CESTAT questions very definition of 'input Services'
A single Member Bench of the CESTAT, Chennai has passed a landmark judgement questioning the very definition of ‘input service' under the CENVAT Credit Rules. The Hon'ble member held that, “the definition of input service under the CENVAT Credit Rules which includes "activities relating to business" cannot be interpreted to include an activity which is a post-manufacturing activity. It is also settled law that rules framed by the Central Govt. have to conform to the rule making powers contained in the statute, in this case under Section 37(2) of the Central Excise Act, 1944.”
The issue before him was whether credit can be denied because debit notes are not eligible documents. Even the Show Cause Notice had not questioned the eligibility of the services as input services.
The Hon'ble Member held that “The services which are used by the manufacturer subsequent to completion of the manufacturing and for sale of the goods cannot, therefore, be considered as input service in or in relation to manufacture.” And he remanded the matter to the Adjudicating Authority to examine as to whether the impugned services can be considered to be eligible input services under the CENVAT Credit Rules read with enabling powers contained under Section 37(2) of the Act after issuing notice to the appellants.
Now the moot question is can Tribunal decide on an issue which was not raised before it at all?
Judicial precedent is that Tribunal cannot decide an issue which is raised for the first time before it.
In Warner Hindustan Ltd vs. CCE, Hyderabad - , the Apex Court observed that it is impermissible for the Tribunal to consider a case that is laid for the first time in appeal because the stage for setting out the factual matrix is before the authorities below.
In M/s SACI ALLIED PRODUCTS LTD., U.P. v COMMISSIONER OF CENTRAL EXCISE, MEERUT - , the Apex Court held, “It is thus seen that the Tribunal has gone totally beyond the show cause notice and the order of the Collector, which is impermissible. The appellate Tribunal cannot sustain the case of the Revenue against the appellants on a ground not raised by the Revenue either in the show cause notice or in the order.”
The settled LAW is that Tribunal cannot go beyond the Show Cause Notice.
It did not end in Chennai but had its ripples in Bangalore. It seems when identical issues were heard in Bangalore recently, the Chennai bomb exploded and the stunned lawyers in Bangalore had to run for cover.
Now if the Tribunal has the last word, the whole definition of input service will undergo a metamorphosis. Now the input service includes, among others:-
1. 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,
2. advertisement or sales promotion,
3. market research,
4. activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security.
Now Credit will be denied if all these activities are not proved to be performed before manufacture of each consignment leaving the factory.
A very senior and highly respected lawyer called me up early Friday and agitatedly told me about this case and told me “once upon a time we used to urge the Tribunal to decide following the constitutional mandate; now we have to request them to limit to the statute which created them.”
Though it is a little belated, once we had this important order, we couldn't wait to hold it on till tomorrow.
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