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REPORTABLE IN THE SUPREME COURT OF INDIA  CIVIL APPELLATE JURISDICTION  

CIVIL APPEAL  NO(S).  11710/2016

COMMISSIONER OF CENTRAL EXCISE BELGAUM     APPELLANT(S)

                               VERSUS M/S. VASAVADATTA CEMENTS LTD.             RESPONDENT(S)

WITH   

C.A.  No.  11923/2016,  C.A.  No.  11914/2016,  C.A.  No. 11898/2016,  C.A.  No.  11899/2016,  C.A.  No.  11919/2016, C.A.  No.  11904/2016,  C.A.  No.  11925/2016,  C.A.  No. 11870/2016,  C.A.  No.  11924/2016,  C.A.  No. 11900-11901/2016,  C.A.  No.  11909/2016,  C.A.  No. 11402/2016,  C.A.  No.  11403/2016,  C.A.  No.  11947/2016, C.A.  No.  11946/2016,  C.A.  No.  11920/2016,  C.A.  No. 11874/2016,  C.A.  No.  11903/2016,  C.A.  No.  10300/2011, C.A.  No.  11913/2016,  C.A.  No.  11399/2016,  C.A.  No. 11401/2016,  C.A.  No.  11902/2016,   C.A.  No. 11877-11884/2016,   C.A.  No.  11876/2016,  C.A.  No. 11922/2016, C.A. No. 11921/2016,  C.A. No. 11400/2016 & C.A. No. 11875/2016

J U D G M E N T A.K.SIKRI,J.

C.A  Nos.  11710/2016,  C.A.  No.  11923/2016,  C.A.  No. 11914/2016,  C.A.  No.  11898/2016,  C.A.  No.  11899/2016, C.A.  No.  11919/2016,  C.A.  No.  11904/2016,  C.A.  No. 11925/2016,  C.A.  No.  11870/2016,  C.A.  No.  11924/2016, C.A. No. 11900-11901/2016, C.A. No. 11909/2016, C.A. No.

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11402/2016,  C.A.  No.  11403/2016,  C.A.  No.  11947/2016, C.A.  No.  11946/2016,  C.A.  No.  11920/2016,  C.A.  No. 11874/2016,  C.A.  No.  11903/2016,  C.A.  No.  10300/2011, C.A.  No.  11913/2016,  C.A.  No.  11399/2016,  C.A.  No. 11401/2016,  C.A.  No.  11902/2016,   C.A.  No. 11877-11884/2016,   C.A.  No.  11876/2016,  C.A.  No. 11922/2016 & C.A. No. 11921/2016.

These  appeals  are  preferred  by  the  Central  Excise Department against the judgment and order passed by the Customs, Excise & Service Tax Appellate Tribunal (herein after  referred  to  as  “CESTAT”)  whereby  the  CESTAT  has allowed to the respondents (hereinafter referred to as “assessees”)  CENVAT  credit  on  goods  transport  agency service availed for transport of goods from the place of removal  to  depots  or  the  buyers  premises.  The  lead judgment  was  given  by  the  CESTAT  in  the  case  of Commissioner of Central Excise & S.T Unit Bangalore vs.

M/s.  ABB  Limited.   The  aforesaid  judgment  dated 18.05.2009 has been upheld by the Karnataka High Court vide judgment dated 23.03.2011. This judgment has been followed in all other cases.  

The entire issue hinges upon the interpretation that has to be given to input service which is defined in Rule 2(l) of the CENVAT Credit Rules, 2004. It may be stated

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at this stage itself that all these appeals relate to a period  prior  to  01.04.2008.  The  aforesaid  Rule  was amended w.e.f. 01.04.2008 as would be noticed hereafter. However, since we are concerned with the unamended Rule, we reproduce the same hereunder:  

“(I) “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,  modernization, 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,  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 upto the place of removal;”

The Full Bench of CESTAT in  M/s. ABB Limited case, which  has  been  upheld  by  the  Karnataka  High  Court  as mentioned  above,  has  interpreted  the  aforesaid  Rule

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observing that it is in two parts. In the first part, input service is defined with the expression  “means” and in that context input service is defined as any service used by a provider of a taxable service or providing an output  service  or  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”. It is further held that second part of the definition starts from “includes” where  some  of  the  services  are  mentioned,  which  are included as “input services”.  

We may make it clear that in the instant appeals, we are  concerned  with  the  first  part  of  the  definition. Insofar as second part is concerned, certain contentions, which have been raised by some of the assessees, have been rejected and that aspect is decided in favour of the Department.  Since  these  appeals  are  filed  by  the Department questioning the interpretation that is given by the CESTAT as well as the High Court in respect of first part, we are not making any comments insofar as judgment  of  the  CESTAT  pertaining  to  second  part  is concerned.

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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 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

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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.  

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 final products from the place of removal. Therefore, services

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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

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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.  

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.  

Our view gets support from the amendment which has been  carried  out  by  the  rule  making  authority  w.e.f.

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01.04.2008  vide  Notification  No.  10/2008CE(NT)  dated 01.03.2008  whereby  the  aforesaid  expression  “from  the place of removal” is substituted by “upto the place of removal”.  Thus  from  01.04.2008,  with  the  aforesaid amendment, the 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 CE(NT) dated 1.03.2008 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.”

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

Civil Appeal No. 11400 of 2016

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We find that the CESTAT had rejected the appeal of the appellant on the ground that there is a delay of 85 days and this order has been upheld by the High Court as well. Otherwise, we find that the legal issue raised in this appeal has been decided by the same Bench of the Karnataka High Court in favour of the assessee and that order  has  been  upheld  by  by  this  Bench  in  the  above matters  i.e.  Commissioner  of  Central  Excise  Belgaum Versus M/S. Vasavadatta Cements Ltd.(Civil Appeal  No(S).

11710/2016 & other connected matters) preferred by the Department.  For these reasons, we condone the delay in filing the appeal before the CESTAT. We find that the appellant  is  also  entitled   to  the  benefit  of  the judgment of this Court.  

This appeal is accordingly allowed in terms of the above order  passed in  Commissioner of Central Excise Belgaum Versus M/s. Vasavadatta Cements Ltd.(Civil Appeal

No(S).  11710/2016 & other connected matters.)

Civil Appeal No. 11875/2016

This appeal preferred by the assessee(s) is allowed in terms of the order  passed in  Commissioner of Central

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Excise Belgaum Versus M/S. Vasavadatta Cements Ltd.(Civil

Appeal  No(S).  11710/2016 & other connected matters.)

......................J. [A.K. SIKRI]

......................J.        [ASHOK BHUSHAN]

NEW DELHI; JANUARY 17, 2018.