Services by way of hiring of vehicles to be used by employees (a) for their movement within refinery premises or (b) for outward travelling in connection with business, is eligible for input service credit
Principal Commissioner Vs. Essar Oil Ltd. [2016 65 taxmann.com 5 (Gujarat)]
Essar Oil Ltd. (“the Respondent”) has availed Cenvat credit of Service tax paid on various services, such as 'Rent-a-Cab', 'Tour Operators', and 'Travel Agent' hired by them (“the Impugned input services”) which were used by their employees for their movement within the refinery premises or for outward travelling in connection with business. However, the Department denied the Cenvat credit on the ground that the impugned input services cannot be described as having been used in or in relation to manufacturing and clearances of final products.
The Hon’ble High Court of Gujarat has held that cost of the impugned input services was borne by the Respondent which also formed a part of the value of the goods manufactured. As per Rules 2(l) of the Credit Rules, the term 'input service' would mean any service used by the manufacturer directly or indirectly in or in relation to manufacture of final products and clearance of final product from the place of removal. Hence, the Services were 'input service' and Service tax paid thereon would be available to the Respondent by way of Cenvat credit.
Here, we would like to draw your attention towards the definition of the term ‘input services’ as was prevalent prior to April 1, 2011, which specifically mentioned activities relating to business under ‘includes-clause’. However, post facto April 1, 2011, definition of the term ‘Input service’ given under Rule 2(l) of the Credit Rules was substituted vide Notification No. 3/2011-CE(NT) dated March 1, 2011, inter alia, deleting the phrase ‘activities relating to business’. Thus, limiting the wide scope of the term ‘input services’. In other words, effective from April 1, 2011, one has to be very careful while determining eligibility of any Input service under Rule 2(l) of the Credit Rules.
Further, effective from April 1, 2011, scope of wide interpretation of the term ‘input service’ has been further curtailed/ limited by inserting exclusion-clause in the stated definition, which, inter alia, excludes services provided by way of renting of a motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods under Clause (B).