REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 11711 OF 2016

COMMISSIONER OF CUSTOMS CENTRAL  EXCISE AND SERVICE TAX , GUNTUR .....APPELLANT(S)

VERSUS

M/S. THE ANDHRA SUGARS LTD. .....RESPONDENT(S)

W I T H

CIVIL APPEAL NO. 11872 OF 2016

CIVIL APPEAL NO. 11873 OF 2016

A N D

CIVIL APPEAL NO. 11910 OF 2016

J U D G M E N T

A.K. SIKRI, J.

The question of law which needs determination in all these

appeals is  identical.   It  pertains to Cenvat Credit  in  respect  of

service tax paid on goods that are transported to the purchaser

after  the  sale.   The  question,  therefore,  which  needs

Civil Appeal Nos. 11711 of 2016 Page 1 of 10

determination is as to whether the expression ‘input service’ as

defined in Rule 2(l) of the Cenvat Credit Rules, 2004 (hereinafter

referred  to  as  the  ‘Rules,  2004’),  in  the  context  of  a  service

provider,  would  also  include  services  which  are  used  in  or  in

relation  to  providing  taxation  output  services  described  in  the

definition and the outward transportation to the purchaser would

be treated as beyond the ‘place of removal’.   

  2) For the sake of convenience, we may reproduce the events from

Civil  Appeal No.  11711 of  2016.   The respondent M/s.  Andhra

Sugars Ltd. are the manufacturers of sugar, molasses etc. at their

Tanuku, Taduvai & Bhimadole units and manufacturers of various

inorganic chemicals at their Kovvur and Saggonda units.  They

were availing credit on inputs, capital goods and input services

and utlising the same for payment of duty.  It came to the notice of

the  Revenue  that  during  the  periods  December,  2007,  the

respondent  at  their  unit  Saggonda,  had  taken  credit  of  input

services namely service tax paid on transportation charges upto

the  place  of  customers  which  according  to  the  Revenue  is

inadmissible.  Accordingly, show cause notice dated November 3,

2008 was issued to the respondent demanding the Cenvat Credit

of Rs.3,87,763/- availed during the above mentioned period along

with interest and proposing to impose penalty under Rule 15 of

Civil Appeal Nos. 11711 of 2016 Page 2 of 10

the  Rules,  2004.   The  aforesaid  show cause  notice  was  duly

adjudicated by the Assistant  Commissioner,  Eluru Division vide

Order-in-Original No. 01/2009 dated January 9, 2009 confirming

the demands initiated in the aforesaid show cause notice.

3) The  respondent  being  aggrieved  by  the  Order-in-Original  No.

01/2009  dated  January  9,  2009  filed  appeal  before  the

Commissioner  (Appeals),  Guntur.   Vide  Order-in-Appeal  Nos.

46/2011 (G) ST dated December 2, 2011, allowed the appeals by

setting aside the Order-in-Original with consequential relief to the

respondent.  The Revenue challenged the Order-in-Appeal No. 46

of  2011 (G) ST dated December 2,  2011 by preferring appeal

bearing Appeal No. E/510/2012-DB before the Customs, Excise

and Service Tax Appellate Tribunal (CESTAT), Bangalore.  The

CESTAT vide final Order No. 26346/2013 dated August 14, 2013

dismissed the appeal filed by the Revenue holding that the same

is covered by the decision of the High Court of Karnataka in the

case  of  Commissioner  of  Central  Excise  and  Service  Tax,

Bangalore  v.  ABB  Ltd.,  Vadodara1.   Further,  the  CESTAT

observed that the Revenue could not have filed appeals as per

the  instructions  of  the  CBEC  vide  Circular  F.  No.

390/Misc./163/2010-JC dated  August  17,  2011,  as  the  amount

1  2011 (23) STR 97 (Kar)

Civil Appeal Nos. 11711 of 2016 Page 3 of 10

involved is less than Rs.5 lakhs.  Not satisfied with this outcome,

the Revenue took the matter  to  the High Court  in  the form of

Appeal No. 88/2014.  The High Court vide its impugned judgment

dated  July  16,  2014  has  dismissed  the  appeal  filed  by  the

Revenue holding that “on an identical issue, this Court dismissed

Central Excise Appeal No. 31 of 2013.  Hence, this appeal is also

dismissed.”

4) Before we proceed further, it would be necessary to take note of

the definition of ‘input service’ which was prevailing at the relevant

period  i.e.  prior  to  April  1,  2008.   This  definition  contained  in

Section 2(l) of the Rules, 2004 reads as under:

“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 from the place of removal;

Civil Appeal Nos. 11711 of 2016 Page 4 of 10

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.”

5) We may also refer to Circular No. 97/8/2007-ST dated August 23,

2007  issued  by  the  Central  Board  of  Excise  and   Customs

(CBEC) (hereinafter referred to as the ‘Board’) as per which the

definition  of  ‘input  service’  was  clarified  and  the  Circular  also

provided the conditions which are to be satisfied to cover the case

within ‘place of removal’.  The three conditions contained in the

circular are (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.

6)  As mentioned above, in these cases, the assessees are claiming

Civil Appeal Nos. 11711 of 2016 Page 5 of 10

Cenvat  Credit  in  respect  of  service  tax  paid  on  outward

transportation from their factory to the premises of customers.  As

per the Department, outward transportation engaged for removal

of goods from factory to customer premises cannot be considered

as an input service since premises of customer is not recognized

as a place of  removal under the Central  Excise Act.   To put  it

differently,  the  Department  contends  that  the  outward

transportation provided beyond the place of removal is not eligible

for input service for availing Cenvat Credit.   

7) Having  regard  to  the  definition  of  ‘input  service’  that  was

prevailing  at  the  relevant  time  i.e.  prior  to  April  1,  2008,  the

aforesaid contention of the Department cannot be accepted.  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.  The matter  is  squarely covered by the Board’s Circular

dated  August 23, 2007, relevant portion whereof is as under:

Civil Appeal Nos. 11711 of 2016 Page 6 of 10

“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 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

Civil Appeal Nos. 11711 of 2016 Page 7 of 10

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 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

Civil Appeal Nos. 11711 of 2016 Page 8 of 10

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.”

8) 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’ are defined in Section

4 of the Act.  It is not the case of the Department that the three

conditions laid down in the said Circular are not satisfied.  If we

accept the contention of the Department, it would nullify the effect

of the word ‘from’ the place of removal appearing in the aforesaid

definition.  Once it is accepted that place of removal is the factory

premises of the assessee, outward transportation ‘from the said

place’ would clearly amount to input service.  That place can be

warehouse of the manufacturer or it can be customer’s place if

from the place of removal the goods are directly dispatched to the

place of the customer.  One such outbound transportation from

the  place  of  removal  gets  covered  by  the  definition  of  input

service.   

9) We,  thus,  do not  find any infirmity  in  the impugned judgment.

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Appeals are devoid of any merit and are accordingly dismissed.

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

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

NEW DELHI; FEBRUARY 05, 2018.

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