Maharashtra Scooters Ltd vs Commissioner Of Central Excise, ...

[Arising out of Order-in- Appeal No.PII/PAP/119/2008 dated 25/6/2008 passed by the Commissioner(Appeals) Central Excise, Pune II]

For approval and signature:

Honble Mr Ramesh Nair, Member(Judicial)

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1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the : CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy : seen of the Order?

4. Whether Order is to be circulated to the Departmental: Yes authorities? =======================================================

Maharashtra Scooters Ltd. : Appellants

VS

Commissioner of Central Excise, Pune-II : Respondent

Appearance

Shri. V. K. Godbole, Consultant for the Appellants Shri. Ashitosh Nathi, Asstt. Commissioner(A.R.) for the Respondent

CORAM:

Honble Mr. Ramesh Nair, Member (Judicial)

Date of hearing: 5/5/2015 Date of decision: 5/5/2015

ORDER NO.

Per : Ramesh Nair

This appeal is directed against Order-in- Appeal No. PII /PAP /119/ 2008 dated 25/6/2008 passed by the Commissioner (Appeals) Central Excise, Pune II, wherein the Ld. Commissioner (Appeals) upheld the order-in-original rejecting the appeal of the appellant except the order portion pertaining to penalty aspect. The issue involved in this case that whether during the period from 7/2006 to 3/2007 Cenvat Credit is admissible on service of outward transportation. The fact of the case is that the appellant availed Cenvat credit in respect of outward transportation. The appellant charged transportation charges in the sale bill from their customer.

2. V. K. Godbole, Ld. Consultant for the appellant submits that in the transaction of their goods place of removal is the factory gate and as per the new amended definition of Input Service, Cenvat Credit in respect of services used for removal of goods from place of removal is admissible therefore outward transportation is used for removal of goods from place of removal i.e. factory gate hence credit is admissible. He placed reliance on the judgment of the Larger Bench judgment in the case of ABB Vs. CCE [2009-TIOL-830-CESTAT-BANG-LB] which was upheld by the Honble Karnataka High Court reported in [2011-TIOL-395-HC-KAR-ST]. It is his submission that as per the fact of above case, though the freight was not included in the price of the goods, it is not necessary for allowing credit, freight should be integral part of the price. In view of the definition of input service prevalent at relevant time for service used for removal of the goods from place of removal there is no condition stipulated that value of service should be included in the value of the goods, therefore, even though transportation charges was charged separately over and above the price of the goods, since transportation was used for removal of goods from place of removal Cenvat Credit should be allowed.

3. On the other hand, Shri. Ashutosh Nath, Ld. Asstt. Commissioner(A.R.) appearing on behalf of the Revenue reiterates the findings of the impugned order. He also placed reliance on following judgments:

(a) CCE VS. Vesuvious India Ltd. [2014(34) S.T.R. 26 (Cal.)]

(b) India Japan Lighting Private Ltd. Vs. CCE[2013(288)ELT A23(Mad.)

(c) Lafarge India Ltd. VS. CCE[2014 -TIOL-1720-HC-CHHATTISGARH -CX]

(d) CCE Vs. Lumino Industries Ltd. [2014(35) S.T.R. 59(Cal.)]

4. I have carefully considered the submissions made by both sides and perused record.

5. I find that the Ld. Commissioner (Appeals) has given very detailed findings considering all the issues and settled legal position in various judgments, the findings is reproduced below:

4.0. I have gone through the case records including the submissions made during the P.H. after waiving the pre-deposit, I proceed to take the main appeal since the issue is a simple one. The issue for consideration in the present appeal is whether the appellant is entitled to avail Cenvat credit paid on freight on the removal of final product from their factory / depot to the dealer. The department has field that the appellant is not entitled to avail the credit of Service Tax paid towards freight for removal of final product from, factory to dealers premises in as much as the same is not considered as, input services which are used in or in relation to the manufacture of final product. Whereas the appellant claims that as per Rule 2(1)(ii) of Cenvat Rules they are entitled to avail the credit of Service Tax paid towards freight on clearance of final product from their factory. They argued that according to the inclusive definition even the post manufacturing activity relates to business, they are entitled to avail credit and utilize the same towards payment of Service Tax/duty. Again they submitted that the issue i.e. whether Service Tax paid, towards freight on removal of final product from the factory can be considered as input services, has not attained finally as per CESTAT Final Order No. 412/2007 in the case of India Cements & others V/s CCE, Hyderabad-III.

4.1. Before going into the issue directly, I would like to produce the definition of input services as available under Rule 2(1) of the Rules :-

2(1) 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 service 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.

4.2.0. Clause (ii) of Rule 2(1) is relevant in the present issue. According to the above definition input service means any service used by the manufacturer whether directly or indirectly in or in relation, to the manufacture of final product and clearance of final product from the place of removal. The main issue to be considered in the present appeal, is whether Service Tax paid towards freight on the clearance of final product from the place of removal to dealers end could be termed as input service. The whole issue has been discussed by the Honble Tribunal, Chennai in the case of India Japan Lighting Pvt. Ltd. V/s CCE, Chennai 2007(8) STR 124 (Tri-Chennai). I would like to produce the relevant paras, which squarely cover the present issue. To find out whether the freight paid on clearance of final product from the factory can be considered as input services, we have to go to the definition place of removal. This aspect has been considered by the Tribunal in the above case. In para 8.2, the Honble Tribunal has held that such transportation starts from where clearance ends and cannot be held to be a service used directly or indirectly in the clearance of final products from the place of removal. In the case of Gujarat Ambuja Cements (supra) the Division bench accepted the revenues argument that transportation did not come within the scope of clearance, which is not different from the view taken by us. In the result, it is held that the outward transportation of final products after their clearance from factory, in this case ******* is not a service used, directly or indirectly, in the clearance of the goods from the factory.

4.2.1. Vide para 8.3 it was held input service as defined under Rule 2(1)(ii) is any service used, directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal. It was further held in the same para where place of removal of final product is, say, a depot, transportation of goods from the factory to the depot is an input service as it is used in relation to the clearance of the goods from the depot. The Honble Tribunal, while considering whether the particular input service has been used directly or indirectly in relation to the clearance of final product, has held vide para 8.4 that when it has to be determined whether a given service has been used, directly or indirectly, in relation to the clearance of final products from the place of removal, the test is whether the service has at least remotely aided the clearance of the final products or whether the clearance of the final products would have been facile in the absence of the service. Outward transportation of final products from the place of removal, being an activity posterior to the clearance of the goods, in the present case, cannot pass the test.

4.2.2. The Tribunal has further held vide para 8.5 that Had the place of removal of final products been other than factory for purposes of Section 4 of the Central Excise Act, 1944, the transportation of the goods out of the factory upto the place of removal would have qualified to be input service under Rule 2(1)(ii) for, in such a situation, transportation is anterior to clearance from the place of removal and passes the test. The clearance of final products from the place of removal (depot/warehouse) would not have been possible without their transportation upto such place from the factory. In other words, the transportation aids the clearance of the goods from the place of removal and can be said to have been used, directly or indirectly, in relation to used clearance.

4.2.3. Finally with the above observation, the Honble CESTAT concluded vide para 9 that for the reasons recorded hereinbefore, we hold that goods transport service used by the appellant for transportation of their final products from factory to customers premises cannot be considered to have been used, directly or indirectly, in relation to the clearance of the goods from the factory (place of removal).

4.2.4. The above decision of the Honble Tribunal has covered all the aspects raised in the present appeal and accordingly I hold that the appellant is not entitled to avail credit of Service Tax paid towards freight on the clearance of final product from the factory to the dealers premises since it cannot be considered to have been used directly or indirectly in relation to clearance of goods from the factory. In view of the above, plea of the appellant that the issue has not attained finality cannot be accepted.

From the above detailed finding of the Ld. Commissioner (Appeals), I do not find any infirmity therein. I also gone through various judgments relied upon by the Ld. A.R. wherein it was held as under:

CCE VS. Vesuvious India Ltd.

11.?We are, with respect to the Honble Division Bench, unable to see how can it be said from the restrictive part of the definition that the services received or rendered by the manufacturer from the place of removal till it reaches its destination falls within the definition of input service.

12.?Yet another reasoning given by the Honble Division Bench is as follows :

Therefore, it is clear that till such amendment made effective from 1-4-2008 notwithstanding the clarification issued by the Central Government by way of their circular, transportation charges incurred by the manufacturer for clearance of final products from the place of removal was included in the definition of input service.

13.?By the amendment made with effect from 1st April, 2008 substituting the word from by the word upto all that has been done is to clarify the issue. Neither the services rendered to the customer for the purpose of delivering the goods at the destination was covered by the definition of input service prior to 1st April, 2008, nor is the same covered after 1st April, 2008. If the definition provided in Section 2(l)(ii) is read a whole, if would appear that outward transportation charges or taxes paid in regard thereto is claimable only with regard to those transports which were made from one place of removal to another place of removal.

14.?We are, as such, of the considered view that the judgment rendered by the Learned Tribunal cannot be sustained and the same is, therefore, set aside.

India Japan Lighting Private Ltd. Vs. CCE

The Appellate Tribunal in its impugned order had held that clearance of final products from place of removal does not include outward transportation of goods to customers premises. Such transportation starts from where clearance ends and cannot be held to be a service used directly or indirectly in the clearance of final products from place of removal. Outward transportation of final products from place of removal, being an activity posterior to clearance of goods, cannot be said to be used directly or indirectly in relation to clearance of final products from place of removal.

Lafarge India Ltd. VS. CCE CONCLUSIONS

30. Our conclusions are as follows:

(a) In case of sale at the place of destination, an assessee is only entitled to claim cenvat credit on service tax paid for the Goods Transportation Agency service provided amount paid was integral part of the price of the" goods;

(b) In this case, the amount paid for the GTA service was not integral part of the price of the goods; and

(c) The Assessee was not entitled to claim cenvat credit of the service tax paid;

(d) The question is answered in favour of the Department and against the Assessee.

The tax case has no merit. It is dismissed.

CCE Vs. Lumino Industries Ltd.

5.?Views taken by the Karnataka High Court do not appear acceptable for the following reasons :

(a) Be that as it may, we are of the opinion that the outward transport service used by the manufacturers for transportation of finished goods from the place of removal up to the premises of the purchaser is covered within the definition of input service provided in Rule 2(l) of the Cenvat Credit Rules, 2004. The Honble Division Bench expressed their aforesaid opinion, but no reasons or appropriate reasons are ascertainable by us for the purpose of aforesaid proposition.

(b) There are more reasons. In Paragraph 30, the Honble Division Bench of the Karnataka High Court opined that The definition of input service contains both the words 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. We are, with respect to the Honble Division Bench, unable to see how can it be said from the restrictive part of the definition that the services received or rendered by the manufacturer from the place of removal till it reaches its destination falls within the definition of input service.

(c) Yet another reasoning given by the Honble Division Bench is as follows :

??Therefore, it is clear that till such amendment made effective from 1-4-2008 notwithstanding the clarification issued by the Central Government by way of their circular, transportation charges incurred by the manufacturer for clearance of final products from the place of removal was included in the definition of input service. By the amendment made with effect from 1st April, 2008 substituting the word from by the word up to all that has been done is to clarify the issue. Neither the services rendered to the customer for the purpose of delivering the goods at the destination was covered by the definition of input service prior to 1st April, 2008, nor is the same covered after 1st April, 2008. If the definition provided in Section 2(1)(ii) is read as a whole, it would appear that outward transportation charges or taxes paid in regard thereto is claimable only with regard to those transports which were made from one place of removal to another place of removal.

6.?Considering that the Tribunal has merely disposed of the matter following the judgment in the case of ABB Limited, the order under challenge is set aside. The matter is remanded to the Tribunal for re-hearing on merits.

7.?Urgent xerox certified copy of this order, if applied for, be supplied to the parties subject to compliance with all requisite formalities.

In view of detail findings of the Ld. Commissioner(Appeals) which get reinforced by the above Honble High Court judgments, I am of the view that impugned order is sustainable. The appeal is dismissed.

(Operative order pronounced in court)

Ramesh Nair Member (Judicial)

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