As per the CENVAT Credit Rules, 2017 “input” means excisable goods used in the factory by the manufacturer of the final product but excludes high speed diesel oil or motor spirit, commonly known as petrol.
The definition of ‘input serve’ is extensive. XYZ is a Company and manufactured branded goods in their factory premises and cleared the same on payment of central excise duty to their own retail outlets. For manufacture of such branded goods, the said unit availed Cenvat credit of the duty paid on the inputs and also on the input services. They can avail Cenvat credit under Rule 3 of the Cenvat Credit Rules, 2004 on input services like sale promotion, retail agent’s commission, selling agent commission, advertising expenses, clearing and forwarding charges, telephone and internet, courier and postage charges etc. The said unit manufactured by them branded goods i.e. garments, footwear etc. were cleared from their factory premises to the retail shops/showroom which are owned by them. The goods are sold from depot, retail shops, showroom or place of consignment agent, that will be ‘place of removal’ as per section 4(3)(c)(iii). In such case, transport, handling and insurance charges and other expenses upto depot or place of consignment agent will be includable value as depot/showroom or place of consignment agent is ‘place of removal’ where sale takes place. The own showrooms and the clearance which took place from their manufacturing premises is only inter depot or inter showroom transfer.
The definition of input services in the Cenvat Credit Rules to submit that all the services which are used by the manufacturer whether directly or indirectly till the place of removal are eligible as input service credit. It is submission that there is no dispute as regards the retail shops/showroom being considered as a place of removal.
For the proper appreciation of the said provisions we read the definition of the input services as given in Rule 2(1) of the Cenvat Credit Rules, 2004:
(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 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 on office relating to such factory or premises, advertisement or sales promotion, market research, storage up to 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 up to the place of removal;
We find that any input service used by the manufacturer, whether directly or indirectly in or in relation to the manufacture of final product and clearance of final product from the place of removal, stands eligible for availing as Cenvat Credit. It is acknowledged that the said unit manufactured branded goods in their factory premises and cleared the same to their own retail shops/showrooms situated at various places. It is also undisputed that the sale of said goods takes place from the said showrooms only and did not take place from the factory premises. The show rooms which are belonging to the manufacturer herein have to be considered as place of removal. The services utilized by the manufacturer till the place of removal and the service tax paid thereon are to be considered as services utilized by him for the manufacture of final product and clearance of the same from the place of removal. This would indicate that the services which are rendered by various service providers during the course of transportation of the final product from the factory premises to their own showrooms located in various place, for e.g. GTA, warehousing facilities, insurance, internet services, security, courier services, telecom services, renting service, pest control services, bank services etc. and service tax paid on such services would be eligible as credit being the services used by the manufacturer directly or indirectly in or in relation to the final product and the clearance of the same from the place of removal. We find that the credit of the service tax paid by the service providers and charged to manufacturer till the sale of the goods from the retail showroom, the XYZ is eligible to avail said credit as input service credit.
Sales Promotion mean:
Sales promotion is one of the seven aspects of the promotional mix. (The other six parts of the promotional mix are advertising, personal selling, direct marketing, publicity/public relations, corporate image and exhibitions.) Media and non-media marketing communication are employed for a pre-determined, limited time to increase consumer demand, stimulate market demand or improve product availability. A Retail shops/showrooms services is a parts of the sales promotion.
In terms of the relevant provisions of central excise law, which are cross referenced in service tax law, the place of removal has, inter alia, been defined to include a depot, premises of consignment agent or any other place or premises from where the excisable goods are to be sold after their clearances from the factory of manufacture. Consequently, as per the definition of input services extracted hereinabove, all services used by the manufacturer in relation to clearances of final products from the above mentioned places/premises will qualify for input service tax credits.
In a recent decision in Metro Shoes Pvt. Ltd Vs. CCE [2008 (10)S.T.R. 382(Tri.-Mum)], the Tribunal was required to determine whether or not the retail showrooms of a manufacturer, to where the manufactured goods were transported from the factory of manufacture and from where they were subsequently sold, could amount to a ‘place of removal', in order to extend the benefit of input tax credits to services connected with the physical transportation of the goods from the factory to these showrooms, as well as those relating to the maintenance and upkeep of the showrooms themselves. The Tribunal came to the conclusion that since the sales of the manufactured goods, shoes in this instance, only took place from the retail showrooms and not from the factory premises themselves, it had to be accepted that the showrooms were therefore to be treated as places of removal. Consequently, the Tribunal upheld the benefit of credits on transportation of goods to the showrooms, warehousing facilities, services rendered by C&F agents, insurance, security, courier, telecom, pest control and banking services as well as commission paid to commission agents on sales affected from the showrooms. These were all held admissible to input tax credits.