Bharat Fritz Werner Ltd Vs Commissioner of Central Tax North West Commissionerate (Karnataka High Court)
Summary: The Karnataka High Court allowed the appeals and held that CENVAT credit of service tax paid on outward Goods Transport Agency (GTA) services was available where, under the purchase orders, the manufacturers were required to deliver the goods at the buyers’ premises. The Court noted that the CESTAT itself had recorded that the goods were required to be supplied at the buyers’ premises and, in the case of Bharat Fritz Werner Ltd., the price included outward freight. Referring to Section 4(3)(c)(iii) of the Central Excise Act, 1944 and Rule 2(l) of the CENVAT Credit Rules, 2004, the High Court held that input service includes outward transportation up to the “place of removal”.
Following Madras Cements Ltd., the Court held that where sale concluded only upon delivery at the buyer’s address, the assessee was entitled to CENVAT credit on outward transportation. The Court also considered Circular No.1065/4/2018-CX dated 08.06.2018, which dealt with determination of the place of removal in light of Supreme Court decisions including Ultra Tech Cement, Roofit Industries and EMCO Ltd. On the facts, the High Court held that the buyers’ premises constituted the place of removal. It therefore answered the common question of law in favour of the assessees, held the Tribunal’s view unsustainable, allowed CEA Nos.56/2019 and 71/2019, and set aside the respective CESTAT orders.
Cases Discussed
- Madras Cements Ltd. Vs. Additional CCE, 2015 (40) STR 645 (KAR) — Relied upon by the appellants and applied by the Karnataka High Court; where title in the goods passed only upon delivery at the buyer’s destination, CENVAT credit on outward transportation up to that destination was available.
- CCE & ST Vs. Ultra Tech Cement Ltd., 2018 (9) GSTL 337 (SC) — Relied upon by the Tribunal for denying credit; distinguished on facts because in the present appeals the goods were required to be delivered at the buyers’ premises.
- Commissioner of Customs and Central Excise, Aurangabad Vs. Roofit Industries Ltd., 2015 (319) ELT 221 (SC) — Relied upon by the appellants in support of their contention regarding determination of the place of removal in destination-sale transactions.
- Commissioner of Central Excise, Mumbai III Vs. EMCO Ltd., 2015 (322) ELT 394 (SC) — Relied upon by the appellants in support of their contention concerning the place of removal where delivery was at the purchaser’s premises.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
These two appeals have been admitted by this Court to consider the following question of law:
“Whether in the facts and circumstances of the case, the Tribunal was right in denying the cenvat credit availed by the appellant in respect of GTA services received for clearance of goods “upto the place of removal” as envisaged in Rule 2(1) of the Cenvat Credit Rules, 2004 for the period in dispute?”
2. Hence, they are heard together and disposed of by this common order.
3. Heard Shri. K.S. Ravi Shankar, learned Senior Advocate for the appellant and Smt. K.R. Vanitha, learned Standing Counsel for the respondent.
Facts in CEA 56/2019
4. Appellant is a Public Limited Company manufacturing CNC Machines. As per the purchase orders, it has sold and delivered the final product at 1 buyers premises. It availed CENVAT credit of service tax paid on Outward Goods Transport Agency (GTA) service used for transporting final product to customer’s place. A show cause notice was issued calling upon the appellant as to why the credit availed should not be demanded under Section 11A of the Central Excise Act read with Rule 14 of CENVAT Credit Rules; and interest and penalty should not be imposed. Appellant contested the show cause notice. The adjudicating authority passed the Order in Original No.25/ADC/YPR/BIII/2014 dated 13.10.2014 disallowing and confirming the demand of CENVAT Credit amounting to Rs.16,26,589/-. A penalty of 2 equal sum was also imposed. The appeal filed thereon, also stood rejected. 3
5. The appeal filed before the 4 CESTAT challenging the order passed by the Appellate Authority has been disposed of, holding that there was no infirmity in the order demanding CENVAT Credit. However, the CESTAT has set-aside the penalty holding that there was no intention to evade payment of duty.
Facts in CEA 71/2019
6. Appellant is a Private Limited Company engaged in manufacture of Special Boring Bars and Tools Holding Systems. As per the purchase orders, it has delivered the final product at buyer’s place.
7. It availed CENVAT credit of service tax paid on Outward Goods Transport Agency (GTA) service used for transporting final product to customer’s place. A show cause notice was issued calling upon the appellant as to why the credit availed should not be demanded under Section 11A of the Central Excise Act read with Rule 14 of CENVAT Credit Rules; and interest and penalty should not be imposed. Appellant contested the show cause notice and the adjudicating authority passed the Order in Original C.No. V/84/15/82/2015/Adjn.BII dated 29.02.2016 confirming the demand of Rs.20,48,961/-, interest of Rs.20,48,961/- and penalty of Rs.1,50,000/-. In appeal, A No.83/2016 B-II, vide order dated 19.12.2017, the Appellate Authority allowed the credit of Rs.7,245/- and confirmed the remaining demand of Rs.20,41,716/- and penalty of Rs.1,50,000/-.
8. The appeal filed before the CESTAT challenging the order passed by the Appellate Authority has been disposed of holding that there is no infirmity in demanding the CENVAT Credit availed by the appellant with regard to GTA. However, the CESTAT has set-aside the penalty holding that there was no intention to evade payment of duty.
9. Shri. Ravishankar, learned Senior Advocate, submitted that:
- the issue involved in these two appeals is covered by the decision of this Court in 7 Madras Cements Ltd., Vs. Additional CCE;
- the Tribunal has upheld the demand by placing reliance on Central Excise Vs. 8 Ultratech Cement. The said authority is not applicable to the facts of this case because, as per the purchase order, appellants were required to deliver the goods at the site of the purchaser and this fact has been recorded by the CESTAT;
- the issue involved in these appeals is also covered by the decision of the Hon’ble Supreme Court of India in Commissioner of Customs and Central Excise, Aurangabad Vs. 9 Roofit Industries Ltd., and Commissioner of 10 Central Excise, Mumbai III Vs. EMCO Ltd.; and
- that the Ministry of Finance, Department of Revenue has issued Circular No.1065/4/2018- CX dated 08.06.2018 clarifying the definition of ‘Place of Removal’.
10. In substance, Shri. Ravi Shankar submitted that the goods manufactured by the appellants have been delivered at purchaser’s site. Therefore, appellants are entitled for the CENVAT Credit on GTA services.
11. Smt. Vanitha, argued opposing the appeal.
12. We have carefully considered rival contentions and perused the records.
13. The CESTAT, in the case of Bharat Fritz Werner Ltd. Vs. C.C., C.E.& S.T-Commissioner of 11 Central Tax, has recorded in paragraph No.5 that as per the purchase orders, appellant was required to supply the goods at the buyer’s premises and the price of goods would include ‘outward freight’. 12 Similarly, in the case of MAPAL India Pvt. Ltd., the CESTAT has recorded a similar finding.
14. It is clear that as per Section 4(3)(c)(iii) of Central Excise Act, 1944, the definition of ‘Place of Removal’ means the premises from where the excisable goods are to be sold after their clearance form the Factory.
15. The ‘Input Service’ defined in Rule 2 (1) of CENVAT Credit Rules, 2004, includes any service in relation to ‘Outward Transportation’ up to the ‘Place of Removal’.
16. This Court in the case of Madras Cements Ltd., has held as follows:
“11. From the facts of the present case, it is clear from the invoices that title of the goods had passed on from seller to buyer only at the place of destination, which is the address of the buyer. As such, the buyer had no right over the goods till delivered to it. The Tribunal has not considered this aspect and has only relied on the amendment made to the definition of “input service” with effect from 1-4-2008 and rejected the claim of the appellant-assessee after that date. No further reason has been given by the Tribunal nor any finding has been recorded with regard to place of completion of sale of the goods.
12. Since we are of the opinion that the sale had concluded only after the delivery of the goods was made at the address of the buyer, in the facts of the present case the appellant-assessee would be entitled to the benefit of Cenvat credit on Service Tax paid on outward transportation of goods by the assessee even after 1-4-2008. The appellant- assessee would thus be entitled to such benefit for the period 1-4-2008 to 31-7-2008 which has been denied to it by the authorities below.
13. For the forgoing reasons, this appeal stands allowed. The question of law is answered in favour of the assessee and against the Revenue. The order of the Tribunal to the extent of disallowing Cenvat credit to the appellant for the period after 31-3-2008 is quashed.”
17. The Ministry of Finance (Department of Revenue) Central Board of Indirect Taxes and Customs, New Delhi, has issued Circular dated 08.06.2018 and clarified the definition, ‘Place of Removal’. In para 5 of the Circular, the Ministry has referred to the judgment in the case of CCE & ST Vs. Ultra Tech Cement Ltd. and stated that, in that case, the Apex Court has held that CENVAT Credit on GTA Service from the place of removal to the buyer’s premises is not admissible.
18. In the instant cases, the place of removal is buyer’s premises. Therefore, the authority in the case of Madras Cements Ltd., is applicable to the facts of this case and these appeals merit consideration. Hence, the following:
ORDER
(a) The questions of law framed by this Court in CEAs No. 56/2019 and 71/2019 are answered in favour of the assessee holding that the Tribunal’s view is unsustainable in law;
(b) CEA No.56/2019 is allowed and impugned order vide Final Order Nos.21960-21962/2018 dated 31.12.2018 passed Civil Appeal No.11261 of 2016 dated 01.02.2018 in Appeals Nos.E/21756/2017-SM, E/21757/ 2017-SM and E/21758/2017-SM are set aside; and
(c) CEA No.71/2019 is allowed and impugned order vide Final Order No.20224/2019 dated 27.02.2019 passed in Appeal No.E/20302/2018-SM is set aside.
No costs.
Notes:
1 Central Value Added Tax
2 Appeal No.229-231/2017 CT rejected on 18.09.2017
3 E/21756/2017-SM, E/21757/2017-SM, E/21758/2017-SM Disposed of on 31.12.2018
4 Customs, Excise & Service Tax Appellate Tribunal
5 E/20302/2018 – SM disposed of on 27.02.2019
6 2015 (40) STR 645 (KAR)
7 2015 (40) STR 645(KAR))
8 2018 (9) GSTL 337(SC)
9 2015 (319) ELT 221(SC)
10 2015 (322) ELT 394 (SC)
11 CEA 56/2019
12 CEA 71/2019 71/2019
