COMMISSIONER OF CUSTOMS CENTRAL EXCISE AND SERVICE TAX, GUNTUR versus M/S. THE ANDHRA SUGARS LTD. on 5 February 2018

COMMISSIONER OF CUSTOMS CENTRAL EXCISE ANDSERVICE TAX, GUNTUR

v.

M/S. THE ANDHRA SUGARS LTD.

(Civil Appeal No. 11711 of 2016)

FEBRUARY 05, 2018

[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]

Cenvat Credit Rules, 2004 – r. 2(l) – Cenvat Credit – Inputservices – Place of removal – Assessee took credit of input servicesnamely service tax paid on transportation charges upto the placeof customers – Admissibility – Held: As per the definition of inputservice, service used by the manufacturer of clearance of finalproducts ‘from the place of removal’ to the warehouse or customer’splace etc., was exigible for Cenvat Credit – It cannot be said thatthe outward transportation provided beyond the place of removalis not eligible for input service for availing Cenvat Credit – Once itis accepted that place of removal is the factory premises of theassessee, outward transportation ‘from the said place’ would amountto input service – That place can be warehouse of the manufactureror it can be customer’s place if from the place of removal the goodsare directly dispatched to the place of the customer.

Dismissing the appeals, the Court

HELD: Having regard to the definition of ‘input service’that was prevailing at the relevant time i.e. prior to April 1, 2008,the submission of the Department that outward transportationengaged for removal of goods from factory to customer premises,cannot be considered as an input service since premises ofcustomer is not recognized as a place of removal under the CentralExcise Act, cannot be accepted. As per the said definition, serviceused by the manufacturer of clearance of final products ‘from theplace of removal’ to the warehouse or customer’s place etc., wasexigible for Cenvat Credit. The three conditions which werementioned explaining the ‘place of removal’ are defined in Section4 of the Act. It is not the case of the Department that the threeconditions laid down in the said Circular are not satisfied. If the

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Acontention of the Department, is accepted, it would nullify theeffect of the word ‘from’ the place of removal appearing in thesaid definition. Once it is accepted that place of removal is thefactory premises of the assessee, outward transportation ‘fromthe said place’ would clearly amount to input service. That placecan be warehouse of the manufacturer or it can be customer’sBplace if from the place of removal the goods are directly dispatchedto the place of the customer. One such outbound transportationfrom the place of removal gets covered by the definition of inputservice. [Paras 6-8][439-F-H; 442-C-D]

Commissioner of Central Excise and Service Tax,CBangalore v. ABB Ltd. Vadodara 2011 (23) STR 97(Kar); Commissioner of Central Excise Belgaum v. M/s. Vasavadatta Cements Ltd.; Gujarat Ambuja CementsLtd. v. CCE, Ludhiana 2007 (6) STR 249 Tri-D; M/sUltratech Cements Ltd v. CCE Bhavnagar 2007-TOIL-D429-CESTAT-AHM – referred to.

Case Law Reference

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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 11711of 2016.

From the Judgment and Order dated 16.07.2014 of the High Courtof Judicature at Hyderabad for the State of Telangana and The State ofFAndhra Pradesh in Central Excise Appeal No. 88 of 2014.

WITH

C. A. Nos. 11872, 11873 and 11910 of 2016.

K. Radhakrishnan, Sr. Adv., Ms. Nisha Bagchi, Arijit Prasad, Ms.GShirin Khajuria, Ms. Sanskriti Bhardwaj, Ms. Ayushi Gaur, Ms. PoojaSharma, B. Krishna Prasad, Kartik Kurmy, Praveen Kumar, Advs. forthe Appellant.

Ms. Kiran Suri, S. K. Bagaria, Sr. Advs., S. J. Amith, Dr. (Mrs.)Vipin Gupta, Balaji Srinivasan, V. Lakshmikumaran, L. Badri Narayanan,H

Aditya Bhattacharya, Victor Das, Chanakya Lakshmikumaran, PunitD. Tyagi, Apeksha Mehta, Ajit Kumar, Yogendra A., M. P. Devanath,Advs. for the Respondent.

The Judgment of the Court was delivered by

A. K. SIKRI, J. 1. The question of law which needsdetermination in all these appeals is identical. It pertains to Cenvat Creditin respect of service tax paid on goods that are transported to thepurchaser after the sale. The question, therefore, which needsdetermination is as to whether the expression ‘input service’ as definedin Rule 2(l) of the Cenvat Credit Rules, 2004 (hereinafter referred to asthe ‘Rules, 2004’), in the context of a service provider, would also includeservices which are used in or in relation to providing taxation outputservices described in the definition and the outward transportation to thepurchaser would be treated as beyond the ‘place of removal’.

2. For the sake of convenience, we may reproduce the eventsfrom Civil Appeal No. 11711 of 2016. The respondent M/s. AndhraSugars Ltd. are the manufacturers of sugar, molasses etc. at their Tanuku,Taduvai & Bhimadole units and manufacturers of various inorganicchemicals at their Kovvur and Saggonda units. They were availing crediton inputs, capital goods and input services and utlising the same forpayment of duty. It came to the notice of the Revenue that during theperiods December, 2007, the respondent at their unit Saggonda, had takencredit of input services namely service tax paid on transportation chargesupto the place of customers which according to the Revenue isinadmissible. Accordingly, show cause notice dated November 3, 2008was issued to the respondent demanding the Cenvat Credit of Rs.3,87,763/- availed during the above mentioned period along with interest andproposing to impose penalty under Rule 15 of the Rules, 2004. Theaforesaid show cause notice was duly adjudicated by the AssistantCommissioner, Eluru Division vide Order-in-Original No. 01/2009 datedJanuary 9, 2009 confirming the demands initiated in the aforesaid showcause notice.

3. The respondent being aggrieved by the Order-in-Original No.01/2009 dated January 9, 2009 filed appeal before the Commissioner(Appeals), Guntur. Vide Order-in-Appeal Nos. 46/2011 (G) ST datedDecember 2, 2011, allowed the appeals by setting aside the Order-in-Original with consequential relief to the respondent. The Revenue A

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Achallenged the Order-in-Appeal No. 46 of 2011 (G) ST dated December2, 2011 by preferring appeal bearing Appeal No. E/510/2012-DB beforethe Customs, Excise and Service Tax Appellate Tribunal (CESTAT),Bangalore. The CESTAT vide final Order No. 26346/2013 dated August14, 2013 dismissed the appeal filed by the Revenue holding that thesame is covered by the decision of the High Court of Karnataka in theBcase of Commissioner of Central Excise and Service Tax, Bangalorev. ABB Ltd., Vadodara[1]. Further, the CESTAT observed that theRevenue could not have filed appeals as per the instructions of the CBECvide Circular F. No. 390/Misc./163/2010-JC dated August 17, 2011, asthe amount involved is less than Rs.5 lakhs. Not satisfied with thisCoutcome, the Revenue took the matter to the High Court in the form ofAppeal No. 88/2014. The High Court vide its impugned judgment datedJuly 16, 2014 has dismissed the appeal filed by the Revenue holding that“on an identical issue, this Court dismissed Central Excise Appeal No.31 of 2013. Hence, this appeal is also dismissed.”

D4. Before we proceed further, it would be necessary to take noteof the definition of ‘input service’ which was prevailing at the relevantperiod i.e. prior to April 1, 2008. This definition contained in Section 2(l)of the Rules, 2004 reads as under:

“Input Service” means any service-E(i) Used by a provider of taxable service for providing an outputservice; or

(ii) Used by the manufacturer, whether directly or indirectly, in orin relation to the manufacture of final products and clearance offinal products from the place of removal, and includes servicesFused in relation to setting up, modernization, renovation or repairsof a factory, premises of provider of output service or an officerelating to such factory or premises, advertisement or salespromotion, market research, storage upto the place of removal,procurement of inputs, activities relating to business, such asGaccounting, auditing, financing, recruitment and quality control,coaching and training, computer networking, credit rating, shareregistry, and security, inward transportation of inputs or capitalgoods and outward transportation from the place of removal; H 1 2011 (23) STR 97 (Kar)

The phrase ‘place of removal’ is defined under Section 4 of theCentral Excise Act, 1944. It states that- ‘place of removal’ means,-

(i) a factory or any other place or premises of production ormanufacture of the excisable goods;

(ii) a warehouse or any other place or premises wherein theexcisable goods have been permitted to be stored without paymentof duty;

(iii) a depot, premises of a consignment agent or any other placeor premises from where the excisable goods are to be sold aftertheir clearance from the factory; from where such goods areremoved.”

5. We may also refer to Circular No. 97/8/2007-ST dated August23, 2007 issued by the Central Board of Excise and Customs (CBEC)(hereinafter referred to as the ‘Board’) as per which the definition of‘input service’ was clarified and the Circular also provided the conditionswhich are to be satisfied to cover the case within ‘place of removal’.The three conditions contained in the circular are (i) regarding ownershipof the goods till the delivery of the goods at the purchaser’s door step;(ii) seller bearing the risk of or loss or damage to the goods during transitto the destination and; (iii) freight charges to be integral part of the priceof the goods.

6. As mentioned above, in these cases, the assessees are claimingCenvat Credit in respect of service tax paid on outward transportationfrom their factory to the premises of customers. As per the Department,outward transportation engaged for removal of goods from factory tocustomer premises cannot be considered as an input service sincepremises of customer is not recognized as a place of removal under theCentral Excise Act. To put it differently, the Department contends thatthe outward transportation provided beyond the place of removal is noteligible for input service for availing Cenvat Credit.

7. Having regard to the definition of ‘input service’ that wasprevailing at the relevant time i.e. prior to April 1, 2008, the aforesaidcontention of the Department cannot be accepted. As per the saiddefinition, service used by the manufacturer of clearance of final products‘from the place of removal’ to the warehouse or customer’s place etc.,was exigible for Cenvat Credit. This stands finally decided in Civil Appeal A

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ANo. 11710 of 2016 (Commissioner of Central Excise Belgaum v. M/s. Vasavadatta Cements Ltd.) vide judgment dated January 17, 2018.The matter is squarely covered by the Board’s Circular dated August23, 2007, relevant portion whereof is as under:

“ISSUE: Up to what stage a manufacturer/consignor can takecredit on the service tax paid on goods transport by road?

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COMMENTS: This issue has been examined in great detail bythe CESTAT in the case of M/s Gujarat Ambuja Cements Ltd.vs CCE, Ludhiana [2007 (6) STR 249 Tri-D]. In this case,CESTAT has made the following observations:- C

“the post sale transport of manufactured goods is not an inputfor the manufacturer/consignor. The two clauses in the definitionof ‘input services’ take care to circumscribe input credit by statingthat service used in relation to the clearance from the place ofremoval and service used for outward transportation upto the placeof removal are to be treated as input service. The first clausedoes not mention transport service in particular. The second clauserestricts transport service credit upto the place of removal. Whenthese two clauses are read together, it becomes clear that transportservice credit cannot go beyond transport upto the place ofremoval. The two clauses, the one dealing with general provisionand other dealing with a specific item, are not to be readdisjunctively so as to bring about conflict to defeat the laws’ scheme.The purpose of interpretation is to find harmony and reconciliationamong the various provisions”.

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Similarly, in the case of M/s Ultratech Cements Ltd vs CCEFBhavnagar 2007-TOIL-429-CESTAT-AHM, it was held that afterthe final products are cleared from the place of removal, therewill be no scope of subsequent use of service to be treated asinput. The above observations and views explain the scope of therelevant provisions clearly, correctly and in accordance with thelegal provisions. In conclusion, a manufacturer / consignor canGtake credit on the service tax paid on outward transport of goodsup to the place of removal and not beyond that.

8.2 In this connection, the phrase ‘place of removal’ needsdetermination taking into account the facts of an individual caseand the applicable provisions. The phrase ‘place of removal’ has H

COMMNR. OF CUSTOMS CENTRAL EXCISE & SERVICE TAX,GUNTUR v. ANDHRA SUGARS LTD. [A. K. SIKRI, J.]

not been defined in CENVAT Credit Rules. In terms of sub-rule(t) of rule 2 of the said rules, if any words or expressions are usedin the CENVAT Credit Rules, 2004 and are not defined thereinbut are defined in the Central Excise Act, 1944 or the FinanceAct, 1994, they shall have the same meaning for the CENVATCredit Rules as assigned to them in those Acts. The phrase ‘placeof removal’ is defined under section 4 of the Central Excise Act,1944. It states that,- “place of removal” means-

(i) a factory or any other place or premises of production ormanufacture of the excisable goods ;

(ii) a warehouse or any other place or premises wherein theexcisable goods have been permitted to be stored without paymentof duty ;

(iii) a depot, premises of a consignment agent or any other placeor premises from where the excisable goods are to be sold aftertheir clearance from the factory; from where such goods are removed.”

It is, therefore, clear that for a manufacturer/consignor, theeligibility to avail credit of the service tax paid on the transportationduring removal of excisable goods would depend upon the placeof removal as per the definition. In case of a factory gate sale,sale from a non-duty paid warehouse, or from a duty paid depot(from where the excisable goods are sold, after their clearancefrom the factory), the determination of the ‘place of removal’does not pose much problem. However, there may be situationswhere the manufacturer /consignor may claim that the sale hastaken place at the destination point because in terms of the salecontract /agreement (i) the ownership of goods and the propertyin the goods remained with the seller of the goods till the deliveryof the goods in acceptable condition to the purchaser at his doorstep; (ii) the seller bore the risk of loss of or damage to the goodsduring transit to the destination; and (iii) the freight charges werean integral part of the price of goods. In such cases, the credit ofthe service tax paid on the transportation up to such place of salewould be admissible if it can be established by the claimant of A

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442SUPREME COURT REPORTS

[2018] 1 S.C.R.

Asuch credit that the sale and the transfer of property in goods (interms of the definition as under section 2 of the Central ExciseAct, 1944 as also in terms of the provisions under the Sale ofGoods Act, 1930) occurred at the said place.”

8. As can be seen from the reading of the aforesaid portion of theBcircular, the issue was examined after keeping in mind judgments ofCESTAT in Gujarat Ambuja Cement Ltd. and M/s. Ultratech CementLtd. Those judgments, obviously, dealt with unamended Rule 2(l) ofRules, 2004. The three conditions which were mentioned explaining the‘place of removal’ are defined in Section 4 of the Act. It is not the caseof the Department that the three conditions laid down in the said CircularCare not satisfied. If we accept the contention of the Department, itwould nullify the effect of the word ‘from’ the place of removal appearingin the aforesaid definition. Once it is accepted that place of removal isthe factory premises of the assessee, outward transportation ‘from thesaid place’ would clearly amount to input service. That place can beDwarehouse of the manufacturer or it can be customer’s place if fromthe place of removal the goods are directly dispatched to the place ofthe customer. One such outbound transportation from the place ofremoval gets covered by the definition of input service.

9. We, thus, do not find any infirmity in the impugned judgment.EAppeals are devoid of any merit and are accordingly dismissed.

Nidhi Jain

Appeals dismissed.

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