Court : Tribunal-Larger Bench

Brief : : Held by Larger Bench:- · It is well settled that every clause of the Statute should be construed with reference to the context in which it is issued. A bare mechanical interpretation of words and application of legislative intent is devoid of concept and purpose will reduce most of the remedial and beneficial legislations to futility. To be literal in meaning is to see the skin and miss the soul. · The legislature never wastes its words or says anything in vain and a construction which attributes redundancy to legislation will not be accepted, as has been observed by the Supreme Court in the case of Union of India vs. Hansoli Devi 2002 7 SCC 273. · A similar observation was made by the Apex Court in the case of Peerless Finance that the word “include” is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import, but also those things which the interpretation clause declares that they shall include. · The word “include” is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that is was not merely employed for the purpose of adding to the natural significance of the words or expressions defined. It may be equivalent to “mean and include”, and in that case it may afford an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions. · The context in which and the purpose for which the credit rules have been issued are clear from the press note dated August 12, 2004 issued by the Ministry of Finance, prior to introduction of the credit rules wherein the draft rules were circulated for inviting comments from trade and industry. This note clearly states that “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”. · Expenses towards the canteen and provision of subsidized canteen forms part of the cost of production as is evident from the Para 4.1, 5.2 of the CAS-4 which defines the phrase “Cost of production”, and under the head Direct Wages and Salaries, subsidized food has also been considered as part of direct wages and salaries, being fringe benefits.

Citation : 2008-TIOL-1634-CESTAT-MUM-LB IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI APPEAL NO. E/1279/07-MUM & E/CO-239/07-MUM Date of Hearing : 04.09.2008 Date of Decision: 25.09.2008 CCE, MUMBAI –V Vs M/s GTC INDUSTRIES LTD

Judgment :

2008-TIOL-1634-CESTAT-MUM-LB
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI
APPEAL NO. E/1279/07-MUM & E/CO-239/07-MUM
Date of Hearing : 04.09.2008 Date of Decision: 25.09.2008
CCE, MUMBAI –V Vs M/s GTC INDUSTRIES LTD
Appellant rep by: Shri P.M.Govande, Jt. CDR & Shri B.K.Singh, Jt. CDR
Respondent rep by: Shri V.Sridharan, Advocate & Shri Bharat Raichandani, Advocate
CORAM: Smt. Jyoti Balasundaram, Hon’ble Vice President
Shri M.V.Ravindran, Hon’ble Member(Judicial)
Shri K.K.Agarwal, Hon’ble Member(Technical)
Services provided by the outdoor caterer in the canteen of the manufacturer is an Input Service – CAS-4 aids Larger Bench in settling the issue.
Matter referred to Larger Bench as two contrary orders on the issue –
· Cenvat credit not available in respect of Service Tax paid by Outdoor Caterers as Canteen/Catering service is a welfare activity - Mahindra Sona & Others [2008-TIOL-199-CESTAT-MUM]
· Canteen facility, although not specifically stated in the list of activities in the definition of the ‘input service’ under Rule 2(l) ibid, yet it is an activity relating to the business of the appellants - Victor Gaskets, Bajaj Electricals & Ors [2008-TIOL-409-CESTAT-MUM]read with 2008-TIOL-1179-CESTAT-MUM
Held by Larger Bench:-
· It is well settled that every clause of the Statute should be construed with reference to the context in which it is issued. A bare mechanical interpretation of words and application of legislative intent is devoid of concept and purpose will reduce most of the remedial and beneficial legislations to futility. To be literal in meaning is to see the skin and miss the soul.

· The legislature never wastes its words or says anything in vain and a construction which attributes redundancy to legislation will not be accepted, as has been observed by the Supreme Court in the case of Union of India vs. Hansoli Devi 2002 7 SCC 273.
· A similar observation was made by the Apex Court in the case of Peerless Finance that the word “include” is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import, but also those things which the interpretation clause declares that they shall include.

· The word “include” is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that is was not merely employed for the purpose of adding to the natural significance of the words or expressions defined. It may be equivalent to “mean and include”, and in that case it may afford an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions.
· The context in which and the purpose for which the credit rules have been issued are clear from the press note dated August 12, 2004 issued by the Ministry of Finance, prior to introduction of the credit rules wherein the draft rules were circulated for inviting comments from trade and industry. This note clearly states that “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”.
· Expenses towards the canteen and provision of subsidized canteen forms part of the cost of production as is evident from the Para 4.1, 5.2 of the CAS-4 which defines the phrase “Cost of production”, and under the head Direct Wages and Salaries, subsidized food has also been considered as part of direct wages and salaries, being fringe benefits.
· The above paragraphs of CAS-4 clearly show that cost of subsidized food is included in the cost of production.
· In case of a factory having more than 250 workers, under Sec.46 of the Factories Act, 1948, it is mandatory on the part of the factories to provide a canteen facility within the factory premises and failure to comply with the provisions of Sec.46 attracts prosecution and penalty under Sec.92 of the Factories Act, 1948.

· A service tax on outdoor catering services is paid by the manufacturer for running the canteen, irrespective of the fact that a subsidized food is provided or not. Whether the cost of foods is borne by the worker or by the factory, the same will form part of expenditure incurred by the manufacturer and will have a bearing on the cost of production.
· In view of the same, employment of outdoor caterer for providing catering services has to be considered as an input service relating to the business and cenvat credit in respect of the same will be admissible.
· Views of the Tribunal expressed in the case of Victor Gaskets India Ltd. and Others [2008-TIOL-409-CESTAT-MUM] concurred with – Larger Bench of Tribunal.
ORDER NO. M/217-218/08/SMB/C-I/LB
Per: K.K.Agarwal, Member(Technical):
1. We have heard both sides on the issue referred to us viz. whether the services provided by the outdoor caterers in the canteen of the manufacturer is input service, in respect of which credit can be taken by the manufacturer. For this purpose, it would be useful to reproduce the definition of input services as defined under Rule 2(l) of Cenvat Credit Rules, 2004. The said rule reads as under:
"(l) "input service" means any service, -
· used by a provider of taxable service for providing an output service, or
· used by the manufacturer, whether directly or indirectly, in or in relation to the place of manufacture of final products and clearance of final products upto 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 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;”
The above definition stands in two parts i.e main part contained in sub-clause (i) and (ii) and the inclusive clause part starting with the words "and includes services used in relation to setting up, modernization …upto the place of removal". Both sides agreed that the services provided by the outdoor caterers is to be considered as one relating to business and therefore will fall under the inclusive part of the definition and not the main definition. However, while the revenue contended that the inclusive clause is limited to only to services enumerated in the inclusive clause and not more and since the disputed services ie. Outdoor catering is not one of them, it will not qualify as an input service and will have to be tested against the main definition in clause (ii) pertaining to main definition clause in rule 2(l). The Ld. Advocate for the appellant submitted that the term "includes" enhances the scope of the definition as it is inclusive in nature and therefore the definition cannot be taken one of restrictive approach as held by the Apex Court in the case of Regional Director vs. High land Coffee Works 1991(3)SCC 617, where at page 619, the Apex Court has held as under:
"The word "include" in the statutory definition is generally used to enlarge the meaning of the preceding words and it is by way of extension, and not with restriction. The word 'include' is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used, these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import but also those things which the interpretation clause declares that they shall include. {See (i) Stroud's Judicial Dictionary, 5th Edn. Vol.3., p.1263 and (ii) CIT vs. Taj Mahal Hotel, (iii) State of Bombay vs. Hospital Mazdoor Sabha."
2. It was submitted by the Ld. Jt. CDR that the case laws relating to interpretation of an inclusive definition are mainly relating to definitions which are purely inclusive in nature such as "goods" defined in the clause 2(22) of the Customs Act or sub-section 2(f) defining manufacturer in Central Excise Act. These definitions do not contain a mixture of an express definition and an inclusion part; they are purely inclusive in nature. They do not have a preceding part of express definition (main definition) in the manner "input service" has been defined in the Cenvat Rules, 2004, which says "input service" means any service…and includes…"; whereas purely inclusive definition reads as manufacture includes any process…; inputs include…; cooked food includes…; where there is no main definition but only an inclusive definition. He referred to the decision of the Apex Court in the case of Hamdard (Wakf) Laboratory vs. Dy. Labour Commissioner 2007(5)SCC 281 wherein it was observed as under:
"When an interpretation clause uses the word "includes", it is prima facie extensive. When it uses the word "mean and include", it will afford an exhaustive explanation to the meaning which for the purpose of the Act must invariably be attached to the word or expression. [See G.P.Singh's Principles of Statutory Interpretation, 10th Edition, Pages 173 and 175.]"
It was submitted that recently, in N.D.P.Namboodripad (Dead) by LRs. Vs. Union of India (UOI) and Ors. 2007(4)SCALE 361, the Apex Court held as under:-
"17. If the words 'and includes' were intended to rope in certain itmes which would not be part of the meaning, but for the definition, then Rule 62 would have specified only 'dearness pay' as the item to be included but not 'pay'. If pay, dearness allowance and other allowances were already included in 'emolument' with reference to its general or normal meaning, as contended by appellant, there was no reason to specifically again include 'pay' in Rule 62. Inclusion of 'pay' and 'dearness pay' and non-inclusion of 'dearness allowance or other allowances' in the definition of emolument is significant. The definition in rule 62 is intended to clarify that only pay and dearness pay would be considered as 'emolument' for purposes of calculating pension. The words 'and includes' have been used in Rule 62, as meaning 'comprises' or 'consists of'."
Attention was also invited to the Supreme Court decision in the case of Reserve Bank of India vs. Peerless Finance (1987)1SCC 424 wherein it was observed as under:
"Much argument was advanced on the significance of the word 'includes' and what an inclusive definition implies. Both sides relied on Dilworth's case. Both sides read out the well known passage in that case where it was stated, "The word "include" is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import, but also these things which the interpretation clause declares that they shall include. But the word "include" is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that it was not merely employed for the purpose of adding to the natural significance of the words or expression defined. It may be equivalent to "mean and include", and in that case it may afford an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions."
3. In view of the above it was submitted that the examples given in the inclusive definition are exhaustive in nature and no other service can be considered as an input service unless it is enumerated by name in the inclusive definition. He then referred to one of the services enumerated in the inclusive definition i.e “activities relating to business, such as accounting, auditing, financing, recruitment and quality control.” He submitted that the conjunction ‘and’ used in the sub-clause is significant and it limits the examples following “such as” to only five services and no more. Thus, an activity relating to business should be one such as accounting, auditing, financing, recruitment and quality control or akin to accounting, auditing etc. but no further services which is not akin to any of these five services can be added to “such list”. Since outdoor catering is not one of services listed in the inclusive clause and is neither akin to any of the five business activities enumerated in “such as” sub-clause falling under business activity, it cannot be considered to be covered by the inclusive definition and therefore cannot be considered as an input service.
4. Ld. Advocate, Shri Sridharan, on behalf of the appellant submits that the definition of input services uses the term “such as” which is purely illustrative but not exhaustive. The term “such as” has been defined in the Concise Oxford Dictionary. “Such as” means for example or of a kind that and in Chambers Dictionary “such as” means for example. The word “such as” acts as an adjective prefixed to a noun indicative of the draftsman’s intention that the is assigning the same meaning or characteristics to the noun as has been previously indicated, but it does not prohibit any other activity which can definite noun in a similar way. Therefore, the term “such as” only connotes that whatever activities are given are illustrations that relate to the business. Hence, any activity relating to business of the assessee would be covered as an input service. The usage of the words “such as” after “activity relating to business” under the inclusive pat of the definition further supports that definition of the term “input service” would not be restricted to services specified thereafter. He referred to the Supreme Court decision in the case of Good Year India Ltd. vs. Collector of Customs 1997(95)ELT 450 wherein it was held that “The words “such as stainless steel, nickel monel, incoloy, hastelloy” in sub-heading (2) are only illustrative of the various metals from which valves can be made but the said description is not exhaustive of the metals.” Similar view has been taken in the case of Jalal Plastic Industries vs. Union of India 1981(8) ELT 653(Guj.) wherein Gujarat High Court has held that the products which follow the expression “such as” are illustrative and not exhaustive. Therefore, in the present case also the term “such as” cannot limit the scope of the definition of the input service once the term is used after the usage of the word “includes” in the said definition.
5. It was also submitted that for understanding the scope of the inclusive definition and the interpretation of the term “such as”, the context in which and the purpose for which Cenvat Credit Rules have been issued become relevant as also the nature of the Service Tax. It was submitted that Ministry of Finance, prior to introduction of Cenvat Credit Rules, 2004 circulated the draft rules inviting comments from the trade and industry. A press Note dated August 12, 2004 was issued along with the draft rules which highlighted the salient features of Cenvat Credit Rules. The relevant extract is as under:-
“iii. 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 clearances of the goods from the factory, the credit would be extended on services received up to the stage of place of removal (as per section 4 of the 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.
iv. Full credit of service tax on services (such as telephone, security, construction, advertising service, market research etc.) which are received in relation to the offices pertaining to a manufacturer or service provider would also be allowed.”
It was submitted that from the above, it is clear that the object of the Legislature, while introducing Cenvat Credit Rules was to allow credit of all taxable services that go to form a part of the assessable value of the final product on which excise duty is to be charged or output service on which service tax is to be charged. This includes services received prior to commencement of manufacture, but the value gets absorbed in the value of goods and also the services, which are not directly related to manufacture but are related to the sale of manufactured goods and thus forms part of the assessable value of the product sold. Further, the draft rules proposed to give full credit of service tax on services that are received in relation to the office pertaining to a manufacturer or service provider.
6. The above draft rules were circulated inviting comments from the trade and industry. The said draft rules define the term “input service” as under:
“(gl) “Input service” means any service
· Received and consumed by a service provider in relation to providing an output service; or
· Used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearances of final products from the place of removal;
Explanation: Input service includes services used in relation to setting up a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, procurement of inputs, activities relating to management of business, such as accounting, auditing, financing, recruitment and quality control.”
On the other hand, the term “input service” as introduced by the Cenvat Credit Rules, 2004 is reproduced herewith as under –
“(l) "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, upto 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;”
Thus it can be seen from the above that under the draft credit rules, the term “used in relation to setting up a factory”, was contemplated, which was later enhanced to read as “used in relating to setting up, modernization, renovation or repairs of a factory”, thereby, expanding the scope of the said term. Moreover, under the Draft Credit Rules, the Explanation limited the scope of input services to those activities only which relate to “management of business, such as accounting, auditing, financing, recruitment and quality control”. On the other hand, Cenvat Credit rules expanding the said term to read as “activities relating to business”. It further when on to read “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;”
In view of the above, it was submitted that the argument of the department that the use of the term “such as” is restricted to the terms “accounting, auditing, financing, recruitment and quality control” only is incorrect inasmuch as the scope of the term “activities relating to business” has been expanded and illustrated further with the addition of services such as coaching and training, share registry, credit rating etc. This conclusion is supported by the fact that under the draft credit rules, the term used was “activities relating to management of business”. However, under the Cenvat Credit Rules, 2004 the term used is “activities relating to business”, which is much wider in scope and application. Hence, even if one were to consider that activities such as accounting, auditing, financing, recruitment and quality control are activities which relate to management of business, the term “activities relating to business” is wider and hence the Legislature has included illustrative activities such as 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; which pertain to various aspects of the activities relating to business of the assessee. Thus, the specific intention of the Legislature is to allow credit on all such services which are activities relating to business is manifest and hence the revenue’s plea that “activities relating to business, such as” covers only “accounting, auditing, financing, recruitment and quality control” does not have any substance.
7. It was accordingly submitted that once an activity relates to business it has to be considered as an input service and the credit of the same cannot be denied. Thus, in the instant case, the expenditure incurred by the assessee on the canteen services is a business related expenditure and this expenditure forms cost of the goods on which excise duty is charged, the credit, therefore, has to be allowed, as disallowance will be against the intention of the Cenvat Credit Rules to avoid cascading effect. Business is a continuous process and is not restricted to the manufacture or sale of the product. Therefore, activities in relation to business cover all the activities that are related to the functioning of a business. Therefore, the term “business” cannot be given a restricted definition to say that business of a manufacturer is to manufacture final products and a canteen within the factory premises has nothing to do with the manufacturing activity, as contended by the revenue. He referred to several decisions of the Supreme Court, including English case law holding that even expenses incurred on account of commercial exigencies are wholly and exclusively covered by the term “activities in relation to business”.
8. It was submitted that Service Tax is a value added tax and a consumption tax and is therefore essentially forms part of the value of the goods/services, the credit of which cannot be denied.
9. We have considered the submissions. We find that it is well settled that every clause of the Statute should be construed with reference to the context in which it is issued. A bare mechanical interpretation of words and application of legislative intent is devoid of concept and purpose will reduce most of the remedial and beneficial legislations to futility. To be literal in meaning is to see the skin and miss the soul. The legislature never wastes its words or say anything in vain and a construction which attributes redundancy to legislation will not be accepted, as has been observed by the Supreme Court in the case of Union of India vs. Hansoli Devi 2002 7 SCC 273. A similar observation was made by the Apex Court in the case of Peerless Finance (supra) referred to by the Ld. Jt. CDR that the word “include” is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import, but also those things which the interpretation clause declares that they shall include. But the word “include” is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that is was not merely employed for the purpose of adding to the natural significance of the words or expressions defined. It may be equivalent to “mean and include”, and in that case it may afford an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions. The context in which and the purpose for which the credit rules have been issued are clear from the press note dated August 12, 2004 issued by the Ministry of Finance, prior to introduction of the credit rules wherein the draft rules were circulated for inviting comments from trade and industry. This note clearly states that “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”. Expenses towards the canteen and provision of subsidized canteen forms part of the cost of production as is evident from the Para 4.1 of the CAS-4 which defines the phrase “Cost of production”, and under the head Direct Wages and Salaries, subsidized food has also been considered as part of direct wages and salaries, being fringe benefits. The relevant part of 4.1 and 5.2 of CAS-4 are reproduced as under:
“4.1 Cost of Production: Cost of production shall consist of Material consumed, Direct Wages and salaries, Direct expenses, works overheads, quality control cost, Research and Development Cost, Packing Cost, Administrative Overheads relating to production. To arrive at cost of production of goods dispatched for captive consumption, adjustment for Stock of Work-in-progress, finished goods, recoveries for sales of scrap, wastage etc. shall be made.”
5.2 Direct wages and salaries
Direct wages and salaries shall include house rent allowance, overtime and incentive payments made to employees directly engaged in the manufacturing activities.
Direct wages and salaries include fringe benefits such as:
· contribution to provident fund and ESIS
· Bonus/ex-gratia payment to employees
· Provision for retirement benefits such as gratuity and superannuation
· Medical benefits
· Subsidised food
· Leave with pay and holiday payment
· Leave encashment
· Other allowances such as children’s education allowance, conveyance allowance which are payable to employees in the normal course of business etc
The above paras of CAS-4 clearly shows that cost of subsidized food is included in the cost of production. We further note that in case of a factory having more than 250 workers under Sec.46 of the Factories Act, 1948, it is mandatory on the part of the factories to provide a canteen facility within the factory premises and failure to comply with the provisions of Sec.46 attracts prosecution and penalty under Sec.92 of the Factories Act, 1948. A service tax on outdoor catering services is paid by the manufacturer for running the canteen, irrespective of the fact that a subsidized food is provided or not. Whether the cost of foods is borne by the worker or by the factory, the same will form part of expenditure incurred by the manufacturer and will have a bearing on the cost of production. In view of the same, employment of outdoor caterer for providing catering services has to be considered as an input service relating to the business and cenvat credit in respect of the same will be admissible. We, therefore, concur with the views of the Tribunal expressed in the case of Victor Gaskets India Ltd. and Others 2008(10)STR 369(Tri-Mumbai). The reference is answered accordingly and the matter is sent back to referral Bench for passing appropriate orders.
(Pronounced on 25.9.08)