towards duty and on such deposit there would be waiver from the pre-deposit of the balance duty and penalty imposed and recovery thereof stayed till disposal of the appeal. [Para 8]