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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 11261 OF 2016

COMMISSIONER OF CENTRAL EXCISE  SERVICE TAX .....APPELLANT(S)

VERSUS

ULTRA TECH CEMENT LTD. .....RESPONDENT(S)

J U D G M E N T

A.K. SIKRI, J.

The core issue involved in the present case is with regard to the

admissibility  or  otherwise  of  the  Cenvat  Credit  on  Goods  Transport

Agency service availed for transport of goods from the place of removal

to  buyer’s  premises.   This  issue  has  arisen  in  the  following  factual

background:

The respondent M/s. Ultratech Cement Ltd. (hereinafter referred to

as  the  ‘assessee’)  is  involved  in  packing  and  clearing/forwarding  of

cement  classifiable  under  Chapter  sub  heading  25232910  of  Central

Excise  Tariff  Act,  1985,  with  Central  Excise  Registration  No.

AAACL6442LEM014.   The  assessee  is  also  availing  the  benefit  of

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Cenvat Credit facility under the Cenvat Credit Rules, 2004 (‘Rules, 2004’

for short).  The assesseeherein gets finished goods (cement) from its

parent unit on stock transfer basis and sells the same in bulk form and

packed bags.  The assessee during the period from January, 2010 to

June,  2010  availed  Cenvat  Credit  of  service  tax  paid  on  outward

transportation of goods through a transport agency from their premises

to the customer’s premises.  According to the appellant/Revenue, the

transport agency service used by the assessee for transportation of their

final  product  from  their  premises  to  customers  premises  cannot  be

considered  to  have  been  used  directly  or  indirectly  in  relation  to

clearance of goods from the factory viz., place of removal in terms of

Rule 2(l) of the Rules and as such cannot be considered as input service

to avail Cenvat credit.   

Accordingly,  the  Office  of  the  Commissioner  of  Central  Excise:

Bangalore II Commissionerate issued show cause notice dated February

3, 2011 to the assessee inter alia stating that on scrutiny of ER-1 return

submitted by the assessee for the period January, 2010 to June, 2010, it

was noticed that the assessee have wrongly availed the Cenvat Credit of

Service Tax paid on outward transportation of goods from the factory to

the  Customer’s  premises,  inasmuch  as  the  Goods  Transport  Agency

Service  used for the purpose of outward transportation of the goods

from factory to customer’s premises is not input service within the ambit

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of Rule 2(l)(ii) of the Rules, 2004.  It was further mentioned that the total

Cenvat  Credit  claimed  was  in  the  sum  of  Rs.  25,66,131/-  and  the

assessee was called upon to show cause as to why the said amount be

not recovered and penalty be not imposed.  The assessee submitted its

reply to the show cause notice contesting the position contained therein.

2) After hearing, the Adjudicating Authority passed Order-in-Original dated

August 22, 2011 holding that once the final products are cleared from

the factory premises, extending the credit beyond the point of clearance

of final product is not permissible under Cenvat Credit Rules and post

clearance use of services in transport of manufactured goods cannot be

input  service  for  the  manufacture  of  final  product.   Further,  the

Adjudicating Authority held that CBEC vide its Circular No. 97/8/2007-ST

dated August 23, 2007 has clarified the definition of place of removal.

With respect to fulfillment of requirement of Circular dated August 23,

2007, it was held that the assessee has not produced any documentary

evidence to prove that conditions laid down vide Circular dated August

23,  2007  has  been  fulfilled.   Accordingly,  the  Adjudicating  Authority

passed the order as under:

“(i)   Demanding  the  irregular  Cenvat  credit  availed  on outward  transportation  of  goods  amounting  to Rs.25,66,131/- under Rule 14 of Cenvat Credit Rules, 2004 read with Section 11A of Central Excise Act, 1944;

(ii)   Demanding  interest  under  Rule  14  of  Cenvat  Credit Rules, 2004 read with Section 11AB of Central Excise Act, 1944 read with Section 75 of the Finance Act, 1994;

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(iii)  Did not order for initiation of action under Rule 15(1) of Cenvat  Credit  Rules,  2004  read  with  Rule  25  of  Central Excise Rules, 2002;

(iv)  Imposed penalty of Rs.25,66,131/- under Rule 15(3) of Cenvat Credit Rules, 2004;

(v)   Imposed  penalty  of  Rs.1,00,000/-  under  Rule  25  of Central Excise Rules, 2002.”  

3) Aggrieved by the Order-in-Original No. 24/2011 dated August 22, 2011,

respondent/assessee  preferred  an  appeal  before  Commissioner

(Appeals).   The  Commissioner  (Appeals)  vide  Order-in-Appeal  No.

57/2012-CE dated March 15, 2012 allowed the appeal and set aside the

Order-in-Original  holding  that  assessee  is  eligible  for  availment  of

service tax paid on GTA service on the outward freight from the factory

to  the  customers’  premises  as  per  the  Board’s  Circular

97/8/2007-Service Tax dated August 23, 2007.  It was now the turn of

the Revenue to feel aggrieved by the order.  Accordingly, appeal was

filed  before  the  Customs,  Excise  and  Service  Tax  Appellate  Tribunal

(CESTAT) by the Revenue which was rejected vide judgment dated May

1, 2015.  Further appeal to the High Court preferred by the assessee

has met the same fate as the said appeal has been dismissed by the

High Court of Karnataka vide its judgment dated June 29, 2016, which is

the subject matter of the present appeal.   

4) As mentioned above, the assessee is involved in packing and clearing of

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cement.  It is supposed to pay the service tax on the aforesaid services.

At the same time, it is entitled to avail the benefit of Cenvat Credit in

respect of any input service tax paid.  In the instant case, input service

tax  was  also  paid  on  the  outward  transportation  of  the  goods  from

factory to the customer’s premises of which the assessee claimed the

credit.  The question is as to whether it can be treated as ‘input service’.

5) ‘Input service’ is defined in Rule 2(l) of the Rules, 2004 which reads as

under:

“2(l) “input service” means any service:-

(i)  Used by a provider of taxable service for providing an output services; 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  upto  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;”

6) It is an admitted position that the instant case does not fall in sub-clause

(i) and the issue is to be decided on the application of sub-clause (ii).

Reading of the aforesaid provision makes it clear that those services are

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included  which  are  used  by  the  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’.

7) It may be relevant to point out here that the original definition of ‘input

service’ contained in Rule 2(l) of the Rules, 2004 used the expression

‘from the place of removal’.  As per the said definition, service used by

the  manufacturer  of  clearance  of  final  products  ‘from  the  place  of

removal’  to  the warehouse or  customer’s place etc.,  was exigible for

Cenvat Credit.  This stands finally decided in Civil Appeal No. 11710 of

2016  (Commissioner  of  Central   Excise  Belgaum v.  M/s.

Vasavadatta  Cements Ltd.)  vide judgment  dated January 17,  2018.

However, vide amendment carried out in the aforesaid Rules in the year

2008, which became effective from March 1, 2008, the word ‘from’ is

replaced by the word ‘upto’.  Thus, it is only ‘upto the place of removal’

that service is treated as input service.  This amendment has changed

the entire scenario.  The benefit which was admissible even beyond the

place of removal now gets terminated at the place of removal and doors

to the cenvat credit  of input tax paid gets closed at that place.  This

credit cannot travel therefrom.  It becomes clear from the bare reading of

this  amended Rule,  which  applies  to  the  period  in  question  that  the

Goods  Transport  Agency  service  used  for  the  purpose  of  outward

transportation of goods, i.e. from the factory to customer’s premises, is

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not covered within the ambit of Rule 2(l)(i) of Rules, 2004.  Whereas the

word  ‘from’  is  the  indicator  of  starting  point,  the  expression  ‘upto’

signifies the terminating point, putting an end to the transport journey.

We,  therefore,  find  that  the  Adjudicating  Authority  was  right  in

interpreting Rule 2(l) in the following manner:

“… The input service has been defined to mean any service used by the manufacturer whether directly or indirectly and also includes, interalia, services used in relation to inward transportation  of  inputs  or  export  goods  and  outward transportation upto the place of removal.  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  services 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.

15.   Credit  availability is  in  regard to ‘inputs’.   The credit covers duty paid on input materials as well as tax paid on services,  used in  or  in  relation to the manufacture of  the ‘final  product’.   The  final  products,  manufactured  by  the assessee  in  their  factory  premises  and  once  the  final products are fully manufactured and cleared from the factory premises, the question of utilization of service does not arise as such services cannot be considered as used in relation to the manufacture of the final product.  Therefore, extending the credit beyond the point of removal of the final product on payment of duty would be contrary to the scheme of Cenvat Credit Rules.  The main clause in the definition states that the service in regard to which credit of tax is sought, should be used in or in relation to clearance of the final products from the place of removal.  The definition of input services

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should be read as a whole and should not be fragmented in order to avail  ineligible credit.   Once the clearances have taken  place,  the  question  of  granting  input  service  stage credit does not arise.  Transportation is an entirely different activity from manufacture and this position remains settled by the judgment of Honorable Supreme Court in the cases of Bombay Tyre International 1983 (14) ELT, Indian Oxygen Ltd. 1988 (36) ELT 723 SC and Baroda Electric Meters 1997 (94)  ELT  13  SC.   The  post  removal  transport  of manufactured goods is  not  an input  for  the manufacturer. Similarly, in the case of M/s. Ultratech Cements Ltd. v. CCE, Bhatnagar 2007 (6) STR 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  relevant  provisions  clearly,  correctly  and  in accordance with the legal provisions.”

 8) The  aforesaid  order  of  the  Adjudicating  Authority  was  upset  by  the

Commissioner (Appeals) principally on the ground that the Board in its

Circular dated August 23, 2007 had clarified the definition of ‘place of

removal’  and  the  three  conditions  contained  therein  stood  satisfied

insofar as the case of  the respondent is concerned, i.e.  (i)  regarding

ownership of the goods till the delivery of the goods at the purchaser’s

door step; (ii) seller bearing the risk of or loss or damage to the goods

during transit to the destination and; (iii) freight charges to be integral

part  of  the price  of  the  goods.   This  approach  of  the Commissioner

(Appeals) has been approved by the CESTAT as well as by the High

Court.  This was the main argument advanced by the learned counsel

for the respondent supporting the judgment of the High Court.

9) We are afraid that the aforesaid approach of the Courts below is clearly

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untenable for the following reasons:

10) In  the  first  instance,  it  needs  to  be  kept  in  mind  that  Board’s

Circular  dated  August  23,  2007  was  issued  in  clarification  of  the

definition  of  ‘input  service’  as  existed  on  that  date  i.e.  it  related  to

unamended definition.  Relevant portion of the said circular is as under:

“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. vs CCE, Ludhiana [2007 (6) STR 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 vs CCE Bhavnagar  2007-TOIL-429-CESTAT-AHM, 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 manufacturer / consignor can take credit on the service tax paid  on  outward  transport  of  goods  up  to  the  place  of

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removal and not beyond that.

8.2  In this connection, the phrase ‘place of removal’ needs determination taking into account the facts of an individual case  and the  applicable  provisions.  The phrase  ‘place  of removal’ has not been defined in CENVAT Credit Rules. 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, 1944 or the Finance Act, 1994, they shall have the  same  meaning  for  the  CENVAT  Credit  Rules  as assigned  to  them  in  those  Acts.  The  phrase  ‘place  of removal’ is defined under section 4 of the Central Excise Act, 1944. It states that,-

“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  stored 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.”

It  is,  therefore, clear   that for a   manufacturer /consignor, the eligibility to avail   credit of the service tax paid on the transportation  during  removal  of  excisable  goods would depend  upon  the  place  of  removal  as  per  the definition.  In  case  of  a  factory  gate  sale,  sale  from  a non-duty paid warehouse, or from a duty paid depot (from where the excisable goods are   sold, after their clearance from the factory), the determination of the ‘place of removal’ does  not  pose  much  problem.  However,  there  may  be situations where the manufacturer /consignor may claim that the sale has taken  place at  the destination point because in terms of the 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

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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.”

 11) As can be seen from the reading of the aforesaid portion of the

circular, the issue was examined after  keeping in  mind judgments of

CESTAT in Gujarat Ambuja Cement Ltd. and M/s. Ultratech Cement

Ltd.  Those judgments, obviously, dealt  with unamended Rule 2(l)  of

Rules, 2004.  The three conditions which were mentioned explaining the

‘place of  removal’ as defined under Section 4 of  the Act,  there is no

quarrel upto this stage.  However, the important aspect of the matter is

that Cenvat Credit  is  permissible in respect of ‘input service’ and the

Circular  relates  to  the  unamended  regime.   Therefore,  it  cannot  be

applied after amendment in the definition of ‘input service’ which brought

about a total change.  Now, the definition of ‘place of removal’ and the

conditions which are to be satisfied have to be in the context of ‘upto’ the

place  of  removal.   It  is  this  amendment  which  has  made  the  entire

difference.  That aspect is not dealt with in the said Board’s circular, nor

it could be.   

12) Secondly, if such a circular is made applicable even in respect of

post amendment cases, it would be violative of Rule 2(l) of Rules, 2004

and such a situation cannot be countenanced.

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13) The  upshot  of  the  aforesaid  discussion  would  be  to  hold  that

Cenvat Credit on goods transport agency service availed for transport of

goods from place of removal to buyer’s premises was not admissible to

the respondent.   Accordingly, this appeal  is allowed,  judgment  of  the

High Court is set aside and the Order-in-Original dated August 22, 2011

of the Assessing Officer is restored.   

.............................................J. (A.K. SIKRI)

.............................................J. (ASHOK BHUSHAN)

NEW DELHI; FEBRUARY 01, 2018.