Case Law Details
JSW Steel Ltd Vs Commissioner of Central Excise (CESTAT Mumbai)
Introduction: The case of JSW Steel Ltd vs. Commissioner of Central Excise, decided by the CESTAT Mumbai, addresses an important issue related to the eligibility of CENVAT credit for services used in manufacturing and clearing final products. In this case, JSW Steel Ltd appealed against the disallowance of credit amounting to ₹6,79,48,192/- covering the period from 1st January 2005 to 31st March 2008. The appeal centered around the classification of services provided in connection with the transportation of finished products to customers’ premises. This article provides a detailed analysis of the case and its implications.
Detailed Analysis:
1. Background of the Case: JSW Steel Ltd, engaged in the iron and steel products business, claimed CENVAT credit for tax paid on “goods transport agency services.” These services were used to transport finished products to customers on “free-on-rail” (FOR) terms. Initially, the CENVAT credit was not availed, but it was claimed later due to the decision of the Larger Bench of the Tribunal in ABB Ltd vs. Commissioner of Central Excise & Service Tax, Bangalore. This decision affirmed the eligibility of credit for services related to outward transportation from the “place of removal.”
2. Objection by Central Excise Authorities: The jurisdictional central excise authorities contested the CENVAT credit claim. The Commissioner of Central Excise, Raigad, issued an order directing recovery of ₹6,79,48,192/- under Rule 14 of the CENVAT Credit Rules, 2004, along with applicable interest. A penalty of a similar amount was imposed under Rule 15 of the CENVAT Credit Rules, 2004.
3. Appellant’s Arguments: The counsel for JSW Steel Ltd argued that the denial of credit was unjustified. They cited the decision of the Larger Bench of the Tribunal, which was upheld by the High Court of Karnataka in Commissioner of Central Excise & Service Tax, LTU, Bangalore vs. ABB Limited, and further validated by the Supreme Court in Commissioner of Central Excise, Belgaum vs. Vasavadatta Cements Ltd. These rulings confirmed the eligibility of the CENVAT credit for services related to transportation before 1st April 2008.
4. Prospective Application of Rule Amendment: JSW Steel Ltd contended that the change in the definition of “input service” in Rule 2(l) of the CENVAT Credit Rules, 2004 should apply prospectively. They emphasized that the reliance on Circular No. 97/8/2007 dated 23rd August 2007 was misplaced.
5. No Restriction on Time Period: The appellant argued that there was no restriction on the time period for availing the credit, citing the Tribunal’s decision in JV Strips Ltd vs. Commissioner of Central Excise, Rohtak. This decision was referenced in the Tribunal’s ruling in Steel Authority of India Ltd vs. Commissioner of Central Excise, Raipur, emphasizing the absence of a specific time period in the CENVAT Credit Rules, 2004.
6. Respondent’s Stand: The authorized representative for the Central Excise authorities contended that the definition of “place of removal” as defined in the decision of Escorts JCB Ltd vs. Commissioner of Central Excise, Delhi – II could impact the appellant’s claim. Additionally, they referenced the decision in Commissioner of Customs & Central Excise, Nagpur vs. Ispat Industries Ltd, which rejected the consideration of the customers’ facility as the “place of removal.”
7. Supreme Court’s Final Decision: The CESTAT Mumbai found that the issue was no longer subject to debate. The Supreme Court, in the case of Vasavadatta Cements Ltd, confirmed the entitlement to CENVAT credit for the period before the rule amendment on 1st April 2008.
8. The CENVAT Credit Rules, 2004: The CESTAT emphasized the definition of “input service” in the rules. It stated that all services used directly or indirectly by the manufacturer in manufacturing final products and clearing them from the “place of removal” are categorized as input services. These services include activities related to business, with outward transportation up to the “place of removal” being a part of this definition.
Conclusion: The CESTAT Mumbai’s decision in the case of JSW Steel Ltd vs. Commissioner of Central Excise has provided clarity regarding the eligibility of CENVAT credit for services connected to the manufacturing and clearance of final products. The Tribunal upheld the interpretation that “place of removal” encompasses transportation services from the manufacturing facility to the depot or the customer’s location, and this definition was applicable for the period before 1st April 2008. The decision reinforces the importance of understanding the scope of input services within the CENVAT Credit Rules, 2004 and ensures that businesses can claim legitimate credits for their services related to the clearance of goods.
FULL TEXT OF THE CESTAT MUMBAI ORDER
This appeal of M/s JSW Steel Ltd against the disallowance of credit of ₹6,79,48,192/- pertaining to the period from 1st January 2005 to 31st March 2008. The appellant is engaged in the business of ‘iron and steel products’and, among the inputs services utilized by them, had taken credit of tax discharged on ‘goods transport agency services’deployed for transportation of the finished products to the customers’premises which thus claimed as on ‘free-on-rail’(FOR) terms. Consequent upon the decision of the Larger Bench of the Tribunal in ABB Ltd v. Commissioner of Central Excise & Service Tax, Bangalore [2009 (15) STR 23 (Tri.-LB)], upholding the eligibility of credit of services deployed for outward transportation from ‘place of removal’, unavailed CENVAT credit was taken by them on 26th August 2009. The objection raised by the jurisdictional central excise authorities resulted in the order1 of the Commissioner of Central Excise, Raigad directing recovery of ₹6,79,48,192/- under rule 14 of CENVAT Credit Rules, 2004 along with applicable interest,
while imposing penalty of like amount under rule 15 CENVAT Credit Rules, 2004.
2. It is contended by Learned Counsel for the appellant that the denial was incorrect in view of the decision of the Larger Bench of the Tribunal which were upheld by the Hon’ble High Court of Karnataka in Commissioner of Central Excise & Service Tax, LTU, Bangalore v. ABB Limited [2011 (23) STR 97 (Kar.)] which was considered in the decision of the Hon’ble Supreme Court in Commissioner of Central [order-in-original no. 13/MAK(13) COMMR/RGD/13-14 dated 11th June 2013] Excise, Belgaum v. Vasavadatta Cements Ltd [2018 (11) GSTL 3 (SC)] holding the eligibility of such credit for the period prior to 1st April 2008.
3. It is also contended that the change in the definition of ‘input service’in rule 2(l) of CENVAT Credit Rules, 2004 may, at best, be prospectively applicable. It was also contended by him that the reliance placed by the impugned order on Circular No. 97/8/2007 dated 23rd August 2007 emphasising the decision of the Tribunal in Gujarat Ambuja Cements Ltd v. Commissioner Central Excise, Ludhiana [2007 (006) STR 0249 (Tri-D)] as well as the order of the Tribunal in Ultratech Cements Ltd v. Commissioner of Central Excise, Bhavnagar [2007-TIOL-429-CESTAT-AHM] is misplaced. Furthermore, he contended that the availment of credit was not restricted to any particular time-period and that the decision of the Tribunal in JV Strips Ltd v. Commissioner of Central Excise, Rohtak [2007 (218)
ELT 252 (Tri.Del.)] which was referred to in the decision of the Tribunal in Steel Authority of India Ltd v. Commissioner of Central Excise, Raipur [2013 (287) ELT 321 (Tri.Del.)] reiterated the absence of any specific time-period in CENVAT Credit Rules, 2004.
4. According to Learned Authorised Representative, the decision of the Hon’ble Supreme Court in Escorts JCB Ltd v. Commissioner of Central Excise, Delhi –II [2002 (146) ELT 31 (SC)] defining ‘place 4 of removal’would jeopardise the stand of the appellant that, insofar as
CENVAT Credit Rules, 2004 are concerned, the credit for services beyond the ‘place of removal’be also allowed. Furthermore, he places reliance on the decision of the Hon’ble Supreme Court in Commissioner of Customs & Central Excise, Nagpur v. Ispat Industries Ltd [2015 (324) ELT 670 (SC)] rejecting the premise of the customers’facility being considered as ‘place of removal’.
5. We find that the issue in dispute is no longer res integra. The final decision on the entitlement of the CENVAT credit for the period
prior to the amendment of rule 2(l) of CENVAT Credit Rules, 2004 has been set out by the Hon’ble Supreme Court in re Vasavadatta Cements Ltd, though first decided by the Tribunal in re ABB Ltd and approved thereafter by the Hon’ble High Court of Karnataka in disposing off appeal of Revenue, did not appear to have been followed by the adjudicating authority and probably on the premise that the
matter was before the Hon’ble Supreme Court. With the finality accorded by the Hon’ble Supreme Court, the demand for the disputed period does not sustain. Accordingly, on the basis of
‘5. Coming back to the first part of the definition as to what input service means, the Full Bench of the CESTAT held that all input services which are used by the manufacturer, whether directly or indirectly, in or in relation to manufacture of final products and clearance of final products from the place of removal are concerned, they are treated as 5 input services and Cenvat credit in respect of expenditure incurred in relation to such services would be admissible. The expression with which the CESTAT 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 credit has to be given. The question is from the place of removal up to what place. The assessees had claimed the tax paid on the transportation of final products from the place of removal (i.e. the place of manufacture) to either the place to their respective depots or transport upto the place of the customers, if from the place of removal the goods were directly delivered at customers place. It is made clear that only first set of transportation from the place of removal was claimed. To put it otherwise, in those cases where the tax paid on transportation on the goods from the place of removal upto the place of depot only that was claimed and if there was any such tax again paid from the place of depot to the place of customers, the Cenvat credit thereof was not claimed and there is no dispute about it.
6. The aforesaid approach of the Full Bench of the CESTAT, as affirmed by the High Court, appears to be perfectly correct and we do not find any error therein. For the sake of convenience, we would like to reproduce the following discussion contained in the judgment of the High Court.
“30. The definition of ‘input service’contains both the word ‘means’and ‘includes’, but not ‘means and includes’. The portion of the definition to which the word means applies has to be construed restrictively as it is exhaustive. However, the portion of the definition to which the word includes applies has to be construed liberally as it is extensive. The exhaustive portion of the definition of ‘input service’deals with service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products. It also includes clearance of 6 final products from the place of removal. Therefore, services received or rendered by the manufacturer from the place of removal till it reaches its destination falls within the definition of input service. What are the services that normally a manufacturer would render to a customer from the place of removal? They may be packing, loading, unloading, transportation, delivery, etc. Though the word transportation is not specifically used in the said section in the context in which the phrase ‘clearance of final products from the place of removal’is used, it includes the transportation charges. Because, after the final products has reached the place of removal, to clear the final products nothing more needs to be done, except transporting the said final products to the ultimate destination i.e. the customer’s/buyer of the said product, apart from attending to certain ancillary services as mentioned above which ensures proper delivery of the finished product upto the customer. Therefore, all such services rendered by the manufacturer are included in the definition of ‘input service’. However, as the legislature has chosen to use the word ‘means’in this portion of the definition, it has to be construed strictly and in a restrictive manner. After defining the ‘input service’used by the manufacturer in a restrictive manner, in the later portion of the definition, the legislature has used the word ‘includes’. Therefore, the later portion of the definition has to be construed liberally. Specifically what are the services which fall within the definition of ‘input service’has been clearly set out in that portion of the definition. Thereafter, the words ‘activities relating to business’- an omni-bus phrase is used to expand the meaning of the word ‘input service’. However, after using the omni-bus phrase, examples are given. It also includes transportation. The words used are (a) inward transportation of inputs or capital goods (b) outward transportation upto the place of removal. While dealing with inward transportation, they have specifically used the words ‘inputs’or ‘capital goods’. But, while dealing with outward transportation those two words are conspicuously missing. The reason being, after inward transportation of inputs or capital goods into the factory premises, if a final product emerges, that final product has to be transported from the factory premises till the godown before it is removed for being delivered to the customer. Therefore, ‘input service’includes not only the inward transportation of inputs or capital goods but also includes outward transportation of the final product upto the place of removal. Therefore, in the later portion of the definition, 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 Rule is “from the place of removal”. It has to be from the place of removal upto a certain point. Therefore, tax paid on the transportation of the final product from the place of removal upto the first point, whether it is depot or the customer, has to be allowed.
8. Our view gets support from the amendment which has been carried out by the rule making authority w.e.f. 1-4-2008 vide Notification No. 10/2008-C.E. (N.T.), dated 1-3-2008 whereby the aforesaid expression “from the place of removal”is substituted by “upto the place of removal”. Thus from 1-4-2008, with the aforesaid amendment, the Cenvat credit is available only upto the place of removal whereas as per the amended Rule from the place of removal which has to be upto either the place of depot or the place of customer, as the case may be. This aspect has also been noted by the High Court in the impugned judgment in the following manner :
“However, the interpretation placed by us on the words ‘clearance of final products from the place of removal’and the subsequent amendment by Notification 10/2008-C.E. (N.T.), dated 1-3-2008 substituting the word ’from’in the said phrase in place of ‘upto’makes it clear that transportation charges were included in the phrase ‘clearance from the place of removal’upto the date of the said substitution and it cannot be included within the phrase ‘activities relating to business’.”’
the impugned order is set aside to allow the appeal.
(Order pronounced in the open court on 13/10/2023)
