M/S. Vijay Cements vs Cce, Trichy

(Arising out of Order-in-Appeal No. 33/2011 dated 8.3.2011 passed by the Commissioner of Central Excise (Appeals), Tiruchirapalli)

M/s. Vijay Cements Appellant

Vs.

CCE, Trichy Respondent

Appearance

Shri S. Muthuvenkataraman, Advocate, for the Appellant Shri K.P. Muralidharan, AC (AR) for the Respondent

CORAM

Honble Shri P.K. Choudhary, Judicial Member

Date of Hearing : 14.07.2015 Date of Pronouncement: 14.08.2015

Final Order No. 40988 / 2015

M/s. Vijay Cements, the appellants, are engaged in the manufacture of cement and clinker falling under Chapter 25 of First Schedule to Central Excise Tariff Act, 1985 and are holders of Central Excise Registration and Service Tax Registration. They are paying service tax on the services of transportation of goods by road under reverse charge.

2. The brief facts of the case are that the appellants were issued a Show Cause Notice dated 13.10.2009 stating that they were not eligible for the CENVAT credit of service tax of Rs.8,14,658/- paid on the freight for the outward transportation of goods beyond the place of removal for the period April 2007 to September 2009. Appellants vide their reply to notice dated 2.11.2009 stated that the SCN is time-barred and further they submitted that all their dispatches are on FOR destination basis, and the sale takes place at the place of the customer when the title to the goods passes on delivery. The price charged is inclusive of the freight and they are responsible for any loss or damage until it is delivered at the customers door steps. They have placed reliance on the Master circular No. 97/8/2007 dated 23.8.2007.

3. The adjudicating authority confirmed the demand of Rs.8,14,658/- on input service credit taken on outward transportation rendering the same as ineligible under Rule 14 of CENVAT Credit Rules, 2004 read with proviso to Section 11A(1) of the Central Excise Act, 1944 and imposed penalty of equal amount under Rule 15 of CENVAT Credit Rules, 2004 read with Section 11A of the Central Excise Act and also demanded appropriate interest. The Commissioner (Appeals) rejected the appeal of the assessee and upheld the order of the adjudicating authority by stating that the decision of the Larger Bench of the Tribunal in the case of ABB Ltd. Vs. CCE & ST is not accepted by the Department and they have filed appeal before the Honble Karnataka High Court. Further reliance was placed on in the case of Roop Polymers Ltd. Vs. CCE  2011 (21) STR 74.

4. Learned counsel for the assessee submitted that the issue of availment of service tax credit in respect of outward transportation is no more res integra on the basis of the decisions of the Honble High Court of Madras in the case of CCE, Chennai Vs. M/s. Borg Warner Morse TEC Murugappa Pvt. Ltd.  2015-TIOL-831-HC-MAD. He also relied on the decision of the Honble High Court of Madras in the case of CCE, Chennai Vs. M/s. Sundaram Industries Ltd. vide order dated 25.2.2014 in CMA No. 547/2012 and the definition of input service under Rule 2(l) of the CENVAT Credit Rules, 2004. Further, he relied on Circular No. 988/12/2014-CX dated 20.10.2014

5. The learned AR for Revenue reiterated the findings of both the lower authorities and submits that the goods have been cleared from the depot to the place of destination and the Boards Circular is not applicable to the facts of the present case. He also relied on the decision of the Honble High Court of Calcutta in the case of CCE Vs. Vesuvious India Ltd.  2014 (34) STR 26 (Cal.).

6. I have heard both sides and perused the records. I find that the Honble High Court of Madras in the cases of CCE, Chennai Vs. M/s. Borg Warner Morse TEC Murugappa Pvt. Ltd. (supra) and M/s.Sundaram Industries Ltd. Vs. CCE (supra), has relied on the decision of the Honble Karnataka High Court in the case of CCE, Bangalore Vs. ABB Ltd.  2011 (23) STR 97 (Kar.) which was rendered on the appeal filed by the Department as against the decision of the Larger Bench of the Tribunal and it was held that whether services availed by the manufacturer of outward transportation of final products from the place of removal should be treated as an input service in terms of Rule 2(l)(ii) of the CENVAT Credit Rules, 2004 and thereby enabling the manufacturer to take credit of the service tax on the value of such services. The Honble High Court of Madras in the case of CCE, Chennai Vs. M/s. Borg Warner Morse TEC Murugappa Pvt. Ltd. (supra) in paragraph 11 has held as follows:-

11. With regard to the outward freight charges, the Kanartaka High Court in the case of CCE V. ABB Ltd., Bangalore reported in [2011] 44 VST 1, = 2011-TIOL-395-HC-KAR-ST which was rendered on the appeal filed by the Department as against the decision of the full Bench of the Tribunal, while answering the issue whether the services availed by a manufacturer for outward transportation of final products from the place of removal should be treated as an input service in terms of Rule 2 (l) (ii) of the CENVAT Credit Rules, 2004 and thereby enabling the manufacturer to take credit of the service tax on the value of such services, held as follows:

"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 reached 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 and 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 are 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, the final product has to be transported from the factory premises toll 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, ie up to the place of removal

7. I also find that Rule 2(l) of the CENVAT Credit Rules, 2004 is inclusive definition during the period in dispute. For better appreciation, Rule 2(l) is reproduced hereunder:-

2(l) input service means any service, -

(i) used by a provider of taxable service for providing an output service; or

(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final product upto the place of removal, and includes services used in relation to the setting up of modernisation, renovation or repair of the 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

8. I find that in view of the decisions of the Honble High Courts, it is clear that CENVAT credit can be availed for the outward transportation upto the place of removal. The Boards Circular has elaborately dealt with the issue of determination of place of removal and as per the terms of the purchase order delivery is upto the place of destination and freight was paid by the appellants, they are eligible for availing input service credit on outward transportation.

9. In view of the foregoing discussions, I set aside the impugned order passed by the Commissioner (Appeals) and allow the appeal with consequential relief, if any.

(Pronounced in open court on 14.8.2015)

(P.K. Choudhary) Judicial Member

Rex

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