C.A. No. 11900-11901/2016, C.A. No. 11909/2016, 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
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
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.
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
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
received or rendered by the manufacturer from the place of removal till it reaches its destination falls within the definition of input service. What are the services that normally a manufacturer would render to a customer from the place of removal? They may be packing, loading, unloading, transportation, delivery, etc. Though the word transportation is not specifically used in the said section in the context in which the phrase 'clearance of final products from the place of removal' is used, it includes the transportation charges. Because, after the final products has reached the place of removal, to clear the final products nothing more needs to be done, except transporting the said final products to the ultimate destination i.e. the customer's/buyer of the said product, apart from attending to certain ancillary services as mentioned above which ensures proper delivery of the finished product upto the customer. Therefore, all such services rendered by the manufacturer are included in the definition of 'input service'. However, as the legislature has chosen to use the word 'means' in this portion of the definition, it has to be construed strictly and in a restrictive manner. After defining the 'input service' used by the manufacturer in a restrictive manner, in the later portion of the definition, the legislature has used the word 'includes'. Therefore, the later portion of the definition has to be construed liberally. Specifically what are the services which fall within the definition of 'input service' has been clearly set out in that portion of the definition. Thereafter, the words 'activities relating to business' - an omni-bus phrase is used to expand the meaning of the word 'input service'. However, after using the omni-bus phrase, examples are given. It also includes
transportation. The words used are (a)
inward transportation of inputs or capital
goods (b) outward transportation upto the
place of removal. While dealing with inward
transportation, they have specifically used
the words 'inputs' or 'capital goods'. But,
while dealing with outward transportation
those two words are conspicuously missing.
The reason being, after inward
transportation of inputs or capital goods
into the factory premises, if a final
product emerges, that final product has to
be transported from the factory premises
till the godown before it is removed for
being delivered to the customer. Therefore,
'input service' includes not only the
inward transportation of inputs or capital
goods but also includes outward
transportation of the final product upto
the place of removal. Therefore, in the
later portion of the definition, an outer
limit is prescribed for outward
transportation, i.e., up to the place of
removal.
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.
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
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
Excise Belgaum Versus M/S. Vasavadatta Cements Ltd.(Civil
Appeal No(S). 11710/2016 & other connected matters.)
[A.K. SIKRI]