Case Law Details
Outward transportation of finished goods from the place of removal covered by definition of ‘input service’ upto 31.03.2008, service tax paid thereon eligible as CENVAT Credit – CESTAT Larger Bench decision in ABB Ltd & Ors to this extent legal and valid till 01.04.2008 – No merit in Revenue Appeals. Revenue Appeals rejected.
IN THE HIGH COURT OF KARNATAKA
AT BANGALORE
CEA. NOS. 141, 140, 139, 138 OF 2009 AND 10 OF 2010
On Appeal from 2009-IST-329-CESTAT-BANG-LB
COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, BANGALORE
Vs
M/s. ABB LTD, VADODARA
Appellant Rep by: Shri N R Bhaskar, SCGSC
Respondent Rep by: Shri G Shivadas, Sri Harish & Sri P M Prabhakar, Adv
CEA NO. 141 OF 2009
COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, BANGALORE
Vs
M/s ACE DESIGNER LTD, BANGALORE
Appellant Rep by: Sri N R Bhaskar, SCGSC
Respondent Rep by: Sri B N Gururaj, Adv
CEA NO 140 OF 2009
COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, BANGALORE
Vs
M/s TOYOTA KIRLOSKAR MOTOR PVT LTD, BANGALORE
Appellant Rep by: Sri N R Bhaskar, SCGSC
Respondent Rep by: Sri K S Ravishankar, Adv
CEA NO 139 OF 2009
COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, BANGALORE
Vs
M/s TOYOTA KIRLOSKAR MOTOR PVT LTD, BANGALORE
Appellant Rep by: Sri N R Bhaskar, SCGSC
Respondent Rep by: Sri K S Ravishankar, Adv
CEA NO 138 OF 2009
COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, BANGALORE
Vs
M/s TOYOTA KIRLOSKAR MOTOR PVT LTD, BANGALORE
Appellant Rep. by : Sri N R Bhaskar, SCGSC
Respondent Rep. by : Sri K S Ravishankar, Adv
CEA NO. 10 OF 2010
THE COMMISSIONER OF CENTRAL EXCISE, BANGALORE-II, BANGALORE
Vs
M/s KAR MOBILES LTD
Appellant Rep by: Sri N R Bhaskar, SCGSC
Respondent Rep by: Sri Swamy Associates, Adv
N Kumar and Ravi Malimath, JJ
Dated: March 23, 2011
JUDGEMENT
This appeal is by the revenue challenging the order passed by the larger bench of the tribunal 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(1) (ii) of the CENVAT Credit Rules, 2004 and thereby enabling the manufacturer to take credit of the service tax on the value of such services.
2. The assessee M/S.ABB Limited, Maneja, Vadodara is engaged in the manufacture of transformer, circuit breaker, etc., falling under Chapter 85 of the Central Excise Tariff Act, 1985. The assessee is having Central Excise Registration No. AAACA3834BXM007. The assessee is availing the cenvat credit as per the provisions of the Cenvat Credit Rules, 2004. They are also paying service tax on the service to transport goods by road in respect of inward transportation as well as outward transportation. They have obtained Service Tax Registration No.AAACA3834BST013 for the same. They are also availing cenvat credit for the service tax paid for the outward transportation of finished goods. The authorities observed that the assessee was paying the service tax on inward transportation of raw materials as well as outward transportation of finished goods and availing credit on the service tax paid on freight amount towards outward transportation. Therefore, a letter was issued by the Range Officer to the assessee calling for information in respect of such credit availed by them. The information was furnished by the assessee. The authorities were of the opinion that the assessee is not entitled to avail the credit of service tax paid on outward transportation of finished goods as the same does not qualify to be an input service in terms of Cenvat Credit Rules, 2004. Therefore, they were called upon to show cause on the cenvat credit amounting to Rs. 33,55,306/- of service tax and Rs. 67,104/- of education cess totaling to Rs. 34,22,410/- for the period from November, 2005 to September 2006, wrongly availed by them on the GTA services towards the service tax paid on outward transportation beyond the place of removal, should not be recovered from them under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1944 with interest and penalty. The assessee filed its reply justifying the credit availed and utilised. However, rejecting the contention of the assessee, an order in original came to be passed on 04.05.2007 confirming the demand as well as the interest and penalty. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Central Excise and Service Tax (Appeals). The first Appellate Authority upheld the order of the original authority and dismissed the appeal. Aggrieved by the same. the assessee preferred an appeal to the tribunal. The tribunal while considering the application for stay of the operation of the Appellate Authority noticed that the issue involved in this appeal is also involved in the case of M/s.India Cements and others. The said issue had been referred to a larger bench by an order dated 13.08.2007 in M.C.No.412/2007. Therefore, they referred this appeal also to the larger bench. That is how the larger bench of the tribunal considered this appeal.
3. After hearing both the parties and taking into consideration the various judgements rendered by the High Courts as well as the Tribunals and also the Supreme Court and taking into consideration the guidelines issued by the Organisation for Economic Co-operation and Development and the circular issued by the Board, the Tribunal held that the definition of ‘input service’ has to be interpreted in the light of the requirements of business and it cannot be read restrictively so as to confine the same as a service received only up to the factory or up to the depot of manufacturers. 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(1) (ii) of the CENVAT Credit Rules, 2004 and the manufacturer is entitled to the credit of the service tax paid on the value of such outward transportation services also. It is this order of the larger bench, which is challenged in this appeal.
4. The learned Additional Solicitor General of India, assailing the impugned order contended that though the expression ‘place of removal’ has not been defined in Cenvat Credit Rules, 2004 in terms of sub-rule (t) of Rule 2 of the said rules, if any words or expressions are used in the Cenvat Credit Rules, 2004 and are not defined therein, but are defined in the Central Excise Act, 1994 or the Finance Act, 1944, they shall have the same meaning for the Cenvat Credit Rules as assigned to them in those Acts. The expression “place of removal” is defined under Section 4 of the Central Excise Act, 1944 (for short hereinafter referred to as the ‘Act’) meaning a factory or any other place or premises of production or manufacturer of excisable goods, a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty, a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory, from where such goods are removed. Therefore, it is clear that once the manufactured product is removed from the factory or a warehouse or a depot or premises of a consignment, the expenditure incurred for transporting the goods from that place, till the goods are delivered to the customer cannot be taken into consideration for the purpose of availing cenvat credit. Therefore, he contends that in the light of the aforesaid provisions, the finding recorded by the larger bench of the tribunal 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, is contrary to the aforesaid statutory provisions and therefore, the same is liable to be quashed.
5. Per contra, the learned counsel appearing for the assessee submitted that though the expression ‘place of removal’ has been defined under the Act and a restrictive meaning is assigned to the said phrase, the said definition is to be confined only to Section 4 of the Act for the purpose of valuation of excisable goods for purposes of charging of duty of excise. Rule 2 of the Rules makes it clear. The definition contained in the said Rules have the meaning assigned to them in the said rules unless the context otherwise requires. Therefore, even though the phrase “place of removal” is defined under the Act, as it is expressly stated in sub-Section (3) of Section 4, the said definition is only for the purpose of the said section and not for the purpose of the Act, While interpreting the word ‘place of removal’ used in other parts of the Act, the meaning assigned to the same in Section 4(3)(c) is not applicable. It being a very restricted definition, when the said word is used in the context of other provisions of the Act, it has to be given an expanded meaning. Therefore, a proper interpretation of the definition of “Input service” would make it clear that all expenditure incurred by the assessee, if it has become an Integral part of the consideration received for sale and transportation of the goods, then on the duty or service tax paid on such expenditure the assessee is entitled to the cenvat credit.
6. In the light of the aforesaid submissions the point that arises for our consideration in this appeal are as under:
Whether the service tax paid on transportation charges from the assessee place, such as a factory, warehouse, depot Oil the manufactured goods are delivered to the customer falls within the meaning of ‘input service’ as defined under the Rules and can the assessee be allowed to take Cenvat credit ?
7. In order to answer this question it is necessary to notice the relevant provisions under the Cenvat Credit Rules, 2004 (prior to its amendment from 1.4.2008), Central Excise Act, 1944 as well as the Finance Act 1994.
8. In exercise of the power conferred by Section 37 of the Central Excise Act 1944 and Section 94 of the Finance Act, 1994 the Central Government have promulgated the Cenvat Credit Rules 2004. It defines ‘input’, ‘input service’, ‘output service’, ‘persons liable for paying service tax’, ‘provider of taxable service’, etc., The definitions as they stood before 1.4.2008 are as under :-
“Rule 2 (V defines ‘input service’ means any service
(i) used by a provider of taxable service for providing an output service, or
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products (from)* the place of removal
and includes services used in relation to setting up, 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 up to the place of removal procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry and security, inward transportation of inputs or capital goods and outward transportation up to the place of removal.”
[The word ‘from’ was substituted by the word ‘up to’ made effective from 1.4.2008 by notification No. 10/2008-CE(NT) dated 1.3.2008 .
9. The words ‘clearance of final products up to the place of removal’ appearing in clause (ii) was substituted for the words ‘clearance of final products from the place of removal’ with effect from 01.04.2008 and earlier to the substitution it read as under:
“clearance of final products from the place of removal”.
10. Rule 2(p) defines ‘output service’ as under:-
“Output service” means any taxable service, excluding the taxable service referred to in sub-douse (xxp) of clause (105) of section 65 of the Finance Act, provided by the provider of taxable service!, to a customer, client, subscriber, policy holder or any other person, as the case may be, and the expressions provider’ and ‘provided’ shall be construed accordingly”
11. Rule 2(q) defines “person liable for paying service tax” as under:-.
“person liable for paying service tax” has the meaning as assigned to it in clause (d) of sub-rule (1) of rule 2 of the Service Tax Rules, 1994:”
12. Rule 2(r) defines “provider of taxable service” as under: –
“provider of taxable service” include a person liable for paying service tax;”
13. It is also necessary to notice Rule 2(t) which reads as under :-
“that the words and expression used in these rules and not defined but defined in the Excise Act or the Finance Act shall have the meanings respectively assigned to them in those Acts”.
14. In view of this provision one of the expressions which falls for our consideration is, “place of removal” used in the definition of ‘input service’. The words “place of removal” has been defined under the Central Excise Act at Section 4 which reads as under:
“Section 4 Valuation of excisable goods for purposes of charging of duty of excise.(1)
Where under this Act the duty of excise is chargeable on any excisable goods with reference to their value, then on each removal of the goods, such value shall –
(a) in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sale consideration for the sale, be the transaction value;
(b) in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed.
[Explanation.- For the removal of doubts, it is hereby declared that the price-cum-duty of the excisable goods sold by the assessee shall be the price actually paid to him for the goods sold and the money value of the additional consideration, if any, flowing directly or indirectly from the buyer to the assessee in connection with the sale of such goods, and such price-cum-duty, excluding sales tax and other taxes, if any, actually paid, shall be deemed to include the duty payable on the such goods.
(2) The provisions of this section shall not apply in respect of any excisable goods for which a tariff value has been fixed under subsection (2) of section 3.
(3) For the purpose of this section,-
(a) “assessee” means the person who is liable to pay the duty of excise under this Act and includes his agent;
(b) Persons shall be deemed to be”related” if-
(i) they are Utter-connected undertakings;
(ii) they are relatives;
(iii) amongst them the buyer is a relative and a distributor of the assessee, or a sub-distributor of such distributor; or
(iv) they are so associated that they have interest directly or indirectly, in the business of each other.
Explanation -In this clause –
(i) “inter-connected undertakings” shall have the meaning assigned to it in clause (a) of section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969); and
(ii) “relative” shall have the meaning assigned to it in clause (41) of section 2 of the Companies Act 1956 (1 of 1956);
(c) “place of removal” means –
(i) a factory or any other place or premises of production or manufacture of the excisable goods;
(ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without [payment of duty:]
(iii) a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory;
from where such goods are removed;
[(cc) “time of removal”, in respect of the excisable goods removed from the place of removal referred to in sub-clause (iii) of clause (c), shall be deemed to be the time at which such goods are cleared from the factory;]
(d) “transaction value” means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to. or on behalf of, the assessee, by reason of or in connection with the sale, whether payable at the time of the sale or at any other time, including but not limited to. any amount charged for, or to make provision for, advertising or publicity, marketing and selling organisation expenses, storage, outward, handling, servicing, warranty, commission or any other matter, but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods.]”
15. However, the opening words of sub-section (3) reads as under:
“For the purpose of this section”.
16. Therefore though the expression “place of removal” is defined under Section 4(3) of the Central Excise Act, 1944, its application is to be confined as is clear from the opening words of sub-section (3) for the purpose of Section 4 only.
17. Rule 3 of the Cenvat Credit Rules deals with Cenvat credit. It reads as under:
“RULE 3. CENVAT credit- (1) A manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of-
(i) the duty of excise specified in the First Schedule to the Excise Tariff Act leviable under the Excise Act.
(ii) xxxxx
(iii) xxxxx
(xi) xxxxxx
xxxxxxxxxxx
paid on-
(i) any input or capital goods received in the factory or manufacture of final product or premises of the provider of output service on or after the 10th day of September 2004 including the said duties, or tax, or cess paid on any input or input service, as the case may be, used in the manufacture of intermediate products, by a job-worker availing the benefit of exemption specified in the notification of the Government of India in the Minis by of Finance (Department of Revenue), No.214/86-Central Excise, dated the 25th March, 1986, published in Gazette of India vide number G.S.R.547(E), dated the 25th March, 1986, and received by the manufacturer for use in, or in relation to, the manufacture of final product on or after 10th day of September, 2004.
(ii) any input service received by the manufacturer of final product or by the provider of output services on or after the 10th day of September 2004.
Explanation.- For the removal of doubts it is clarified that the manufacturer of the final products and the provider of output service shall be allowed CENVAT credit of additional duty leviable under section 3 of the Customs Tariff Act on goods fatting under heading 9801 of the First Schedule to the Customs Tariff Act.”
18. A reading of Rule 3 makes it clear that the manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit of the duties, cesses or taxes paid under any one of those heads mentioned therein, provided it is paid on any input or capital goods received in the factory of the manufacturer of final product or premises of the provider of output service and any input service received by the manufacturer of products final product or by the provider of output service including the said duties or tax or cess paid on any input or input service as the case may be, used in the manufacture of intermediate products, by a job-worker availing the benefit of exemption specified in the notification and received by the manufacturer for use in, or in relation to, the manufacture of final product on or after 10th day of September, 2004.
19. Therefore, Cenvat credit includes the duty, cess or tax paid under the aforesaid various heading on any input, capital goods or input service by a manufacturer, producer or provider of output service. Therefore it is a pool of duty paid under various heads enumerated in the said rule. The aforesaid Cenvat credit may be utilized for the payment of any duty of excise on any final product or the amount equal to Cenvat credit taken on inputs, if such inputs are removed as such or if partially being processed or an amount equal to Cenvat credit taken on capital goods, if such capital goods are removed as such or service tax on any output service.
20. In exercise of the powers conferred by Section 37 of the Central Excise Act, 1944, the Central Government has also made the Central Excise Valuation (Determination of Price of Excisable Goods) Rules. 2000. Rule 2(c) of the said Valuation Rules defines the word value as referred to in Section 4 of the Act. Similarly Rule 2(d) makes it clear that words and expressions used in the said rules and not defined but defined in the Act shall have the meanings respectively assigned to them in the Act.
21. Rules 3, 4 and 5 of the Valuation Rules, 2000 are also relevant which read as under:
“Rule 3. The value of any excisable goods shall, for the purposes of clause (b) of subsection (1) of section 4 of the Act, be determined in accordance with these rules.
Rule 4. The value of the excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the removal of goods under assessment, subject if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment as may paper reasonable.
Rule 5. Where any excisable goods are sold in the circumstances specified in clause (a) of subsection (1) of Section 4 of the Act except the circumstances in which the excisable goods are sold for delivery at a place other than the place of removal, then the value of such excisable goods shall be deemed to be the transaction value, excluding the cost of transportation from the place of removal up to the place of delivery of such excisable goods.”
Explanation. 1 to the said rule defines what is ‘cost of transportation’. It reads as under:
“Explanation 1. “cost of transportation” includes-
(i) the actual cost of transportation; and
(ii) in case where freight is averaged, the cost of transportation calculated in accordance with generally accepted principles of costing.”
Explanation.2 reads as under:
“Explanation 2. For removal of doubts, it is clarified that the cost of transportation from the factory to the place of removal, where the factory is not the place of removal shall not be excluded for the purposes of determining the value of the excisable goods.”
22. From the aforesaid rules it is clear that the cost of transportation from the place of removal up to the place of delivery of such excisable goods shall not be included in the value of such excisable goods.
23. The question is up to what stage after manufacturing of the product, whether the “service” rendered in transporting the finished goods from the place of removal up to the place of delivery, constitutes “input service” as defined under the Cenvat Credit Rules 2004.
24. This question arose for consideration in the case of Gujarat Ambuja Cements Limited vs. Commissioner of Central Excise, Ludhiana reported in 2007 (6) STR (Tri-Del) before the CESTAT, Principal Bench, New Delhi. It held as under: –
“14. The interpretation canvassed by the appellant is also contrary to the rule on the subject contained in the judgement of Honourable Supreme Court in the Reserve Bank case. A statute is to be read as a whole and words used Interpreted taking into account the context In which they are used. Definitions are to be looked at as a whole. Clauses of a definition are not to be read disjunctive. In the present case, the statute deals with a tax on manufacture. The definition is in the context of relief in regard to duty/ tax paid on input services. Post sale transport of manufactured goods is not an input in manufacture. The two clauses in the definition take care to circumscribe input credit by stating that service used in relation to the clearance from the place of removal and service used for outward transportation up to the place of removal are to be treated as input service. The first clause does not mention transport service in particular. The second clause restricts transport service credit up to the place of removal When these two clauses are read together, it becomes clear that transport service credit cannot go beyond transport up to the place of removal. The two clauses, one dealing with general provision and another dealing with a specific item, are not to be read disjunctively as to bring about conflict and to defeat the laws scheme. The purpose of interpretation is to find harmony and reconciliation among the various provisions.”
25. Therefore, the CESTAT did not accept the arguments of the assessee that any service used by the manufacturer in relation to the clearance of final products from the place of removal is eligible for input service credit. The contention that the transportation of goods from the place of removal to the buyer’s premises remains covered by the expression clearance from the place of removal and thus credit is specifically provided for in respect of service tax paid on transport to buyers, did not find favour. However, after the said judgement, the Central Board of Excise and Customs, New Delhi issued a Master Circular certifying the procedural issues relating to service tax vide Circular No. 97/8/2007-S.T. dated 23.08.2007. It reads as under:-
“8. CENVAT Credit:
8.1 ……
(a) ……
(b) ……
“(c) Issue: Up to what stage a manufacturer/consignor can take credit on the service tax paid on goods transport by road?
Comments: This issue has been examined in great detail by the CESTAT in the case of M/s. Gujarat Ambuja Cements Ltd. v. CCE, Ludhiana [2007 (6) S.T.R. 249 (Tri-D)] . In this case. CESTAT has made the following observations:
“the post sale transport of manufactured goods is not an input for the manufacturer/consignor. The two clauses in the definition of ‘input services’ take care to circumscribe input credit by stating that service used in relation to the clearance from the place of removal and service used for outward transportation upto the place of removal are to be treated as input service. The first clause does not mention transport service in particular. The second clause restricts transport service credit upto the place of removal. When these two clauses are read together, it becomes clear that transport service credit cannot go beyond transport upto the place of removal. The two clauses, the one dealing with general provision and other dealing with a specific item, are not to be read disjunctively so as to bring about conflict to defeat the laws’ scheme. The purpose of interpretation is to find harmony and reconciliation among the various provisions.”
Similarly, in the case of M/s. Ultratech Cements Ltd. v. CCE, Bhavnagar – 2007 (6) S.T.R.364 (Tri.), it was held that after the final products are cleared from the place of removal, there will be no scope of subsequent use of service to be treated as input. The above observations and views explain the scope of the relevant provisions clearly, correctly and in accordance with the legal provisions. In conclusion, a manufacture/consignor can take credit on the service tax paid on outward transport of goods up to the place of removal and not beyond that.”
26. Acting on the circular in the appeal preferred by Gujarat Ambuja Cements, the Punjab and Haryana High Court, held as under:
“9. It is well settled that the circulars issued by the Board are binding and aims at adoption of uniform products. In that regard reliance has been rightly placed on the judgment of Hon’ble the Supreme Court in the case of Paper Products Ltd. (supra) and such circulars are binding on the department Placing reliance on earlier judgments of the Supreme Court in the cases of CCE v. Usha Martin Industries, 1997 (94) E.L.T.460 (S.C.) Ranadey Micronutrients v. CCE, 1996 (87) E.L.T. 19 (S.C.) , CCE v. Jayant Dalal (P) Ltd., (88) E.L.T. 638 (S.C.) , CX and CCE v. Kores (India) Ltd., 1997 (89) E.L.T.441 (S.C.) Hon’ble the Supreme Court concluded in para 5 as under.
“5. It is clear from the above said pronouncement of this Court that, apart from the fact that the Circulars issued by the Board are binding on the Department, the Department is precluded from challenging the correctness of the said Circulars even on the ground of the same being inconsistent with the statutory provision. The ratio of the judgment of this Court further precludes the right of the Department to file an appeal against the correctness of the binding nature of the Circulars. Therefore, it is clear that so far as the Department is concerned, whatever action’ it has to take, the same will have to be consistent with the Circular which is in force at the relevant point of time.”
“10. It is, thus, evident that the revenue is precluded from challenging the correctness of the circular even on the ground of the same being inconsistent with statutory provisions. It goes further to limit the right of the revenue to file an appeal against the correctness of the binding nature of the circular. Therefore, there is no escape from the conclusion that the circular is binding on the revenue.”
“11. The only question then is whether the appellant fulfils the requirements of circular. The first requirement is that the ownership of the goods and the property therein is to remain with the seller of goods till the delivery of the goods in acceptable condition to the purchaser at his door step. The aforesaid condition has to be considered to be fulfilled because the supply of cement by the appellant to its customer is ‘FOR destination’. The appellant also bears the freight in respect thereof up to the door step of the customer. The freight charges incurred by it for such sale and supply at the door step of the customer are subjected to service tax which is also duly paid by the appellant”
“12. The ‘input service’ has been defined to mean any service used by the manufacturer whether directly or indirectly and also includes, inter alia, services used in relation to inward transportation of inputs or export goods and outward transportation up to the place of removal. It has also remain un-controverted that for transportation purposes insurance cover has also been taken by the appellant which further shows that the ownership of the goods and the property in the goods has not been transferred to the seller till the delivery of the goods in acceptable condition to the purchaser at his door step. Accordingly, even the second condition that the seller has to bear the risk of loss or damage to the goods during transit to the destination stand fulfilled.”
27. Following the aforesaid judgement, the Full Bench of the CESTAT in the impugned order, after referring to the various judgements, held that the contention of the revenue that outward transportation is specifically mentioned in the inclusive clause of the definition, credit for outward transportation cannot be allowed with reference to any other limb or category of the definition of input service which is general in nature, is not correct. They further held that the expression “activities relating to business” admittedly covers transportation up to the customers’ place and therefore, credit cannot be denied by relying on a specific coverage of outward transportation up to the place of removal in the inclusive clause. The expression “such as” is purely illustrative. The expression means “for example” or “of a kind that”. The usage of the words “such as” after the expression “activities relating to business” in the inclusive part of the definition, therefore, further supports their view that the definition of the term “input service” would not be restricted to services specified thereafter. They also noted that the transportation of goods to a customer’s premises is an activity relating to business. It is an integral part of the business of a manufacturer to transport and deliver the goods manufactured. If services like advertising, market and research, which are undertaken to attract a customer to buy goods of a manufacturer, are eligible to credit, services which ensure physical availability of goods to the customer, i.e. services for transportation should also be eligible to credit. They held that the arguments of the revenue that the inclusive clause in specifically limiting the credit for outward transportation up to the place of removal, has a bearing on the interpretation of the clause and therefore, the expression “service relating to clearance from the place of removal” cannot cover outward transportation as untenable and ultimately, after relying on the judgement of the Punjab and Haryana High Court in the case of Gujarat Ambuja Cements Ltd. held that the definition of “input service” has to be interpreted in the light of the requirements of business and it cannot be read restrictively so as to confine the same only up to the factory or up to the depot of manufacturers.
28. Following this Full Bench judgment, the appeals which were pending where the said question arose for consideration, were answered in favour of the assessee and against the revenue.
29. Cenvat Credit Rules. 2004 are framed by the Central Government by virtue of the powers conferred on it both by the Central Excise Act, 1944 and Finance Act, 1994 whereas the Determination of Value of Excisable Goods Rules, 2000 are framed only under the Central Excise Act. Duty or service tax is payable both on goods which are manufactured or produced and services which are rendered or provided. Therefore it is necessary to define Input and Input Service. Input refers to goods and only Excise duty is payable thereon, whereas Input service applies to service on which service tax is payable. The Valuation Rules makes it clear, read with Section 4 and the definition of “place of removal”, that the transportation charges up to the place of removal is taken into consideration for valuation for levying excise duty, thus excluding the transportation charges from the place of removal to the place of delivery. Input service per se is not confined to pre-manufacturing stage. It also refers to post manufacturing stage. As is clear from the Circular issued by the Board on 23.08.2007, where a manufacture/ consignor may claim that the sale has taken place at the destination point because in terms of sale contract/agreement (i) the ownership of goods and the property in the goods remained with the seller of the goods till the delivery of the goods in acceptable condition to the purchaser at his door step (ii) the seller bore the risk of loss of or damage to the goods during transit to the destination: and (iii) the freight charges were an integral part of the price of goods. In such cases, the credit of the service tax paid on the transportation up to such place of sale would be admissible if it can be established by the claimant of such credit, that the sale and the transfer of property in goods (in terms of the definition as under Section 2 of the Central Excise Act, 1944 as also in terms of the provisions under the Sale of Goods Act, 1930) occurred at the said place. Therefore, if the service tax is paid on transportation charges, in such cases, it fell within the phrase “clearance of final products from the place of removal” and therefore, the assessee was entitled to CENVAT credit.
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 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 up to 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 up to 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 go-down 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 up to the place of removal. Therefore, in the later portion of the definition, an outer limit is prescribed for outward transportation, ie.., up to the place of removal.
31. The phrase ‘activities relating to business’ is an omni-bus one and it finds a place in the inclusive definition. The question is, by a judicial interpretation, outward transportation of the final product from the place of removal till it is delivered to the customer, could be construed as falling within the definition of ‘input service’. It is a well settled rule of interpretation that, while interpreting a provision, the Court must take note of not only the express words used but also the words which are not used. If the legislature has expressly used the words ‘in respect of the transportation’ in a particular manner and did not choose to include within the ambit of the word ‘transportation’, certain aspects, having regard to the scheme of the Section, the way it is worded, it is not open to the Court to include something which the legislature deliberately did not include in the definition. If the Courts indulge in such interpretation, it amounts to re-writing the provision which is impermissible. Yet another reason for coming to such a conclusion is, in the first part of the restrictive definition ‘clearance of final products from the place of removal’ is expressly stated. If transportation of final product from the place of removal is included in the phrase ‘clearance of final products from the place of removal’ again the same cannot be read into the provision under the words ‘activities relating to business’. When a particular service was included within the definition, it is not necessary to interpret other provisions of the very same rule to include the said services over again. When a specific provision is made in the first part of the definition portion of the Cenvat Rules which refers to ‘clearance of final products from the place of removal’ and in the second part (inclusive) of the definition when the phrase used is ‘activities relating to business such as’, merely because in that portion of the definition either transportation charges is not included or service rendered for clearance of final products is not included, it is impermissible to read those words as in the earlier portion of the definition, it is specifically provided for. It is a well known rule of interpretation that when the statute uses words and phrases in a particular section, meaning has to be given in each of those sections. When the statute provides specifically for a particular contingency, it is to be so interpreted and after so interpreting, it cannot be said in another portion where general words are used, it also includes what is specifically provided. Therefore, the finding recorded by the CESTAT that the phrase and expression ‘activities relating to business’ admittedly covers transportation up to the customer’s place was entirely unnecessary. This interpretation of ours find support from the subsequent conduct on the part of the Central Government, which amended Rule 2(1)(ii). By notification No. 10/2008-C.E.(N.T.) dated 1.3.2008, the words ‘clearance of final products up to the place of removal’ were substituted in the place of the words ‘clearance of final products from the place of removal’. The intention of the legislature is thus manifest. Till such amendment, the words ‘clearance from the place of removal’ included transportation charges from the place of removal till it reached the destination, namely the customer. Therefore, the said input service was included in the early part of the definition 2(1)(ii). Consequently, we cannot read what is expressly provided in the early part of the rule as having been included in the later part of the rule while interpreting the words ‘activities relating to business’, though it has been amplified by saying it is only an inward transportation of inputs or capital goods and outward transportation up to the place of removal. The phrase “outward transportation upto the place of removal” used in the inclusive portion of the definition (the second part), has to be read along with the word inward transportation of input or capital goods. It has no reference to ‘clearance of final products’. However, when the claims are put forth on the basis of the said circular of 23.8.2007, for benefit of CENVAT credit, even in the cases where the aforesaid conditions are not satisfied relying on the words clearance of final products from the place of removal, the Central Government thought it fit to amend the provision from 1.4.2008 by substituting the word ‘up to’ in place of ‘from’, in Clause (ii) of Rule 2(1) making the intention clear i.e. whether it is an inward transportation of input of capital goods or clearance of final products up to the place of removal, any service rendered and service tax paid would fall within the definition of ‘input service’. Therefore, it is clear that till such amendment made effective from 1.4.2008 notwithstanding the clarification issued by the Central Government by way of their circular, transportation charges incurred by the manufacturer for ‘clearance of final products from the place of removal’ was included in the definition of input service. Therefore, the interpretation placed by the Tribunal on the words ‘activities relating to business’ as including clearance of final products ‘from the place of removal’ which occurred already in the first part of Rule 2(1)(ii)) prior to 1.4.2008, runs counter to the language employed in the second part of the definition of ‘input service’ and is to that extent contrary to the legislative intention and therefore, the said finding is unsustainable in law.
32. In Gujarat Ambuja Cements’ case, the Principal Bench of CESTAT, New Delhi, had taken the view ‘post sale transport of manufactured goods is not an input in manufacture. The two clauses in the definition take care to circumscribe input credit by stating that service used in relation to the clearance from the place of removal and service used for outward transportation up to the place of removal are to be treated as input service. The first clause does not mention transport service in particular. The second clause restricts transport service credit up to the place of removal. When these two clauses are read together, it becomes clear that transport service credit cannot go beyond transport up to the place of removal. The two clauses, one dealing with general provision and another dealing with a specific item, are not to be read disjunctive as to bring about conflict and to defeat the laws scheme. The purpose of interpretation is to find harmony and reconciliation among the various provisions’. Giving effect to the said judgement, when the circular was issued by the Board dated 23.8.2007 the circular came up for consideration before the Punjab and Haryana High Court where it was held that when the ownership of the goods and the property remain with the seller of the goods till the delivery of goods in acceptable condition to the purchaser at his door step, the freight charges incurred by the manufacturer for such sale and supply at the door step of the customer are subjected to service tax and therefore, it falls within the definition of ‘input service’. However, the Larger Bench of the CESTAT following the aforesaid judgement held the expression ‘activities relating to business’ covers transportation upto the customers’ place and it is an integral part of the manufacturing business and therefore, credit cannot be denied by relying on a specific coverage of outward transportation upto the place of removal in the inclusive clause. 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 CE(NT) dated 1.3.2008 substituting the word ‘from’ in the said phrase in place of ‘up to’ makes it clear that transportation charges were included in the phrase ‘clearance from the place of removal’ up to the date of the said substitution and it cannot be included within the phrase ‘activities relating to business’.
33. Therefore, it is not necessary to expand the meaning of the word ‘activities relating to business’ so as to include the transportation of the final product from the place of removal to its destination. Therefore, though the ultimate order passed by the Larger Bench does not suffer from any infirmity, the aforesaid reason assigned by it in coming to the said conclusion is erroneous.
34. For the reasons, which we have assigned in our order, the final order of the Tribunal is legal and valid. We further make it clear that this interpretation is valid till 01.04.2008. In that view of the matter, but for the aforesaid modification, we do not see any merit in these appeals. The substantial questions of law raised are answered in favour of the assesses and against the revenue.
35. We would like to place on record, our appreciation for the assistance received from the officials of the Excise Department, in particular Mr. D.P. Nagendra Kumar, Commissioner. CDR, CESTAT and Ms.Sudha Koka, Additional Commissioner, SDR, CESTAT and the learned Senior Counsel in rendering this judgement.
excellent piece of supporting case study for Service Tax input credit on GTA for a manuacturer.