In terms of the relevant provisions of 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 tax credits.
In a recent decision in Metro Shoes Pvt. Ltd Vs. CCE [2008-TIOL-417], 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 effected from the showrooms. These were all held admissible to input tax credits. The Tribunal negatived the argument of the Department that the definition of input services could not be interpreted in a manner so as to extend the benefit of input tax credits to such services, all of which had been utilized subsequent to the physical removal of excisable goods from the factory of manufacture. The Tribunal thus rejected the reliance placed by the Department on the decision in the Gujarat Ambuja Cement Ltd. case [2007-TIOL-539] in order to argue that once the clearances had taken place from the factory, the question of granting input tax credits on such services did not arise.
This decision of the Tribunal is the latest in a long series, all of which relate to the appropriate manner of interpretation of the definition of 'input services' under service tax law. The case is interesting also for the reason that it has for the first time extended the benefit of input tax credits to services utilized in relation to retail showrooms, as opposed to the depots/warehouses to which the goods are typically transferred from the factory of manufacture. In addition to coming to its conclusion as explained above, the Tribunal also held that services utilized in relation to trading activities would not qualify for input tax credits since the definition of input services was limited to those used in respect of manufacture of goods and did not extend to trading. Accordingly, the Tribunal disallowed the benefit of input credits on goods which were traded through the showrooms, thereby limiting the benefits to only those services which related to the goods that were manufactured by the company and transferred to the showrooms, for ultimate sales therefrom.
The author is Leader, Indirect Tax Practices, PwC. Views expresses are his own.