COMMISSIONER OF CENTRAL EXCISE SERVICE TAX versus ULTRA TECH CEMENT LTD. on 1 February 2018

COMMISSIONER OF CENTRAL EXCISE SERVICE TAX

v.

ULTRA TECH CEMENT LTD.

(Civil Appeal No. 11261 of 2016)

FEBRUARY 01, 2018

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

Cenvat Credit Rules, 2004 – r.2(I) – Cenvat Credit facilityavailed by assessee during the period from January, 2010 to June,2010 on outward transportation of goods through a transportagency from their premises to the customer’s premises – Admissibilityof – Held: Not admissible – It is clear from the bare reading of ther.2(I), as amended in the year 2008, which applies to the period inquestion that the Goods Transport Agency service used for thepurpose of outward transportation of goods, i.e. from the factoryto customer’s premises, is not covered within the ambit of r.2(I) “inputservice” of the Rules – It is only ‘upto the place of removal’ thatservice is treated as input service – Thus, once the final productsare cleared from the factory premises, extending the credit beyondthe point of clearance of final product is not permissible underCenvat Credit Rules and post clearance use of services in transportof manufactured goods cannot be input service for the manufactureof final product.

Cenvat Credit Rules, 2004 – r.2(I), as amended in 2008 –Effect of amendment – Held: The original definition of ‘input service’contained in r.2(I) of the Rules,2004 used the expression ‘from theplace of removal’ – However, vide amendment in the year 2008, theword ‘from’ is replaced by the word ‘upto’ – Now as per the originaldefinition, 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 – However after theamendment, the benefit which was admissible even beyond the placeof removal now gets terminated at the place of removal and doorsto the Cenvat Credit of input tax paid gets closed at that place –The word ‘from’ is the indicator of starting point, whereas theexpression ‘upto’ signifies the terminating point, putting an end tothe transport journey.

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652SUPREME COURT REPORTS

AAllowing the appeal, the Court

HELD: 1. The assessee is involved in packing and clearingof cement. It is supposed to pay the service tax on the aforesaidservices. At the same time, it is entitled to avail the benefit ofCenvat Credit in respect of any input service tax paid. InputBservice tax was also paid on the outward transportation of thegoods from factory to the customer’s premises of which theassessee claimed the credit. The question is as to whether it canbe treated as ‘input service’. ‘Input service’ is defined in Rule2(I) of the Rules, 2004. It is an admitted position that the instantcase does not fall in sub-clause (i) to r.2(I) and the issue is to beCdecided on the application of sub-clause (ii) to r.2(I). Reading ofthe clause (ii) provision makes it clear that those services areincluded which are used by the manufacturer, whether directly orindirectly, in or in relation to the manufacture of final productsand clearance of final products ‘upto the place of removal’.D[Paras 4, 5 and 6] [656-A-C, F-G]

2. The original definition of ‘input service’ contained inRule 2(l) of the Rules, 2004 used the expression ‘from the placeof removal’. As per the said definition, service used by themanufacturer of clearance of final products ‘from the place ofEremoval’ to the warehouse or customer’s place etc., was exigiblefor Cenvat Credit. However, vide amendment carried out in theaforesaid Rules in the year 2008, the word ‘from’ is replaced bythe word ‘upto’. Thus, it is only ‘upto the place of removal’ thatservice is treated as input service. This amendment has changedthe entire scenario. The benefit which was admissible evenFbeyond the place of removal now gets terminated at the place ofremoval and doors to the cenvat credit of input tax paid getsclosed at that place. This credit cannot travel therefrom. Itbecomes clear from the bare reading of this amended Rule, whichapplies to the period in question that the Goods Transport AgencyGservice used for the purpose of outward transportation of goods,i.e. from the factory to customer’s premises, is not covered withinthe ambit of Rule 2(l)(i) of Rules, 2004. The word ‘from’ is theindicator of starting point, whereas the expression ‘upto’ signifiesthe terminating point, putting an end to the transport journey.[Para 7] [656-G-H; 657-A-D]H

3. The Board’s Circular dated August 23, 2007 was issuedin clarification of the definition of ‘input service’ as existed onthat date i.e. it related to unamended definition. Therefore, itcannot be applied after amendment in the definition of ‘inputservice’ which brought about a total change. Now, the definitionof ‘place of removal’ and the conditions which are to be satisfiedhave to be in the context of ‘upto’ the place of removal. It is thisamendment which has made the entire difference. That aspect isnot dealt with in the said Board’s circular, nor it could be.Furthermore, if such a circular is made applicable even in respectof post amendment cases, it would be violative of Rule 2(l) ofRules, 2004 and such a situation cannot be countenanced.[Paras 10, 11 and 12] [659-B-C; 661-E-F]

Commissioner of Central Excise Belgaum v.M/s. Vasavadatta Cements Ltd. (Civil Appeal No. 11710of 2016) decided by Supreme Court of India videJudgment dated 17.01.2018 – referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No.11261of 2016.

From the Judgment and Order dated 29.06.2016 of the High Courtof Karnataka at Bengaluru in Central Excise Appeal No.52/2015.

K. Radhakrishnan, Sr. Adv., Ms. Nisha Bagchi, Arijit Prasad,Shirin Khajuria, Rajat Nair, Abhay Kumar, B. Krishna Prasad, Advs. forthe Appellant.

V. Lakshmi Kumaran, L. Badri Narayanan, Aditya Bhattacharya,Victor Das, Ms.Apeksha Mehta, M.P. Devanath, Advs. for theRespondents.

The Judgment of the Court was delivered by A.K. SIKRI, J. The core issue involved in the present case iswith regard to the admissibility or otherwise of the Cenvat Credit onGoods Transport Agency service availed for transport of goods from theplace of removal to buyer’s premises. This issue has arisen in thefollowing factual background:

The respondent M/s. Ultratech Cement Ltd. (hereinafter referredto as the ‘assessee’) is involved in packing and clearing/forwarding of A

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Acement classifiable under Chapter sub heading 25232910 of CentralExcise Tariff Act, 1985, with Central Excise Registration No.AAACL6442LEM014. The assessee is also availing the benefit ofCenvat Credit facility under the Cenvat Credit Rules, 2004 (‘Rules, 2004’for short). The assesseeherein gets finished goods (cement) from itsparent unit on stock transfer basis and sells the same in bulk form andBpacked bags. The assessee during the period from January, 2010 toJune, 2010 availed Cenvat Credit of service tax paid on outwardtransportation of goods through a transport agency from their premisesto the customer’s premises. According to the appellant/Revenue, thetransport agency service used by the assessee for transportation of theirCfinal product from their premises to customers premises cannot beconsidered to have been used directly or indirectly in relation to clearanceof goods from the factory viz., place of removal in terms of Rule 2(l) ofthe Rules and as such cannot be considered as input service to availCenvat credit.DAccordingly, the Office of the Commissioner of Central Excise:Bangalore II Commissionerate issued show cause notice datedFebruary 3, 2011 to the assessee inter alia stating that on scrutiny ofER-1 return submitted by the assessee for the period January, 2010 toJune, 2010, it was noticed that the assessee have wrongly availed theCenvat Credit of Service Tax paid on outward transportation of goodsEfrom the factory to the Customer’s premises, inasmuch as the GoodsTransport Agency Service used for the purpose of outward transportationof the goods from factory to customer’s premises is not input servicewithin the ambit of Rule 2(l)(ii) of the Rules, 2004. It was furthermentioned that the total Cenvat Credit claimed was in the sum of Rs.F25,66,131/- and the assessee was called upon to show cause as to whythe said amount be not recovered and penalty be not imposed. Theassessee submitted its reply to the show cause notice contesting theposition contained therein.

2. After hearing, the Adjudicating Authority passed Order-in-GOriginal dated August 22, 2011 holding that once the final products arecleared from the factory premises, extending the credit beyond the pointof clearance of final product is not permissible under Cenvat CreditRules and post clearance use of services in transport of manufacturedgoods cannot be input service for the manufacture of final product.

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Further, the Adjudicating Authority held that CBEC vide its CircularNo. 97/8/2007-ST dated August 23, 2007 has clarified the definition ofplace of removal. With respect to fulfillment of requirement of Circulardated August 23, 2007, it was held that the assessee has not producedany documentary evidence to prove that conditions laid down vide Circulardated August 23, 2007 has been fulfilled. Accordingly, the AdjudicatingAuthority passed the order as under:

“(i) Demanding the irregular Cenvat credit availed on outwardtransportation of goods amounting to Rs.25,66,131/- under Rule14 of Cenvat Credit Rules, 2004 read with Section 11A of CentralExcise Act, 1944;

(ii) Demanding interest under Rule 14 of Cenvat Credit Rules,2004 read with Section 11AB of Central Excise Act, 1944 readwith Section 75 of the Finance Act, 1994;

(iii) Did not order for initiation of action under Rule 15(1) ofCenvat Credit Rules, 2004 read with Rule 25 of Central ExciseRules, 2002;

(iv) Imposed penalty of Rs.25,66,131/- under Rule 15(3) of CenvatCredit Rules, 2004;

(v) Imposed penalty of Rs.1,00,000/- under Rule 25 of CentralExcise Rules, 2002.”

3. Aggrieved by the Order-in-Original No. 24/2011 dated August22, 2011, respondent/assessee preferred an appeal before Commissioner(Appeals). The Commissioner (Appeals) vide Order-in-Appeal No.57/2012-CE dated March 15, 2012 allowed the appeal and set aside theOrder-in-Original holding that assessee is eligible for availment of servicetax paid on GTA service on the outward freight from the factory to thecustomers’ premises as per the Board’s Circular 97/8/2007-Service Taxdated August 23, 2007. It was now the turn of the Revenue to feelaggrieved by the order. Accordingly, appeal was filed before the Customs,Excise and Service Tax Appellate Tribunal (CESTAT) by the Revenuewhich was rejected vide judgment dated May 1, 2015. Further appeal tothe High Court preferred by the assessee has met the same fate as thesaid appeal has been dismissed by the High Court of Karnataka vide itsjudgment dated June 29, 2016, which is the subject matter of the presentappeal.

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A4. As mentioned above, the assessee is involved in packing andclearing of cement. It is supposed to pay the service tax on the aforesaidservices. At the same time, it is entitled to avail the benefit of CenvatCredit in respect of any input service tax paid. In the instant case, inputservice tax was also paid on the outward transportation of the goodsfrom factory to the customer’s premises of which the assessee claimedBthe credit. The question is as to whether it can be treated as ‘inputservice’.

5. ‘Input service’ is defined in Rule 2(l) of the Rules, 2004 whichreads as under:

C“2(l) “input service” means any service:-

(i) Used by a provider of taxable service for providing an outputservices; or

(ii) Used by the manufacturer, whether directly or indirectly, in orin relation to the manufacture of final products and clearance ofDfinal products upto the place of removal and includes servicesused 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,Eprocurement of inputs, activities relating to business, such asaccounting, 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 upto the place of removal;”

6. It is an admitted position that the instant case does not fall inFsub-clause (i) and the issue is to be decided on the application of sub-clause (ii). Reading of the aforesaid provision makes it clear that thoseservices are included which are used by the manufacturer, whetherdirectly or indirectly, in or in relation to the manufacture of final productsand clearance of final products ‘upto the place of removal’.G

7. It may be relevant to point out here that the original definitionof ‘input service’ contained in Rule 2(l) of the Rules, 2004 used theexpression ‘from the place of removal’. As per the said definition, serviceused by the manufacturer of clearance of final products ‘from the place

of removal’ to the warehouse or customer’s place etc., was exigible forCenvat Credit. This stands finally decided in Civil Appeal No. 11710 of2016 (Commissioner of Central Excise Belgaum v. M/s. VasavadattaCements Ltd.) vide judgment dated January 17, 2018. However, videamendment carried out in the aforesaid Rules in the year 2008, whichbecame effective from March 1, 2008, the word ‘from’ is replaced bythe word ‘upto’. Thus, it is only ‘upto the place of removal’ that serviceis treated as input service. This amendment has changed the entirescenario. The benefit which was admissible even beyond the place ofremoval now gets terminated at the place of removal and doors to thecenvat credit of input tax paid gets closed at that place. This creditcannot travel therefrom. It becomes clear from the bare reading of thisamended Rule, which applies to the period in question that the GoodsTransport Agency service used for the purpose of outward transportationof goods, i.e. from the factory to customer’s premises, is not coveredwithin the ambit of Rule 2(l)(i) of Rules, 2004. Whereas the word ‘from’is the indicator of starting point, the expression ‘upto’ signifies theterminating point, putting an end to the transport journey. We, therefore,find that the Adjudicating Authority was right in interpreting Rule 2(l) inthe following manner:

“… The input service has been defined to mean any service usedby the manufacturer whether directly or indirectly and alsoincludes, interalia, services used in relation to inward transportationof inputs or export goods and outward transportation upto theplace of removal. The two clauses in the definition of ‘inputservices’ take care to circumscribe input credit by stating thatservice used in relation to the clearance from the place of removaland service used for outward transportation upto the place ofremoval are to be treated as input service. The first clause doesnot 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 transportservices 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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A15. Credit availability is in regard to ‘inputs’. The credit coversduty paid on input materials as well as tax paid on services, usedin or in relation to the manufacture of the ‘final product’. Thefinal products, manufactured by the assessee in their factorypremises and once the final products are fully manufactured andcleared from the factory premises, the question of utilization ofBservice does not arise as such services cannot be considered asused in relation to the manufacture of the final product. Therefore,extending the credit beyond the point of removal of the final producton payment of duty would be contrary to the scheme of CenvatCredit Rules. The main clause in the definition states that theCservice in regard to which credit of tax is sought, should be usedin or in relation to clearance of the final products from the placeof removal. The definition of input services should be read as awhole and should not be fragmented in order to avail ineligiblecredit. Once the clearances have taken place, the question ofgranting input service stage credit does not arise. TransportationDis an entirely different activity from manufacture and this positionremains settled by the judgment of Honorable Supreme Court inthe cases of Bombay Tyre International 1983 (14) ELT, IndianOxygen Ltd. 1988 (36) ELT 723 SC and Baroda Electric Meters1997 (94) ELT 13 SC. The post removal transport of manufacturedEgoods is not an input for the manufacturer. Similarly, in the caseof M/s. Ultratech Cements Ltd. v. CCE, Bhatnagar 2007 (6) STR364 (Tri), it was held that after the final products are cleared fromthe place of removal, there will be no scope of subsequent use ofservice to be treated as input. The above observations and viewsexplain the scope of relevant provisions clearly, correctly and inFaccordance with the legal provisions.”

8. The aforesaid order of the Adjudicating Authority was upset bythe Commissioner (Appeals) principally on the ground that the Board inits Circular dated August 23, 2007 had clarified the definition of ‘placeof removal’ and the three conditions contained therein stood satisfiedGinsofar as the case of the respondent is concerned, i.e. (i) regardingownership of the goods till the delivery of the goods at the purchaser’sdoor step; (ii) seller bearing the risk of or loss or damage to the goodsduring transit to the destination and; (iii) freight charges to be integralpart of the price of the goods. This approach of the Commissioner H

(Appeals) has been approved by the CESTAT as well as by the HighCourt. This was the main argument advanced by the learned counselfor the respondent supporting the judgment of the High Court.

9. We are afraid that the aforesaid approach of the Courts belowis clearly untenable for the following reasons:

10. In the first instance, it needs to be kept in mind that Board’sCircular dated August 23, 2007 was issued in clarification of the definitionof ‘input service’ as existed on that date i.e. it related to unamendeddefinition. Relevant portion of the said circular is as under:

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

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:-

“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”.

Similarly, in the case of M/s Ultratech Cements Ltd vs CCEBhavnagar 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 the A

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legal provisions. In conclusion, a manufacturer / consignor cantake 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’ hasnot 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 delivery

of 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 ofsuch 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.”

11. As can be seen from the reading of the aforesaid portion ofthe circular, 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’ as defined under Section 4 of the Act, there is noquarrel upto this stage. However, the important aspect of the matter isthat Cenvat Credit is permissible in respect of ‘input service’ and theCircular relates to the unamended regime. Therefore, it cannot be appliedafter amendment in the definition of ‘input service’ which brought abouta total change. Now, the definition of ‘place of removal’ and theconditions which are to be satisfied have to be in the context of ‘upto’the place of removal. It is this amendment which has made the entiredifference. That aspect is not dealt with in the said Board’s circular, norit could be.

12. Secondly, if such a circular is made applicable even in respectof post amendment cases, it would be violative of Rule 2(l) of Rules,2004 and such a situation cannot be countenanced.

13. The upshot of the aforesaid discussion would be to hold thatCenvat Credit on goods transport agency service availed for transportof goods from place of removal to buyer’s premises was not admissibleto the respondent. Accordingly, this appeal is allowed, judgment of theHigh Court is set aside and the Order-in-Original dated August 22, 2011of the Assessing Officer is restored.

Ankit Gyan

Appeal allowed.

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