Service Tax Input Service

INPUT SERVICE

Rule 2 (1) “Input Service”

Input Service means any service

(i)                  used by a provider of taxable service for providing an output service

(ii)                used by manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products, upto place of removal.

and includes…

                 The definition of Input Service is the most controversial issue, as which service to be consider as an Input Service and which should not fall within the definition of the same.

The definition been interpreted by the various courts and the different decisions been delivered, some in favour of citizen and some of Dept.

Here I would like to draw your attention on the definition of “Input Service” and expand the meaning as per the “Interpretation of Taxing Statue.”

In interpreting a fiscal or taxing statute the court cannot proceed to make good deficiencies, if there be any: the court must interpret the statue as it stands and in case of doubt in matter favorable to tax payers. But, where by the use of word capable of comprehensive import, provision is made for imposing liability upon tax payers guilty, or fraud, or gross negligence, of contumacious conduct, as assumption that the word were used in a restricted sense so as to defeat the avowed object of the legislature qua a certain class will not be lightly made.

It is true a taxing provision has to be construed strictly and must always be interpreted in a manner most favorable to the citizen. In taxing statue word which are not technical expression or words of art, but are words of day to day use, must be understood and given a meaning, not in their technical or scientific sense, but in sense as understood in common parlance. The word should be that sense which people conversant with the subject matter with which the statue is dealing, would attribute to it.

The principle that the fiscal statue should be construed strictly is applicable only to taxing provisions such as a charging provision imposing penalty and not those parts of the statues which contain machinery provisions.

The words “directly or indirectly “/ “In or In relation to” be interpreted very widely as in the sense of the Business activity and not restricted the word to word translation of the both terms. Service Tax paid by the assesse on input services used for providing an taxable output service or manufacture of final product which relates to the business only and not the personal purpose. There are various decisions of the hon’ble court, what includes in the production cost must available for the credit as it is a business expenses.

There are various services which neither “directly or indirectly” related to the final product or providing out put services but it forms part of the cost of production and which directly related to the business activity. So, the definition must be interpreted in the wide scope and not just translate its meaning in the terms of mere a word to word.

The department denying the credit of input services on the same ground of the definition that the services not related to final product or output service in any way directly or indirectly but they have no such technical ground apart from the definition. The taxing statues “in all cases of taxation the burden of proving the necessary ingredients laid down by law to justify taxation, it is upon the taxing authority”.

The well know rule in interpreting item in statues like the Central Excise and Salt Act, 1944, is that resort should be had not to the scientific or the technical meaning of such terms but to their popular meaning or the meaning attached to them by those dealing in them, that is to say, to their commercial sense. (UOI V/s GWF Mills, AIR 1977 S.C 1548)