[Order]. - This case was heard at length on 2-6-2009 and 4-6-2009. It is coming up again for consideration of certain decisions which the learned JCDR and the learned counsel wanted to rely on. The learned JCDR representing the appellant has relied on Ponds India Ltd. v. CTT, Lucknow - (S.C.) while the learned counsel for the respondent has claimed support from Lucknow Development Authority v. M.K. Gupta - (1994) 1 SCC 243 as also from Bombay Woollen Mills Pvt. Ltd. & another v. UOI & Others - (Bom.). The counsel has also referred to the Draft Credit Rules issued by the Ministry of Finance on 12-8-2004.
2. In adjudication of two show-cause notices, the original authority had disallowed Cenvat credit on security service to the assessee for two different periods under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11 of the Central Excise Act. It had also ordered for recovery of interest under Section 11AB of the Act, besides imposition of penalty on the assessee under Rule 15 of the aforesaid Rules. Aggrieved by the orders of adjudication, the assessee preferred appeals to the Commissioner (Appeals) and the latter allowed the same. Hence the present appeals of the Revenue.
3. The short question arising for consideration is whether the lower appellate authority is right in having allowed to the assessee Cenvat credit of the service tax paid on security service received in the off-factory residential colony belonging to the assessee. According to the Revenue, the above service is not an “input service” within the ambit of its definition given under Rule 2(l) of the Cenvat Credit Rules, 2004 inasmuch as it does not meet the requirements of the main part of the definition. On the other hand, the respondent would say that, ‘‘security” having been specifically mentioned in the inclusive part of the definition of “input service”, Cenvat credit thereon is admissible to them. In this scenario, a decision in this case will revolve around correct interpretation of the definition of “input service”. This definition reads as follows :-
“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 from 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”.
The respondent is a manufacturer of excisable goods. Insofar as they are concerned, any service used by them, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the factory (place of removal) is an “input service” for purposes of Cenvat credit. According to the inclusive part of the definition, certain services used in relation to setting up, modernization, renovation or repairs of a factory or an office relating to such factory etc. will also be eligible for Cenvat credit. Further, activities relating to business such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry and security are also eligible for Cenvat credit according to the inclusive part of the definition. The word “security” appears in the company of activities relating to business and, therefore, it needs to be construed ejusdem generis with the expressions immediately preceding thereto. Provision of security at the residential colony does not appear to be one of the activities relating to business. In any case, the respondent has not been able to establish any nexus between such security and their business of manufacturing and clearing excisable products. The learned counsel has relied on the High Court’s decision in Bombay Woollen Mills Pvt. Ltd. (supra) which is to the effect that the inclusive part of a definition is not normally a part of its main part and, therefore, resorting to the main part (first part) of the definition in a case to which the inclusive part is applicable is wholly irrelevant. This view taken by a learned single Judge of the High Court is not in keeping with the ruling rendered by the Apex Court in Ponds India Ltd. case (supra). The Hon’ble Supreme Court, in the context of dealing with the definition of “cosmetic” under Section 39 of the Drugs and Cosmetics Act, 1940 and the definition of “drug” under another provision of the same Act, held that, when a definition clause employed the word “means and includes”, it would afford an exhaustive explanation to the meaning which, for the purposes of the Act, must invariably be attached to the word or expression. The Court further held that, in such a definition, the word “includes” is extensive or explanatory. Even in the case of Lucknow Development Authority (supra) cited by the learned counsel, it was held that the word “includeds” was very generally used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the statute. Their Lordships were examining the definition of “consumer” which had a main part following the word “means” and an inclusive part following the word “includes”. It appears to me that the only view which could be taken in the light of the judgments of the Supreme Court cited before me is that the services mentioned in the inclusive part of the definition of “input service” have also to satisfy the parameters laid down in the main (general) part of the definition. The two parts are not independent of each other. In this view of the matter, the judgment of the Hon’ble High Court should be held to have been impliedly overruled by the Supreme Court.
4. Even otherwise, on application of the rule of ejusdem generis, security, where it is provided in a place and for a purpose unconnected with the business activities of the manufacturer, would not qualify to be an “input service” within the horizons of the inclusive part of the definition even without reference to its main part. The learned counsel has claimed support from the Draft Credit Rules dated 12-8-2004. He has particularly relied on the following paragraph :-
“In principle, credit of tax on those taxable services would be allowed that go to form a part of the assessable value on which excise duty is charged. This would include certain services which are received prior to commencement of manufacture but the value of which gets absorbed in the value of goods. As regards services received after the clearance of the goods from the factory, the credit would be extended on services received upto the stage of place of removal (as per Section 4 of Central Excise Act). In addition to this, services like advertising, market research etc. which are not directly related to manufacture but are related to the sale of manufactured goods would also be permitted for credit.”
If the principle of allowing Cenvat credit on taxable services is decipherable from the above paragraph, I note that it covers three cases. Firstly, services which are received prior to commencement of manufacture but the value of which gets absorbed in the value of goods. Secondly, services received after the clearance of the goods from the factory where such services are received up to the stage of place of removal. Thirdly, services like advertising, market research etc., which are not directly related to manufacture but related to sale of manufactured goods. The respondent’s case does not fall in any of these categories.
5. In the result, the orders of the lower appellate authority granting Cenvat credit to the assessee in respect of security services arranged by the company in the off-factory residential colony cannot be sustained and the same are set aside to the extent the above benefit was given. At this stage, the learned counsel has prayed for setting aside the penalties imposed on the respondent by the original authority. As this prayer arises in the nature of conceding the legal position with regard to admissibility of Cenvat credit on security services of the above nature, I have given my careful consideration to this prayer. The learned counsel has also submitted that, even otherwise, no penalty is liable to be imposed on the assessee in the facts and circumstances of this case, wherein the substantive issue arose for consideration on the basis of interpretation of the relevant provisions of the Cenvat Credit Rules. I have heard learned JCDR also on this point. I have found force in the submission of the learned counsel that the assessee shall not be penalised at the end of interpretation of a provision of law in favour of the Revenue. Therefore, the penalties are set aside. The orders of adjudication will stand restored save in respect of penalties.
(Pronounced in Court)