COMMISSIONER OF CENTRAL EXCISE BELGAUM versus M/S. VASAVADATTA CEMENTS LTD. on 17 January 2018

814

SUPREME COURT REPORTS[2018] 1 S.C.R. 814

[2018] 1 S.C.R.

ACOMMISSIONER OF CENTRAL EXCISE BELGAUM

v.

M/S. VASAVADATTA CEMENTS LTD.

(Civil Appeal No. 11710 of 2016)

JANUARY 17, 2018

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

CENVAT Credit Rules, 2004:

r. 2(1) – CENVAT credit – Entitlement to – On input service.i.e. tax paid on transportation of final products from the place ofCremoval to depots or the buyers premises – Held: Assessee is entitledto CENAT credit on the tax paid on the transportation of the finalproduct from the place of removal upto the first point whether it isdepot or the customer.

Dismissing the appeal of the Revenue and allowing thoseof the assessees, the CourtD

HELD: The expression used in r. 2(1) of CENVAT CreditRules, 2004 is “from the place of removal”. It has to be from theplace of removal upto a certain point. Therefore, tax paid on thetransportation of the final product from the place of removal uptothe first point, whether it is depot or the customer, has to beEallowed. This view gets support from the amendment which hasbeen carried out w.e.f. 01.04.2008 whereby the aforesaidexpression “from the place of removal” is substituted by “uptothe place of removal”. Thus from 01.04.2008, with the aforesaidamendment, the CENVAT credit is available only upto the placeFof removal whereas as per the amended Rule from the place ofremoval which has to be upto either the place of depot or theplace of customer, as the case may be. Appeals are bereft of anymerit and are accordingly dismissed. [Paras 7, 8 and 9] [819-E-G; 820-B]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 11710Gof 2016

From the Judgment and Order dated 24.09.2010 of the High Courtof Karnataka Circuit Bench at Gulbarga in C.E.A. No. 301 of 2010.

WITH

C.A. No. 10300 OF 2011H

COMMISSIONER OF CENTRAL EXCISE BELGAUM v. M/S.VASAVADATTA CEMENTS LTD.

C.A. No. 11923, 11914, 11898, 11899, 11919, 11904, 11925, 11870,11924, 11900-11901, 11402, 11909, 11403, 11947, 11946, 11920, 11874,11913, 11399, 11401, 11902, 11877-11884, 11876, 11922, 11921, 11400,11875 OF 2016

K. Radha Krishnan, Y. P. Adhyaru, Sr. Advs., Arijit Prasad, RupeshKumar, Ms. Sadhana Sandhu, H.R. Rao, Ms. Gargi Khanna, MansihPushkaran, Ms Nisha Bagchi, Ms. Shirin Khajuria, Zohib, Ms. OojaSharma, Ms. Sanskriti Bhardwaj, Ms. Ayushi Gaur, B. Krishna Prasad,Ms. Anil Katiyar, Arup Banerjee, Sarbendra Kumar, Prakash Sharma,Chava Badrinath Babu, V.V. Rayudu, Rameshwar Prasad Goyal, KartikK., Praveen Kumar, S. B. Sharma, Ms. Babita S., Advs. for theAppellants.

S. Bagaria, Sr. Adv., V. Lakshmi Kumaran, Aditya Bhattacharya,Ajit Kumar, Victor Das, Ms. Apeksha Mehta, M. P. Devanath,R. Parthasarthy, S. J. Amith, Purushottham Sharma Tripathi, MukeshKumar Singh, R.C. Prakash, Dr. (Mrs.) Vipin Gupta, Sumit Goel, AbhiramNaik, Ms. Tanuj Agarwal, M/S. Parekh & Co., Ms. Vanita Bhargava,Abhisaar Bairagi, M/S. Khaitan & Co., Ranjit B. Raut, Mrs. Bina Gupta,Ms. Surbhi Kapoor, Nikhil Swami, Ms. Divya Swami, Mrs. PrabhaSwami, B. Krishna Prasad, Anand Sukumar, S. Sukumaran, BhupeshKumar Pathak, Ms. Meera Mathur, L. Badri Narayanan, AdityaBhattacharjee, Victor Das, Yogendra Aldak, Karan Sachdev, BalajiSrinivasan, Garvesh Kabra, Somnath Shukla, Udit Jain, Vivek Sharma,Ms. Ashwini Chandrasekaran, Praveen Kumar, Abhishek Anand, HarishPandey, Advs. for the Respondent.

The Judgment of the Court was delivered by

A. K. SIKRI, J.

C.A Nos. 11710/2016,C.A. No. 11923/2016, C.A. No. 11914/2016,C.A. No. 11898/2016, C.A. No. 11899/2016, C.A. No. 11919/2016,C.A. No. 11904/2016, C.A. No. 11925/2016, C.A. No. 11870/2016,-C.A. No. 11924/2016, C.A. No. 1190011901/2016, C.A. No.11909/2016, C.A. No. 11402/2016, C.A. No. 11403/2016, C.A.No. 11947/2016, C.A. No. 11946/2016, C.A. No. 11920/2016, C.A.No. 11874/2016, C.A. No. 11903/2016, C.A. No. 10300/2011, C.A.No. 11913/2016, C.A. No. 11399/2016, C.A. No. 11401/2016, C.A.-No. 11902/2016, C.A. No. 1187711884/2016, C.A. No. 11876/2016, C.A. No. 11922/2016 & C.A. No. 11921/2016.

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A1. These appeals are preferred by the Central Excise Departmentagainst the judgment and order passed by the Customs, Excise & ServiceTax Appellate Tribunal (herein after referred to as “CESTAT”) wherebythe CESTAT has allowed to the respondents (hereinafter referred to as“assessees”) CENVAT credit on goods transport agency service availedfor transport of goods from the place of removal to depots or the buyersBpremises. The lead judgment was given by the CESTAT in the case ofCommissioner of Central Excise & S.T Unit Bangalore vs. M/s. ABBLimited. The aforesaid judgment dated 18.05.2009 has been upheld bythe Karnataka High Court vide judgment dated 23.03.2011. This judgmenthas been followed in all other cases.C

2. The entire issue hinges upon the interpretation that has to begiven to input service which is defined in Rule 2(l) of the CENVATCredit Rules, 2004. It may be stated at this stage itself that all theseappeals relate to a period prior to 01.04.2008. The aforesaid Rule wasamended w.e.f. 01.04.2008 as would be noticed hereafter. However,Dsince we are concerned with the unamended Rule, we reproduce thesame hereunder:

“(I) “input service” means any service,-

(i) used by a provider of taxable service for providing an outputservice; orE(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 servicesused in relation to setting up, modernization, renovation or repairsof a factory, premises of provider of output service or an officeFrelating 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 asaccounting, auditing, financing, recruitment and quality control,coaching and training, computer networking, credit rating, shareregistry and security, inward transportation of inputs or capitalGgoods and outward transportation upto the place of removal;”

3. The Full Bench of CESTAT in M/s. ABB Limited case, whichhas been upheld by the Karnataka High Court as mentioned above, hasinterpreted the aforesaid Rule observing that it is in two parts. In thefirst part, input service is defined with the expression “means” and inHthat context input service is defined as any service used by a provider of a taxable service or providing an output service or used by themanufacturer, whether directly or indirectly, in or in relation to themanufacture of final products and clearance of final products “from theplace of removal”. It is further held that second part of the definitionstarts from “includes” where some of the services are mentioned, whichare included as “input services”.

4. We may make it clear that in the instant appeals, we areconcerned with the first part of the definition. Insofar as second part isconcerned, certain contentions, which have been raised by some of theassessees, have been rejected and that aspect is decided in favour ofthe Department. Since these appeals are filed by the Departmentquestioning the interpretation that is given by the CESTAT as well as theHigh Court in respect of first part, we are not making any commentsinsofar as judgment of the CESTAT pertaining to second part isconcerned.

5. Coming back to the first part of the definition as to what inputservice means, the Full Bench of the CESTAT held that all input serviceswhich are used by the manufacturer, whether directly or indirectly, in orin relation to manufacture of final products and clearance of final productsfrom the place of removal are concerned, they are treated as inputservices and CENVAT credit in respect of expenditure incurred in relationto such services would be admissible. The expression with which theCESTAT was concerned, and which was the subject matter of discussion,was as to what would be the meaning of “from the place of removal”.Obviously, any input service given for clearance of the final products“from the place of removal” and tax paid thereon the CENVAT credithas to be given. The question is from the place of removal up to whatplace. The assessees had claimed the tax paid on the transportation offinal products from the place of removal (i.e. the place of manufacture)to either the place to their respective depots or transport upto the placeof the customers, if from the place of removal the goods were directlydelivered at customers place. It is made clear that only first set oftransportation from the place of removal was claimed. To put it otherwise,in those cases where the tax paid on transportation on the goods fromthe place of removal upto the place of depot only that was claimed andif there was any such tax again paid from the place of depot to the placeof customers, the CENVAT credit thereof was not claimed and there isno dispute about it.

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6. The aforesaid approach of the Full Bench of the CESTAT, asaffirmed by the High Court, appears to be perfectly correct and we donot find any error therein. For the sake of convenience, we would liketo reproduce the following discussion contained in the judgment of theHigh Court.

B“30. The definition of ‘input service’ contains both the word‘means’ and ‘includes’, but not ‘means and includes’. The portionof the definition to which the word means applies has to beconstrued restrictively as it is exhaustive. However, the portionof the definition to which the word includes applies has to beconstrued liberally as it is extensive. The exhaustive portion ofCthe definition of ‘input service’ deals with service used by themanufacturer, whether directly or indirectly, in or in relation tothe manufacture of final products. It also includes clearance offinal products from the place of removal. Therefore, servicesreceived or rendered by the manufacturer from the place ofDremoval till it reaches its destination falls within the definition of input service. What are the services that normally a manufacturerwould render to a customer from the place of removal? Theymay be packing, loading, unloading, transportation, delivery, etc.Though the word transportation is not specifically used in thesaid section in the context in which the phrase ‘clearance offinal products from the place of removal’ is used, it includes thetransportation charges. Because, after the final products hasreached the place of removal, to clear the final products nothingmore needs to be done, except transporting the said final productsto the ultimate destination i.e. the customer’s/buyer of the said E

Fproduct, apart from attending to certain ancillary services asmentioned above which ensures proper delivery of the finishedproduct upto the customer. Therefore, all such services renderedby the manufacturer are included in the definition of ‘inputservice’. However, as the legislature has chosen to use the word‘means’ in this portion of the definition, it has to be construedGstrictly and in a restrictive manner. After defining the ‘inputservice’ used by the manufacturer in a restrictive manner, in thelater portion of the definition, the legislature has used the word‘includes’. Therefore, the later portion of the definition has to beconstrued liberally. Specifically what are the services which fallHwithin the definition of ‘input service’ has been clearly set out in

COMMISSIONER OF CENTRAL EXCISE BELGAUM v. M/S.VASAVADATTA CEMENTS LTD. [A. K. SIKRI, J.]

that portion of the definition. Thereafter, the words ‘activitiesrelating to business’ - an omni-bus phrase is used to expand themeaning of the word ‘input service’. However, after using theomni-bus phrase, examples are given. It also includestransportation. The words used are (a) inward transportation ofinputs or capital goods (b) outward transportation upto the placeof removal. While dealing with inward transportation, they havespecifically used the words ‘inputs’ or ‘capital goods’. But, whiledealing with outward transportation those two words areconspicuously missing. The reason being, after inwardtransportation of inputs or capital goods into the factory premises,if a final product emerges, that final product has to be transportedfrom the factory premises till the godown before it is removedfor being delivered to the customer. Therefore, ‘input service’includes not only the inward transportation of inputs or capitalgoods but also includes outward transportation of the final productupto the place of removal. Therefore, in the later portion of thedefinition, an outer limit is prescribed for outward transportation,i.e., up to the place of removal.

7. As mentioned above, the expression used in the aforesaid Ruleis “from the place of removal”. It has to be from the place of removalupto a certain point. Therefore, tax paid on the transportation of the finalproduct from the place of removal upto the first point, whether it is depotor the customer, has to be allowed.

8. Our view gets support from the amendment which has beencarried out by the rule making authority w.e.f. 01.04.2008 vide NotificationNo. 10/2008CE(NT) dated 01.03.2008 whereby the aforesaid expression“from the place of removal” is substituted by “upto the place of removal”.Thus from 01.04.2008, with the aforesaid amendment, the CENVATcredit is available only upto the place of removal whereas as per theamended Rule from the place of removal which has to be upto either theplace of depot or the place of customer, as the case may be. Thisaspect has also been noted by the High Court in the impugned judgmentin the following manner:

“However, the interpretation placed by us on the words ‘clearanceof final products from the place of removal’ and the subsequentamendment by Notification 10/2008 CE(NT) dated 1.03.2008substituting the word ‘from’ in the said phrase in place of ‘upto’

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Amakes it clear that transportation charges were included in thephrase ‘clearance from the place of removal’ upto the date ofthe said substitution and it cannot be included within the phrase‘activities relating to business.”

9. In view of the aforesaid discussion we hold that the appealsBare bereft of any merit and are accordingly dismissed.

Civil Appeal No. 11400 of 2016

We find that the CESTAT had rejected the appeal of the appellanton the ground that there is a delay of 85 days and this order has beenupheld by the High Court as well. Otherwise, we find that the legal issueCraised in this appeal has been decided by the same Bench of the KarnatakaHigh Court in favour of the assessee and that order has been upheld byby this Bench in the above matters i.e. Commissioner of CentralExcise Belgaum Versus M/S. Vasavadatta Cements Ltd.(Civil AppealNo(S). 11710/2016 & other connected matters) preferred by theDDepartment. For these reasons, we condone the delay in filing the appealbefore the CESTAT. We find that the appellant is also entitled to thebenefit of the judgment of this Court.

10. This appeal is accordingly allowed in terms of the above orderpassed in Commissioner of Central Excise Belgaum Versus M/s.EVasavadatta Cements Ltd.(Civil Appeal No(S). 11710/2016 & otherconnected matters.)

Civil Appeal No. 18897 of 2017.

11. This appeal preferred by the assessee(s) is allowed in termsof the order passed in Commissioner of Central Excise Belgaum FVersus M/S. Vasavadatta Cements Ltd.(Civil Appeal No(S). 11710/2016 & other connected matters.)

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Kalpana K. Tripathy Appeals disposed of.

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