Balmer Lawrie and Co. Ltd Vs Commissioner of CGST & Central Excise (CESTAT Kolkata)
Summary: The appellant had availed CENVAT Credit of service tax paid on outward freight charges during the period 2005-06 to 2007-08. A Show Cause Notice was issued on 19th March 2010 proposing denial of the credit. The lower authorities confirmed the demand, leading the appellant to approach the Tribunal.
The appellant submitted that outward transportation was an input service under Rule 2(l) of the CENVAT Credit Rules, 2004, as applicable during the relevant period. Until 31.03.2008, the definition covered services used by a manufacturer in relation to manufacture and clearance of final products from the place of removal. The appellant contended that the goods had been dispatched from its factory, which was the place of removal, and therefore the outward freight qualified for credit. The appellant also argued that the demand was time-barred because the CENVAT credit details had been disclosed in the ER-1 returns and there was no suppression.
The Tribunal considered the definition of input service under Rule 2(l) as it stood up to 31.03.2008. The provision covered services used by a manufacturer directly or indirectly in relation to manufacture and clearance of final products from the place of removal and included outward transportation.
The Tribunal relied upon the Larger Bench decision in ABB Ltd v. Commissioner of Central Excise and Service Tax, Bangalore, 2009 (15) S.T.R. 23 (Tri.-Larger Bench). The Larger Bench had held that, under the pre-1.4.2008 definition, services availed by a manufacturer for outward transportation of final products from the place of removal were input services under Rule 2(l)(ii), enabling the manufacturer to take credit of service tax paid on such services.
The Tribunal also considered the decision in India Cements Ltd. Vs Commissioner of GST & Central Excise, which discusses the distinction between the pre-1.4.2008 and post-1.4.2008 position and the amendment made by Notification No. 10/2008-C.E. (N.T.), dated 1.3.2008. The amendment substituted the expression “from the place of removal” with “upto the place of removal” with effect from 1.4.2008.
The Tribunal further referred to Regional Director v. High Land Coffee Works, (1991) 3 SCC 617, in the context of the meaning of the word “include”. The judgment also reproduced the discussion concerning Commissioner of Central Excise v. GTC Industries Ltd. and Reserve Bank of India v. Peerless General Finance & Investment Co. Ltd. in the Larger Bench decision.
The Tribunal noted that the goods in the present case had been dispatched from the appellant’s factory, which was the place of removal. Applying the applicable pre-1.4.2008 Rule 2(l), and following the Larger Bench decision, it held that the appellant was entitled to CENVAT credit of service tax paid on outward transportation.
The Tribunal also accepted the appellant’s limitation contention. The Show Cause Notice dated 19.03.2010 related to CENVAT credit taken during 2005-06 to 2007-08. The Tribunal observed that Rule 2(l) itself allowed CENVAT credit for the relevant services “from the place of removal” until 31.03.2008. It further noted that the appellant had provided details of the CENVAT credit taken in its ER-1 returns. Accordingly, no case of suppression was made out, and the confirmed demand for the extended period was held legally unsustainable on account of limitation.
The Tribunal therefore set aside the impugned order and allowed the appeal both on merits and on limitation. The appellant was held eligible for consequential relief, if any, as per law.
Cases Discussed
- ABB Ltd v. Commissioner of Central Excise and Service Tax, Bangalore, 2009 (15) S.T.R. 23 (Tri.-Larger Bench) — The Tribunal relied on the Larger Bench decision holding that, under the pre-1.4.2008 Rule 2(l)(ii), outward transportation of final products from the place of removal qualified as an input service.
- Regional Director v. High Land Coffee Works, (1991) 3 SCC 617 — The decision was referred to in the reproduced reasoning concerning the interpretation of the word “include”.
- Commissioner of Central Excise v. GTC Industries Ltd., 2008 (12) S.T.R. 468 (Tri.-Larger Bench) — The decision was referred to in the ABB Larger Bench reasoning concerning interpretation of the expression “include”.
- Reserve Bank of India v. Peerless General Finance & Investment Co. Ltd., AIR 1987 SC 1023 — The decision was referred to in the ABB Larger Bench discussion concerning interpretation of the definition containing “means” and “includes”.
- Gujarat Ambuja Cements Ltd. v. CCE, Ludhiana, 2007 (6) S.T.R. 249 (Tri.-D) — The decision was referred to in the discussion of the scope of CENVAT credit on outward transportation under the applicable Rule 2(l) provision.
- All India Federation of Tax Practitioners v. Union of India, 2007 (7) S.T.R. 625 (S.C.) — The decision was referred to in the discussion concerning Service Tax as a consumption tax and the treatment of service tax in the context of CENVAT credit.
- Apar Industries Ltd. Vs CCE & ST Surat-1, (2024) 16 Centax 165 (Tri.-Ahmd) — The decision was relied upon in support of CENVAT credit for outward transportation and the limitation issue where the credit had been disclosed in the relevant returns.
FULL TEXT OF THE CESTAT KOLKATA ORDER
The appellant has sent a request for adjourning the matter. Considering the fact that the appeal has been filed in the year 2018 and the issue is in a short compass, I have taken up the appeal itself for disposal with the help of the Learned AR. The appellant has taken the CENVAT Credit for the Service Tax paid on outward freight charges during the period 2005-06 to 2007-08. On the ground that taking the credit of CENVAT Credit is not proper a Show Cause Notice was issued to the appellant on 19th March 2010. The appellant made their submissions both on merits as well as on account of time bar. After due process, the lower authorities have confirmed the demand. Therefore, the appellant is before the Tribunal.
2. The appellant in the grounds of appeal has submitted that the outward freight charge is a service which is related to their business and the same is an input service as per Rule 2(l) of Cenvat Credit Rules, 2004. At the time of taking the credit till 31.03.2008, CENVAT Credit was allowed to be taken for the input services used for clearance of final products “from the place of removal”. Therefore, the appellant submits that they are eligible to take the CENVAT Credit.
3. They have also relied on the case law of ABB Ltd Vs. Commissioner of Central Excise and Service Tax-Bangalore-2009-(15) (STR) 23 (Tri-Larger Bench).
4. The appellant has also made submissions to the effect that no suppression has taken place from their end and they have correctly taken the CENVAT Credit and shown the same in their ER-1 returns. Therefore, they submit that the entire demand is time barred.
5. In view of these submissions, the appellant prays that the appeal may be allowed both on merits as well as on account of limitation.
6. The Learned AR reiterates the findings of the lower authorities and submits that the appellant has incurred the freight charges for outward movement of the goods. Therefore, this has no nexus with the manufacturing activity of the appellant. Accordingly, he supports the confirmed demand on the appellant. He prays that the appeal may be dismissed.
7. Heard both sides and perused the appeal papers, the definition of input service as per Rule 2(l) of the CENVAT Credit Rules 2004 during the period under consideration till 31.03.2008 was as under.
“Rule 2(l) “input service” means any service, –
i. Used by a provider of [output service] for providing an output service; or
ii. Used by a 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, and includes services used in relation to modernisation, 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, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal”;
8. From the above definition, it can be seen that the assessee can take CENVAT Credit for all the services used in the course of business for clearance of final products “from the place of removal”. In the present case, there is no dispute that the goods in question have been dispatched from the factory of the appellant which happens to be the “place of removal”.
9. This issue is well covered by the Larger Bench decision in the case of ABB Ltd v. Commissioner of Central Excise and Service Tax, Bangalore,-2009 (15) (STR) 23, (Tri-Larger Bench). The Larger Bench decision has held as under:
“16. According to the Revenue, the inclusive clause in specifically limiting the credit for outward transportation upto the place of removal, has a bearing on the interpretation of the means clause and therefore, the expression “service relating to clearance from the place of removal” cannot cover outward transportation. This stand is not tenable in the light of the apex court decision in Regional Director v. High Land Coffee Works [(1991) 3 SCC 617] holding that the word “include” is generally used to enlarge the meaning of the preceding words and it is by way of extension, and not restriction. Similar view has been taken by the Larger Bench of the Tribunal in Commissioner of Central Excise v. GTC Industries Ltd. [2008 (12) S.T.R. 468], relying on the Apex Court‘s decision in Reserve Bank of India v. Peerless General Finance & Investment Co. Ltd. [AIR 1987 SC 1023]. In the above case, the Apex Court was interpreting the definition of the term “prize chit” in the Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. case reported in AIR 1987 SC 1023, the apex court was interpreting the definition of the term “prize chit” which was defined only exclusively, for the purpose of examining whether the endowment scheme piloted by the company fall within the definition of “prize chit” which was banned under Section 3 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978. The Supreme Court held that the word “includes” was intended not to extend the meaning of „prize chit‘ but to cover the transaction or arrangements of nature of prize chits but under different names. This decision, however, is not applicable for the purpose of interpreting the definition of “input services” which contains both the expressions “means” and “includes”.
17. In this view of the matter, the use of the expression „outward transportation‘ in the inclusive clause of the definition is by way of abundant caution so as to avoid any dispute being raised on the “means clause” (which refers to clearance from the place of removal), that transportation upto the place of removal is not available as credit.
Transportation within a factory would be covered by the inclusive clause. However, where depot is a place of removal, freight from depot to customer‘s premises would be covered by the means clause by the expression “service used directly or indirectly or in relation to clearance of final products from place of removal”. Similarly, where the factory is the place of removal freight from factory to customer‘s premises would be covered by the term “service used directly or indirectly, in relation to clearance from place of removal.”
25.In the result, we answer the reference by holding that the services availed by a manufacturer for outward transportation of final products from the place of removal should be treated as an input service in terms of Rule 2(l)(ii) of the CENVAT Credit Rules, 2004 and thereby enabling the manufacturer to take credit of the service tax paid on the value of such services.”
10. Similar decision has been given by the High Court and Tribunal in the following cases:
(2014 (34) S.T.R. 809 (A.P.)
COMMR. OF CUS. & C. EX., HYDERABAD-III
Vs GREY GOLD CEMENTS LTD.
3. The primary authority – the Assistant Commissioner of Customs and Central Excise disallowed the manufacturer’s claim for input tax credit, on the transportation of goods to customers premises to the extent of the component of service tax paid on such transportation of goods beyond the place of removal i.e., on clearances of their final products effected to Government Institutions and individual customers at factory gate during the period in question. In appeals preferred, the Commissioner (Appeals) relying on the Board Circular (bearing reference F.No. 137/3/2006-CX.4, dated 2-2-2006) allowed the appeals. The appellate authority held that in case of depot sales of goods, credit of service tax paid on transportation of goods up to such depot would be eligible for Cenvat Credit and concluded that as per Rule 2(l)(ii) of the Cenvat Credit Rules, 2004 a manufacturer is eligible for Cenvat credit of Service Tax paid on outward transportation of cement and it was only clarified by the Board that in case goods are first transported to Depot, the Service Tax incidence on freight from factory to depot would also be available as Cenvat credit to the manufacturer.
4. The Revenue appeals to the Tribunal against the appellate orders were referred to the Larger Bench on the question; whether the services availed by a manufacturer for outward transportation of final products from the place of removal should be treated as an “Input Service” in terms of Rule 2(l)(ii) of CENVAT Credit Rules, 2004 and thereby enabling the manufacturer to take credit of the service tax paid on the value of such services? Or whether the “Input service” should be limited only to outward transportation up to the place of removal in terms of the inclusive definition as held in the Gujarat Ambuja case cited supra?
5. The Tribunal concurred with the appellate authority relying on the judgment of the High Court of Punjab and Haryana reported in Gujarat Ambuja Cements Ltd. v. Commissioner of Central Excise, Ludhiana – 2009 (14) S.T.R. 3 (P&H) = 2009 (236) E.L.T. 431 (P & H). The Tribunal also referred to the Board Circular dated 2-2-2006, as did the appellate authority; and referred to OECD guidelines. The Tribunal also relied on observations of the Supreme Court in All India Federation of Tax Practitioners v. Union of India – 2007 (7) S.T.R. 625 (S.C.). The Supreme Court observed that Service Tax and Excise duty are consumption taxes to be borne by the consumer and therefore if credit is denied on transportation service the levy of service tax on transportation will become a tax on business rather than being a consumption tax. The Tribunal observed that the submission of the Revenue that the CENVAT credit cannot be allowed for service if the value thereof does not form part of the value subjected to excise duty runs counter to the fundamental concept of Service Tax laid down in All India Federation of Tax Practitioners‟ case (supra). We concur with this analysis.
6. In circumstances above, no question of law let alone a substantial question of law arises for consideration in these appeals. The appeals are accordingly dismissed at the stage of admission. No costs.
(2024) 16 Centax 165 (Tri.-Ahmd)
Apar Industries Ltd.
Vs CCE & ST Surat-1
11. In view of above judgments, we hold that the Appellant is entitled to CENVAT credit of service tax paid under RCM for transportation of goods from its factory to customer’s premises. No case is made out by the revenue for denial of the CENVAT Credit on the ground that goods were not sold on FOR basis.
13. Following the decision of the larger bench in ABB Limited, we hold that non-inclusion of the costs of the transportation in assessable value is no ground to deny the CENVAT credit.
14. We further find that demand in the present case relates to the period January, 2005 to June, 2007 and the show cause notice was issued on 2¬12-2009. The entire demand is beyond normal period of one year. The issue involved is of interpretation of Cenvat Credit Rules and on this issue there are number of judgements. In these circumstances it cannot be said that the Appellant had a mala fide intention to evade the excise duty by taking the wrong credit. We do not find any suppression of fact or misstatement on the part of the Appellant. Thus, we are of the opinion that extended period cannot apply in the facts of the present case.
11. I find that in the present case, the ratio laid down in the above case laws are squarely applicable. Therefore, applying the ratio of these case laws, I set aside the impugned order and allow the appeal on merits.
12. I also find considerable force in the appellant’s argument that the Show Cause Notice issued on 19.03.2010 for the CENVAT Credit taken during the period 2005-06 to 2007-08 is time barred. As discussed above, the Rule 2(l) of Cenvat Credit Rules, 2004 itself allows all the CENVAT Credit for the services used “from the place of removal” till 31.03.2008. The entire period under consideration in the present dispute is before 31.03.2008. Apart from this, the appellant has provided all the details of CENVAT credit taken in the ER-1 Returns. Therefore, no case of suppression has been made out against the appellant. Accordingly, I hold that the confirmed demand for the extended period is legally not sustainable. I set aside the confirmed demand for the extended period on account of time bar also.
13. The appeal stands allowed both on merits as well as on account of limitation. The appellant would be eligible for consequential relief, if any as per law.
(Dictated and pronounced in the open court)
