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TMI Blog2010 (4) TMI 322X X X X Extracts X X X X X X X X Extracts X X X X ..... ce tax paid on the inputs services under Cenvat Credit Rules, 2004 (hereinafter referred to as CCR, 2004). The period of dispute in this case is from October 2004 to September 2005 and January 2005 to February 2007. 1.1 The appellant clear their goods for sale from the factory gate and also transfer the goods to their depots from where the same are despatched to their customers. During January 2006 and April 2006, the records of the Appellant company in respect of Central Excise Duty payment and Cenvat Credit availment for the clearances during the period from October 2004 to September 2005 and January 2005 to February 2007 were examined. In course of scrutiny of the records, it appeared that there was short payment of education cess amounting to Rs. 3,58,717/- out of which an amount of Rs. 2,54,805/- was paid by appellant immediately. 1.2 Beside the short payment of education cess, it was also found that they had availed Cenvat credit of Service Tax on the GTA service availed in respect of outward transportation of the finished goods from the factory gate to the customer's premises or from factory to depots and from depots to customer's premises and the total credit availed duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal ordered the appellant to deposit a sum of Rs. One crore within the stipulated period and subject to deposit of this amount the requirement of pre-deposit of the balance amount of duty, interest and penalty would stand waived and recovery thereof stayed till the disposal of the appeal. Against this order of the Tribunal, the Appellant filed an appeal to Hon'ble Allahabad High Court under Section 35G of Excise Act and Hon'ble High Court vide order dated 5-6-09 [2009 (16) S.T.R. 136 (All.)] allowed the appeal, set aside the Tribunal's order and remanded the matter back to the Tribunal to decide the stay application afresh in accordance with law and observations made in this order. The Hon'ble High Court directed the Tribunal to decide the stay application as expeditiously as possible, preferably within a period of three weeks from the date of production of certified copy of the order. 1.5 Against the order of Hon'ble Allahabad High Court, the Department filed an SLP in the Hon'ble Supreme Court and Hon'ble Supreme Court side order dated 5-1-10 directed this Tribunal to expeditiously hear and dispose of the appeal itself on merits within period of three months. Accordingly, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1944 shall have meaning assigned to them in those Acts. In view of this, the expression "place of removal" in the definition of "input service" in rule 2(1) must be given the meaning in term of its definition in Section 4 of the Excise Act. Since the Sales of the Appellants are on FOR basis at the customer's premises, it is the customer's premises which have to be treated as the place of removal, not the factory gate. (4) Out of total disputed Cenvat credit of Rs. 6,21,39,585/-, Cenvat credit of Rs. 4,82,68,526/- is of service tax on GTA services availed for transportation of finished goods from factory gate to depots, which has to be treated as of removal" if the sales are held to be from depots. Therefore, there is no justification for denying the Cenvat credit of this amount. (5) Since the sales have taken place on FOR destination basis at the customer's premises, risk during transportation is of the Appellant and the price for the goods charged from the customers, includes the freight and insurance upto the customer's premises, in terms of the Board's Master Circular No. 97/8/07-S.T. dated 23-8-07, which is based on the Tribunal's judgment in case of M/s Gujarat Ambuja Cement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice availed for transportation from depots/factory gate to customer's premises would not be available MRP minus abatement is not the same as FOR price. In case of payment of duty under Section 4A, Board's Circular No.97/8/07-S.T., dated 23-8-07 becomes irrelevant. (2) Under Section 37(2)(xviaa) of the Excise Act, Central Government can frame rules to provide for credit of service tax leviable under Chapter V of the Finance Act, 1994 paid on taxable services used in or in relation to the manufacture of excisable goods. The GTA service for outward transportation of finished goods from the place of removal has nothing to do with manufacture, even if the sale is on FOR basis. Therefore the definition of "input service", as given in Rule 2(1) of Cenvat Credit Rules, 2004 cannot cover outward transportation of finished goods from the place of removal. As held by Hon'ble Supreme Court in case of Ispat lndustries Ltd. v. Commissioner of Customs, Mumbai reported in 2006 (202) E.L.T. 561 (S.C.), the scope of Cenvat Credit Rules, 2004, framed under Section 37 of the Excise Act cannot go beyond the scope of the provisions of the parent Act under which the Rules have been framed. (3) Outward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portation of the goods up to the customer's premises. According to the Appellant, since the sale take place at the customer's premises, it is the customer's premises which is the "place of removal" within the meaning of this expression as defined under Section 4(4)(c) of the Excise Act and since the definition of "input service", as given in Rule 2(1) of Cenvat Credit Rules, 2004 covers the transportation of the finished goods up to the "place of removal", they would be eligible for Cenvat credit of the service tax on the GTA service availed for the transportation of finished goods up to the customer's premises. The Commissioner, however, has disallowed the Cenvat credit on the ground that since the Appellant are selling their final products from their factory through their depots to different dealers situated in different parts of the country, they are not entitled to avail Cenvat credit of the amount of service tax paid by them on the GTA service availed for transportation of the goods from the factory gate/Depots to customer's premises or from factory gate to Depots. Though the Appellant in their reply to the show cause ' notice had cited the Board's Circular No. 137/3/2006-CX.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 up to 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 up to the place of removal". 4.2 It is the contention of the learned DR that outward transportation of finished goods from the factory gate has no nexus with the manufacture and, therefore, the definition of 'input service' as given in Rule 2(1) of Cenvat Credit Rules would not cover the outward transportation of the finished goods from the factory, as the Section 37(2) empowers the Central Government to frame rules for providing input duty credit only in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge charges, outward handling charges, after sales ser vice charges, marketing and selling organisation expenses including advertisement expenses would be includible in the assessable value. Thus the assessable value of excisable goods, for the purpose of charging duty at an ad valorem rate, is not confined to manufacturing cost and manufacturing profit. It would include all the expenses incurred upto the place of delivery sale except for cost of transportation from the place of removal to the place of delivery sale. 4.2.2 Since 28-9-96 by amendment to Section 4 of the Excise Act, the "place of removal" has been expanded to include Depots, consignment agents premises or any other premises from where the goods are sold after their clearance from the factory and since the assessable value of the goods, as per the provisions of Section 4(1) of the Excise Act, is the transaction value for delivery at the time and place of removal, in case the goods are sold on FOR destination basis at the customer's premises, all expenses incurred by the manufacturer up to the time of sale at the customer's premises including transportation expenses would be includible in the assessable value. 4.2.3 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India and others v. Bombay Tyre International Ltd. and others (supra) and specially para 49 of the judgment; (b) the system of Cenvat credit of excise duty paid on input goods and capital goods and of service tax' paid on input services being available to a manufacturer which can be utilised towards payment of duty as finished products; and (c) rechristening the central excise duty as 'central value added tax' by amending Section 3 of the Central Excise Act, has held that amendment to Section 3 of the Excise Act will show that manifest object of legislation is to levy and collect the excise duty as a value added tax. In view of this, it is clear that though central excise is a tax linked with the event of manufacture, it is collected as a value added tax and because of this, it has the character of a value added tax. 4.2.4 Since basic principle of a value added tax is that while subjecting a finished product to tax, credit of tax paid on all input goods, capital goods and input service is allowed which can be utilized towards payment of tax on the finished product, a corollary to this principle would be that in an indirect tax of the nature of value added tax, when a finished p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Cenvat Credit Rules states that words and expressions used in these rules are not defined but defined in the Excise Act or the Finance Act, 1994 shall have meanings respectively assigned to them in those acts. The expression "place of removal" is defined in Section 4(3)(c) of the Excise Act and, therefore, in view of the provisions of Rule 2(t) of the CCR, 2004, the definition of "place of removal", as given in Section 4(3)(c) will have to be adopted for ascertaining the scope of this expression in the definition of "input service". The expression "place of removal", as defined in Section 4(3)(c) of the Central Excise Act, is as under:- "Place of removal" means - (i) a factory or any other place or premises of production or manufacture of excisable goods; (ii) a warehouse or any other place or premises wherein excisable goods have been permitted to be deposited without payment of duty; (iii) a depot or 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; and from where such goods are removed." 5.1 In terms of above definition of "place of removal", if the sale of the good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Ultratech Cements Ltd. v. CCE., Bhavnagar - 2007 (6) S.T.R. 364 (Tri.) = 2007-TIOL-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 remov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Section 2 of the Excise Act as also in terms of the provisions under the Sale of Goods Act, 1930) occurred at the said place". 5.2 Hon'ble Punjab & Haryana High Court in case of Ambuja Cements Ltd. v. Union of India reported in 2009 (14) S.T.R. 3 (P & H) = 2009 (236) E.LT. 431 (P & H) = 2009 (TIOL) 110 - HC - P&H - ST relying upon the above-mentioned circular of the Board has held that the service of transportation of goods up to the customer's door step in case of FOR destination sales, where the entire cost of freight is paid and borne by the manufacturer would be "input service" within the meaning of this term as defined in Rule 2(1) of the CCR, 2004. Thus, if the goods after removal from the factory or depot are sold on FOR destination basis at the customer's door step, that is, the ownership of the goods and property in goods remains with the manufacturer of the goods till delivery of the goods in acceptable condition to the purchaser at his door step, the manufacturer seller bears the risk of loss of goods or damage the goods during transit to the customer's premises and the entire freight charges are integral part of the price of the goods, the GTA service availed for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on transportation of goods up to such depot. The doubt appears to be based on reasoning that since such goods are not charged to duty on the basis of valuation under section 4 of the Central Excise Act, the definition of the expression 'place of removal' given in that section would not apply in case of such goods. 3. The matter has been examined at the level of the Central Board of Excise and Customs. It has been observed that the availment of credit and valuation for payment of duty are two independent issues. Further, the provisions under rule 2(t) of the CENVAT Credit Rules refers to definitions under the Excise Act and the Finance Act, .1994 for uniform understanding of the words and phrases used in the Credit Rules. Therefore, if an expression is not defined in the Credit Rules but is defined under a particular section of the Central Excise Act, it shall be applicable to all goods for purposes of the Credit Rules, irrespective of whether or not the said section is applicable for the purposes of working out the duty on such goods. 4. In view of the above, the undersigned is directed to state that, in case of depot sales of goods, the credit of service tax paid on the transp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x collected after allowing credit of input stage duty will be exactly the tax on the value addition, in practice, it is not always possible, but even if the input goods/services and the finished products are taxed at different ad valorem rates or at specific rates, once the input stage duty credit is allowed, on overall basis, the net tax collected would be more or less the tax on value addition. Therefore for allowing credit of tax paid on input goods/service used in or in relation to manufacture of a finished product, what is relevant is as to whether the items in respect of which input duty credit is being claimed are covered by the definition of "inputs" or "input services" and finished product is chargeable to duty for allowing the, credit of duty paid on input goods and/or of service tax paid on input services "it is not relevant as to whether the duty on the finished product has been, paid at specific rate or at ad valorem rate and of at ad valorem rate whether on the assessable value determined under Section 4 or Section 4A of the Excise Act or on tariff value fixed under section 3(2). We, therefore, hold that the Cenvat credit of service tax paid on the GTA service availed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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