This article puts light on input service and its credit claim based on some judgement, especially activities relating to business.
1.  Coca Cola India v. CCE (2009) 22 STT 130 (Bom HC DB)
2. ABB Ltd. v. CCE (2009) 21 STT 77 = 15 STR 23 (CESTAT 3 member bench)

Issue before BHC in first case was:-
whether Coca cola, who are manufacturers of non-alcoholic beverage bases (concentrates) are eligible to avail credit of the service-tax paid on advertising services, sales promotion, market research and the like availed by them and utilize such credit towards payment of excise duty on the concentrate. Court was in agreement with some clarification.

While in ABB Ltd in second case was:-
whether Outward freight eligible even if its cost is not included in assessable value - Outward freight is 'input service' even if its cost is not included in assessable value of goods.- ABB Ltd. v. CCE (2009) 21 STT 77 = 15 STR 23 (CESTAT 3 member bench) Bench was agreed that it was allowable as to take cenvat credit. Let us do some endeavor as to know thought behind to explain above interpretation relating to intention of legislature to enact the definition of Input Service.

Rule 2(l) of Cenvat Credit Rules -'Input service'means any service
1.       used by a provider of taxable service for providing an output service; or
2.       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final products and clearance of final products, upto the place of removal; (The words 'from the place of removal'have been replaced by 'upto the place of removal' w.e.f. 1-4-2008).and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises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.

This definition has two parts
1. Exclusive 
2. Inclusive with specifying specific services and activities relating to business with illustrating services which may be understood as activities in relation to business.

Judiciary has visited in both parts explored their real meaning and elucidated all jargon on its interpretation although there may be some different opinion but those would be clarified when same would be put before apex home of litigation resolving.

2nd part of definition starts with word 'includes' meaning thereby not only given but also more which may extend main part of definition. 
'in relation to'- this is connecting the relation of services with different aspects of business related services.
'activities relating to business'- any activity which are relating to business may be get cover under this part whether or not it has any relation with ultimate products manufactured or services provided.

It was held that the definition of input services employs the phrase 'activity relating to business'. The words ’relating to’ further widens the scope of the expression activities relating to business. Similarly, the use of the word activities in the phrase activities relating to business further signifies the wide import of the phrase "activities relating to business. The Rule making authority has not employed any qualifying words before the word activities, like main activities or essential activities etc.  All activity relating to business fall within the definition of 'input service'.

Further, 'such as' means examples, illustrations. It only illustrates activities relating to business not exhaustive.

The definition of input service which has been reproduced earlier, can be effectively divided into the following five categories, in so far as a manufacturer is concerned:
(i) Any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products .
(ii) Any service used by the manufacturer whether directly or indirectly, in or in relation to clearance of final products from the place of removal.
(iii) Services used in relation to setting up, modernization, renovation or repairs of a factory, or an office relating to such factory.
(iv)Services used in relation to advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs,
(v) Services used in relation to activities relating to business and outward transportation upto the place of removal;

Each limb of the definition of input service can be considered as an independent benefit or concession or exemption. If an assessee can satisfy any one of the limbs of the above benefit, exemption or concession, then credit of the input service would be available. This would be so even if the assessee does not satisfy other limb/limbs of the definition.

Coca Cola case-(Supra 1) The court concluded that the credit is availed on the tax paid on the input service, which is advertisement and not on the contents of the advertisement. Thus it is not necessary that the contents of the advertisement must be that of the final product manufactured by the person advertising, as long as the manufacturer can demonstrate that the advertisement services availed have an effect of or impact on the manufacture of the final product and establish the relationship between the input service and the manufacture of the final product. The manufacturer thereby can avail the credit of the service tax paid by him. Once the cost incurred by the service has to be added to the cost, and is so assessed, it is a recognition by Revenue of the advertisement services having a connection with the manufacture of the final product. This test will also apply in the case of sales promotion.

ABB Ltd-(Supra 2) Tribunal concluded that outward freight is 'input service' even if its cost is not included in assessable value of goods and further said, it is not only applicable in case of outward freight but also any service in relation to business of assessee is its input service.Further, in same case, Tribunal have held even if cost is not included in assessable value for paying Excise Duty, it does not mean credit would not be allowed as Valuation of assessable value is governed by Excise act while Cenvat credit governed by cenvat credit rule both are independent of each other.

More so, it would be against the principle enunciated by Apex Court in case of All India Federation of Tax Practitioners v Union of India (2007) 7 SCC 527) that service tax is VAT which in turn is destination based consumption tax in a sense that it is on commercial activities and is not a charge on the business but on the consumer. Just as excise duty is a tax on value addition on goods. Service tax is on the value addition by rendition of service.

In recent time, Semco Electrical P(Ltd) V. CCE (Mum-Tribunal) has discussed all the decisions given herein and having same view as given in main judgements.

Opposite Views:-

However, in India Cement Ltd. v. CCE (2010) 249 ELT 530 (CESTAT), the bench did not agree with decision in case of ABB and the matter regarding Cenvat credit of service tax on outward freight was adjourned awaiting decision of Karnataka High Court on stay petition filed by department.

Other aspect in this regard Supreme court's judgment in case of Maruti Suzuki Ltd CCE(2009)22STT54 wherein 'Input'is discussed and some of the decisions of tribunal equated 'Input' with 'Input Service' and whatever SC has discussed on Input has been imposed on Input Service while reality is away from this aspect. Services are intangible while input is tangible. Use and inclusion is different.

Further, in case of M/s Manikgarh Cement Works (2010) it was held - the main part of definition contains the quintessential ingredient and the inclusive part provides a non-exhaustive list of items each of which should satisfy the requirement of main part..

Very soon, this matter would lie before Hon'ble SC and may be in form of following questions:-

1.       Whether 'Input Service' can be tantamount to “Input Serviceâ€� as to understand legislature intention?
2.       Is there any live link between services used in production of product in pursuant to 'activities relating to business'?
3.       Whether there is any link between Exclusive part and Inclusive part of the definition as they both are adjacent with 'and' which is conjunctive?
4.       If judgement of Coca Cola and ABB is not right perspective then what is the implication in case of 'Input Service Distributor'wherein services are received by Head Office and Branches etc and credits are being used by different units?
5.       and so on..

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