Cenvat Credit on goods transport agency service availed for transport of goods from place of removal to buyer’s premises not admissible-Supreme Court
ABCAUS Case Law Citation:
ABCAUS 2189 (2018) (02) SC
The main issue involved in the present case was with regard to the admissibility of Cenvat Credit on Goods Transport Agency service availed for transport of goods from the place of removal to buyer’s premises.
Important Case Laws Cited/relied upon by the parties:
Commissioner of Central Excise Belgaum v. M/s. Vasavadatta Cements Ltd.
Gujarat Ambuja Cement Ltd. and M/s. Ultratech Cement Lt
Cenvat Credit on GTA service for transport of goods to buyer’s premises
Brief Facts of the Case:
The respondent assessee was a Limited Company involved in packing and clearing/forwarding of goods. The assessee was also availing the benefit of Cenvat Credit facility under the Cenvat Credit Rules, 2004 (‘Rules, 2004’). As per the practice followed, the assessee used to receive finished goods from its parent unit on stock transfer basis and sell the same in bulk form.
The assessee during the first half of the relevant year availed Cenvat Credit of service tax paid on outward transportation of goods through a transport agency from their premises to the customer’s premises.
However the Revenue was of the view that the transport agency service used by the assessee for outward transportation of their final product from their premises to customers premises could not 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(1) of the Rules and as such cannot be considered as input service to avail Cenvat credit. Accordingly the assessee was called upon to show cause as to why the said amount be not recovered and penalty be not imposed.
After considering the submission of the assessee, the Adjudicating Authority at the office of Commissioner of Central Excise passed Order demanding the irregular Cenvat credit availed, interest and penalty 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
Aggrieved by the Order, the assessee preferred an appeal before Commissioner (Appeals) who allowed the appeal and set aside the Order holding that assessee was eligible for availment of service tax paid on GTA service on the outward freight from the factory to the customers’ premises as per the circular of the Central Board of Excise and Custom (the Board).
The Revenue aggrieved by the order of the Commissioner (Appeals) before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) which was rejected. Further appeal to the High Court preferred by the assessee had been dismissed which is the subject matter of the present case.
Observations made by the Supreme Court:
The Ho’nble Supreme Court observed that in terms of the definition of ‘Input service’ as per Rule 2(l) of the 2004 Rules, the issue was to be decided on the application of sub-clause (ii), reading of which makes it clear that it includes those services 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’
The Ho’nble Supreme Court observed that the original definition of ‘input service’ had 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. However, vide amendment of 2008, the word ‘from’ was replaced by the word ‘upto’.
In view of the above, the Ho’nble Supreme Court opined that it is only ‘upto the place of removal’ that service is treated as input service. The benefit which was admissible even beyond the place of removal got terminated at the place of removal and doors to the cenvat credit of input tax paid gets closed at that place. The credit cannot travel therefrom.
The Ho’nble Supreme Court opined that a bare reading of the amended Rule makes it clear 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 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.
The Ho’nble Supreme Court observed that though the Adjudicating Authority was right in interpreting Rule 2(l), its order was upset by the Commissioner (Appeals) on the basis of Board’s Circular of 2007. However, that said Board’s Circular was issued in clarification of the definition of ‘input service’ as existed on that date i.e. it related to unamended definition. The Ho’nble Supreme Court observed that the change in 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 was not dealt with in the said Board’s circular, nor it could be as it was issued before the said amendment.
It was held that Cenvat Credit on goods transport agency service availed for transport of goods from place of removal to buyer’s premises was not admissible.