2019 (3) TMI 519 - HC - Central Excise

CENVAT Credit - input services - GTA Services - period after 01.4.2008 - Held that - The Adjudicating Authority held that in view of clarification given by the Board, vide letter dated 02.2.2006, the contention of the assessee was accepted. However, the next three sentences overturned the case of the assessee. The Adjudicating Authority held that the service tax credit distributed by the Regional Distribution Centres and the Corporate Office as discussed supra have no nexus with the manufacturing activity of the assessee and that the credit availed by the assessee was not in order. The issue, which should have been decided by the Adjudicating Authority, is as to whether the point of sale is the RDC as contended by the assessee. In fact, the Tribunal partly allowed the assessee's appeals on input service credit availed in all the RDCs in respect of renting of premises, courier, telephone, security services, etc., under Rule 2(l) of the CCR irrespective of the amendment i.e. before and after 01.4.2008 and also set aside the penalty. However, in respect of GTA services, the Adjudicating Authority and the Tribunal disallowed the input credit availed by the assessee beyond the RDCs/Corporate Office from 01.4.2008 and held that they are not eligible for the purpose of Rule 2(l) of the CCR as it stood after 01.4.2008. To arrive at the correct conclusion, the Adjudicating Authority should have taken note of the decision of the Hon'ble Supreme Court in the case of CCE, Belgaum Vs. Vasavadatta Cements Ltd. 2018 (3) TMI 993 - SUPREME COURT . The issue, which fell for consideration before the Hon'ble Supreme Court was as to what interpretation has to be given to input services, which is defined in Rule 2(l) of the CCR. The appeals before the Hon'ble Supreme Court all related to a period prior to 01.4.2008 and the said Rule stood amended with effect from 01.4.2008. The issue requires to be examined in depth on the factual matrix and the Adjudicating Authority shall take note of the decision of the Hon'ble Supreme Court in the case of Vasavadatta Cements Ltd. - Appeal allowed by way of remand.

Issues Involved:

1. Denial of input service credit availed by the assessee in respect of Goods Transport Agency (GTA) services after 01.4.2008.
2. Interpretation of the definition of 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004.
3. Determination of the 'place of removal' for the purpose of availing CENVAT credit.

Detailed Analysis:

Issue 1: Denial of Input Service Credit for GTA Services Post-01.4.2008

The appeals were filed by the assessee under Section 35G of the Central Excise Act, 1944, challenging the order of the Customs, Excise, and Service Tax Appellate Tribunal (Tribunal) which denied input service credit for GTA services availed after 01.4.2008. The Tribunal upheld the orders of the Adjudicating Authority, disallowing the input credit on the grounds that the services availed beyond the RDCs/Corporate Office were not eligible for credit under Rule 2(l) of the CENVAT Credit Rules, 2004, post-amendment.

Issue 2: Definition of 'Input Service' under Rule 2(l) of the CENVAT Credit Rules, 2004

The assessee contended that the definition of 'input service' should be interpreted widely to cover all activities that make the business commercially expedient. They argued that the input services availed at the RDCs and headquarters were used in connection with the manufacture and distribution of footwear, and hence, should be eligible for CENVAT credit. The Department, however, argued that the services should be directly related to the manufacture or clearance of finished goods up to the 'place of removal,' which they defined as the factory.

Issue 3: Determination of 'Place of Removal'

The core issue was whether the RDCs could be considered the 'place of removal.' The Adjudicating Authority initially accepted the assessee's contention based on a Board clarification but later overturned it by stating that the service tax credit distributed by the RDCs and Corporate Office had no nexus with the manufacturing activity. The Tribunal, while partly allowing the assessee's appeals for other services, disallowed the credit for GTA services post-01.4.2008, aligning with the amendment to Rule 2(l).

Judgment Analysis:

The High Court noted that the Adjudicating Authority and the Tribunal did not thoroughly examine whether the RDCs were indeed the point of sale, which is crucial for determining the 'place of removal.' The Court referred to the Supreme Court's decision in CCE, Belgaum Vs. Vasavadatta Cements Ltd., which held that CENVAT credit on transportation from the place of removal to the first point (depot or customer) was allowable before 01.4.2008. Post-amendment, the credit was restricted to services up to the place of removal.

The Court found that the Tribunal did not adequately consider the factual matrix and merely applied the decision in CCE & ST Vs. Ultra Tech Cement Ltd., which dealt with the post-amendment period and did not overturn the Vasavadatta Cements decision.

The High Court emphasized the need for a detailed factual examination by the Adjudicating Authority to determine if the RDCs were the actual place of removal. It also highlighted a relevant decision by the Delhi Tribunal in CCE Vs. Lafarge India Pvt. Ltd., which linked the place of removal to the factum of sale.

Conclusion:

The High Court set aside the orders of the Tribunal and the Adjudicating Authority regarding the denial of input service credit for GTA services post-01.4.2008 and remanded the matter for re-adjudication. The Adjudicating Authority was directed to consider the Supreme Court's decision in Vasavadatta Cements and the Delhi Tribunal's decision in Lafarge India Pvt. Ltd., and to provide a fresh decision after a thorough factual examination. The appeals were allowed, and the substantial questions of law were left open for future determination. No costs were awarded.

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