IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH.
C.E.A. No. 87 of 2007
Date of Decision: 10.2.2009
Ambuja Cements Ltd.
...Appellant
Versus
Union of India and others
...Respondents
CORAM: HON'BLE MR. JUSTICE M.M. KUMAR
HON'BLE MR. JUSTICE H.S. BHALLA
Present: Mr. Ravinder Narain, Advocate with
Mr. Ashim Aggarwal, Advocate
Ms. Sushma Sharma, Advocate and
Mr. Ajay Aggarwal, Advocate,
for the appellant
Mr. Rajiv Malhotra, Advocate,
for the respondents.
1. Whether Reporters of local papers may be Yes
allowed to see the judgment?
2. To be referred to the Reporters or not? Yes
3. Whether the judgment should be reported in Yes
the Digest?
M.M. KUMAR, J.
The assessee has approached this Court by filing the
instant appeal under Section 35-G of the Central Excise Act, 1944
(for brevity, ‘the 1944 Act’) by challenging order dated 14.3.2007
passed by the Custom, Excise and Service Tax Appellate Tribunal,
Principal Bench, New Delhi (for brevity, ‘the Tribunal’). The appeal
was admitted on the following substantive questions of law:
“1. Whether the service of transportation up to the
C.E.A. No. 87 of 2007 2customer’s doorstep, in the 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 Rule 2(l) of
the CC Rules?
2. Whether interest ought to have been demanded in
the present case?”
2. Brief facts of the case necessary for deciding the
questions of law raised before us are that the assessee M/s Ambuja
Cements Ltd. is a private limited company incorporated under the
Companies Act, 1956. It is engaged in the business of manufacturing
and selling of cement which is a excisable commodity classified in
Chapter 25 of the Ist Schedule appended to the Central Excise Tariff
Act, 1985. One of its factory is located in District Ropar within the
jurisdiction of this Court. The appellant has claimed that it has been
paying central excise duty at the appropriate rate in respect of cement
produced by it and there is no dispute in that regard. The assessee
also claimed that when it supplies cement to its customers “FOR
destination” it bears the freight in respect thereof up to the door steps
of the customer that is the destination point. On the afore-mentioned
freight the assessee also bears the service tax which has remained
undisputed. On that basis the assessee has asserted that once service
tax is paid by it then it becomes entitled to take Cenvat credit of such
service tax in accordance with the Cenvat Credit Rules, 2004 (for
brevity, ‘the CC Rules’). The assessee had taken the Cenvat credit on
such service tax paid by it. On 30.3.2006 the Commissioner, Central
Excise, Ludhiana, issued a show cause notice to the assessee asking it
C.E.A. No. 87 of 2007 3to show cause as to why the Cenvat credit taken by it from March,
2005 to January, 2006 on payment of service tax be not recovered.
The show cause notice also proposed to recover interest and penalty
(“B”). The appellant filed reply and written statement (“C”). In his
order-in-original dated 21.11.2006 (“D”), the demand raised in the
show cause notice was confirmed by raising duty demanded along
with interest. The assesssee filed an appeal before the Tribunal which
was dismissed on 14.3.2006 (“F”). The Tribunal was persuaded to
accept the argument of the revenue that the payment of service tax on
the freight incurred by the assessee was not input service as per Rule
2(l) of the CC Rules. The view of the Tribunal is discernible from
paras 12 and 13 of the order which reads thus:
“12. Having considered the submissions made by both
sides, we find in favour of the revenue. We may now
state our reasons. Crucial point to be noted in regard to
Cenvat Credit is that credit availability is in-regard to
‘inputs’. The credit covers duly paid on input materials as
well as tax paid on services, used in or in relation to the
manufacture of the ‘final product’. Therefore, extending
the credit beyond the point of duty paid removal of the
final product would be contrary to the Scheme of Cenvat
Credit Rules.
13. The interpretation sought to be placed by the
appellant does not flow from the definition of input
service (reproduced in para 5). The main clause in the
definition states that the service in regard to which credit
of tax is sought, should be used’ in or in relation to
C.E.A. No. 87 of 2007 4clearance of the final products from the place of removal.
The learned SDR has brought to our notice the decisions
of this Tribunal to the effect that transport does not
come, the scope of clearance or forwarding. Further, that
transportation (freight) is an entirely different activity
from manufacture remains settled by the judgements of
Hon’ble Supreme Court in the cases of Bombay Tyre
International (1983 (14) ELT), Indian Oxygen Ltd. 1988
(36) ELT 723 Supreme Court and Baroda Electric meters
1997(94) ELT 13 SC.”
3. Mr. Ravinder Narain, learned counsel for the assessee
has drawn our attention to Rule 2(l)(ii) of the CC Rules which defines
input service. Learned counsel has emphaissed that the inclusive
definition of ‘input service’ given in Rule 2(l)(ii) of the CC Rules
shows that it would include inward transportation of goods or capital
goods for onward transportation up to the place of removal.
4. He has further argued that the words and expression used
in CC Rules and not defined but are defined in the 1944 Act or the
Finance Act, 1994 (for brevity, ‘the 1994 Act’) are to have the
meaning respectively assigned to them in those enactments. In that
regard reliance has been placed on Rule 2(t) of the CC Rules. On that
basis it has been submitted that the expression “place of removal”
used in Rule 2(l)(ii) of the CC Rules has to be assigned the meaning
given to that expression by Section 4(3)(c) of the 1944 Act. Learned
counsel has emphasised that ‘place of removal’ means as per the
provisions of Section 4(3)(c)(iii) a depot, a premises of consignment
agent or any other place or premises from where excisable goods are
C.E.A. No. 87 of 2007 5to be sold after their clearance from the factory.
5. He has then argued that Board’s Circular No. 97/6/2007-
ST, dated 23.8.2007, which has been issued in pursuance to the order
passed by the Tribunal has clarified the issue as to up to which stage a
manufacturer or consigner take benefit of tax on goods sent by
transport (“A”). He has drawn our attention to para 8.2 of the Board’s
circular which lay down the requirement of fulfilling three conditions,
namely, (a) the ownership of goods and the property of the goods
remained with the seller of the goods till the delivery of goods in
acceptable condition to the purchaser at his door step; (b) the seller
bore the risk of loss of or damage to the goods during transit to the
destination; and (c) the freight charges were an integral part of the
price of goods. According to the learned counsel the property in the
goods was never transferred to the purchaser and remained with the
seller i.e. assessee till the delivery of goods to the purchaser at his
door steps. He has also emphasized that the assessee had taken an
insurance cover bearing the risk of loss or damage to the goods
during transit to the destination and that the freight charges were an
integral part of the price of the goods. Learned counsel has
maintained that once all these conditions are fulfilled then it is well
settled that the revenue is bound by the circular issued by it. He has
placed reliance on a judgment of Hon’ble the Supreme Court
rendered in the case of Paper Products Ltd. v. Commissioner of
Central Excise, (1999) 7 SCC 84. While concluding his submissions
learned counsel has prayed that both the questions which have
emerged from the order of the Tribunal deserved to be answered in
favour of the assessee and against the revenue.
C.E.A. No. 87 of 2007 6
6. Mr. Rajiv Malhotra, learned counsel for the revenue,
however, has argued that the third condition of merging freight with
the price of the goods is not complied with. He has also submitted
that merely because the assessee has paid the service tax on the
freight charges would not constitute a basis for allowing Cenvat
credit to the extent of tax paid by them.
7. Having heard learned counsel at a considerable length
and perusing the paper book and statutes with their able assistance,
we are of the view that the questions of law deserve to be answered in
favour of the assessee-appellant and against the revenue. It is
undisputed that the appellant being a manufacturer and consigner has
paid service tax on the value of goods transported by it by road. The
Central Board of Excise and Customs (CBEC) has issued a circular
dated 23.8.2007 dealing with the issue concerning ‘up to what stage
manufacturer/consigner could take credit on the service tax paid on
goods transported by it by road’. The issue, in fact, has emerged out
of the order of the Tribunal passed in the case of the appellant itself.
The Board has opined that the phrase ‘place of removal’ has to be
determined by taking into account the facts of each case. According
to the circular, the expression ‘place of removal’ has been defined by
Section 4 of the 1944 Act and according to sub-rule (t) of Rule 2 of
the CC Rules, if any words or expression used in those rules are not
defined but are defined in the 1944 Act or the 1994 Act then they are
to be given the same meaning for the CC Rules as assigned to them in
those Acts. Accordingly, reliance on Section 4 of the 1944 Act has
been made where place of removal has been defined as under:-
“place of removal” means-
C.E.A. No. 87 of 2007 7
(i) a factory or any other place or premises of
production or manufacture of the excisable goods;
(ii) a warehouse or any other place or premises
wherein the excisable goods have been permitted to be
stored without payment of duty;
A depot, 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; from where such goods are removed.”
8. It is clear from the definition that for a
manufacturer/consignor the eligibility to avail credit of the service tax
paid on the transportation during removal of excisable goods would
depend upon the place of removal. The circular further contemplates
compliance of certain conditions where the sale has taken place at the
destination point. The aforementioned part of the circular reads as
under:-
“……However, there may be situations where the
manufacturer/consignor may claim that the sale has taken
place at the destination point because in terms of the sale
contract/agreement (i) the ownership of goods and the
property in the goods remained with the seller of the
goods till the delivery of the goods in acceptable
condition to the purchaser at his door step; (ii) the seller
bore the risk of loss of or damage to the goods during
transit to the destination; and (iii) the freight charges
were an integral part of the price of goods. In such cases,
the credit of the service tax paid on the transportation up
C.E.A. No. 87 of 2007 8to such place of sale would be admissible if it can be
established by the claimant of such credit that the sale
and the transfer of property in goods (in terms of the
definition as under section 2 of the Central Excise Act,
1944 as also in terms of the provisions under the Sale of
Goods Act, 1930) occurred at the said place.”
9. It is well settled that the circulars issued by the Board are
binding and aims at adoption of uniform products. In that regard
reliance has been rightly placed on the judgment of Hon’ble the
Supreme Court in the case of Paper Products Ltd. (supra) and such
circulars are binding on the department. Placing reliance on earlier
judgments of the Supreme Court in the cases of CCE v. Usha Martin
Industries, (1997) 7 SCC 47; Ranadey Micronutrients v. CCE,
(1996) 10 SCC 387; CCE v. Jayant Dalal (P) Ltd., (1997)10 SCC
402; and CCE v. Kores (India) Ltd., (1997) 10 SCC 338, Hon’ble
the Supreme Court concluded in para 5 as under:-
“5. It is clear from the abovesaid pronouncements of
this Court that, apart from the fact that the Circulars
issued by the Board are binding on the Department, the
Department is precluded from challenging the
correctness of the said Circulars even on the ground of
the same being inconsistent with the statutory provision.
The ratio of the judgment of this Court further precludes
the right of the Department to file an appeal against the
correctness of the binding nature of the Circulars.
Therefore, it is clear that so far as the Department is
concerned, whatever action it has to take, the same will
C.E.A. No. 87 of 2007 9have to be consistent with the Circular which is in force
at the relevant point of time.”
10. It is, thus, evident that the revenue is precluded from
challenging the correctness of the circular even on the ground of the
same being inconsistent with statutory provisions. It goes further to
limit the right of the revenue to file an appeal against the correctness
of the binding nature of the circular. Therefore, there is no escape
from the conclusion that the circular is binding on the revenue.
11. The only question then is whether the appellant fulfills
the requirement of circular. The first requirement is that the
ownership of the goods and the property therein is to remain with the
seller of the goods till the delivery of the goods in acceptable
condition to the purchaser at his door step. The aforesaid condition
has to be considered to be fulfilled because the supply of cement by
the appellant to its customer is ‘FOR destination’. The appellant also
bears the freight in respect thereof up to the door step of the
customer. The freight charges incurred by it for such sale and supply
at the door step of the customer are subjected to service tax which is
also duly paid by the appellant. Moreover, the definition of
expression ‘input service’ is available in Rule 2(l) of the CC Rules,
which reads thus:-
“2(l) “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 and includes services used in
C.E.A. No. 87 of 2007 10relation 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;”
12. The ‘input service’ has been defined to mean any service
used by the manufacturer whether directly or indirectly and also
includes, inter alia, services used in relation to inward transportation
of inputs or export goods and outward transportation up to the place
of removal. It has also remain un-controverted that for transportation
purposes insurance cover has also been taken by the appellant which
further shows that the ownership of the goods and the property in the
goods has not been transferred to the seller till the delivery of the
goods in acceptable condition to the purchaser at his door step.
Accordingly, even the second condition that the seller has to bear the
risk of loss or damage to the goods during transit to the destination
stand fulfilled.
13. The third condition that the freight charges were integral
C.E.A. No. 87 of 2007 11
part of the excisable goods also stand fulfilled as the delivery of the
goods is “FOR destination’ price. This aspect has been specifically
pointed out in para 2.2 of the reply dated 12.4.2006 given to the show
cause notice. Therefore, we are of the view that the first question is
liable to be answered in favour of the assessee and against the
revenue.
14. Once the first question has been answered in favour of
the assessee and against the revenue then it is evident that there is no
contravention and violation of any of the provisions of law and the
credit has been lawfully availed. Therefore, the allegation concerning
not availing the service within the meaning of ‘input service’ and
irregular availment of credit could not be sustained. Then the
question of payment of interest does not arise and the answer to the
second question consequently would be against the revenue and in
favour of the assessee.
15. As a sequel to the above, both the questions of law are
answered against the revenue and in favour of the assessee.
(M.M. KUMAR)
JUDGE
(H.S. BHALLA)
February 10, 2009 JUDGE
okg/Pkapoor