ORDER
T.K. Jayaraman, Member (T)
1. The details of the appeals are given in the following tabular column.
——————————————————————————–
Appeal No. Appellant v. Re- Reversal of Credit or Penalty
spondent Payment of duty
& Interest
--------------------------------------------------------------------------------
ST/345/2006 The India Cements Lim- Rs. 74,97,087/- under Rs. 10,000/-
ited v. The Commit- Rule 14 of Cenvat Credit under Sub-
sioner of Central Excise, Rules, 2004 read with Rule (3) of
Tirupati Sub-section (1) of Section Rule 15 of
11A of the Central Excise the Cenvat
Act, 1944 and also de- Credit Rules,
mand of interest under 2004
Rule 14 of the Cenvat
Credit Rules, 2004 read
with Section 11AB of the
Central Excise Rules,
2004 (sic) (Central Excise
Act, 1944)
--------------------------------------------------------------------------------
ST/347/2006 M/s. Zuari Cement Pt. Rs. 12,76,481/- under Rs. 10,000/-
Ltd. v. The Commis- Rule 14 of Cenvat Credit under Sub-
sioner of Central Excise, Rules, 2004 read with Rule (3) of
Tirupati. Sub-section (1) of Section Rule 15 of
11A of the Central Excise the Cenvat
Act, 1944 and also de- Credit Rules,
mand of interest under 2004
Rule 14 of the Cenvat
Credit Rules, 2004 read
with Section 11AB of the
Central Excise Rules,
2004 (sic) (Central Excise
Act, 1944).
--------------------------------------------------------------------------------
ST/02/2007 The India Cements Ltd. Rs. 34,91,795/- under Rs. 10,000/-
v. CCT, Tirupati. Rule 14 of Cenvat Credit under Sub-
Rules, 2004 read with Rule (3) of
Sub-section (1) of Section Rule 15 of
11A of the Central Excise the Cenvat
Act, 1944 and also de- Credit Rules,
mand of interest under 2004.
Rule 14 of the Cenvat
Credit Rules, 2004 read
with Section 11AB of the
Central Excise Rules,
2004 (sic) (Central Excise
Act, 1944).
--------------------------------------------------------------------------------
E/858/2006 The Commissioner of Proceedings dropped
Central Excise, Hydera-
bad-III Commissioner-
ate, Hyderabad v.
Penna Cement Indus-
tries Ltd.
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E/859/2006 The Commissioner of -do-
Central Excise, Tirupati
v. The India Cements
Ltd.
--------------------------------------------------------------------------------
E/860/2006 CC & CE, Hyderabad v. -do-
Grey Gold Cements
Ltd.
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As can be seen from the above tabular column, we find that three appeals have been filed by the parties which are all cement manufacturing companies. Three appeals have been filed by the Revenue against the Orders-in-Appeals passed by the Commissioner (A). All these appeals involve a common question of fact and law. Therefore, they are taken up together for disposal by a common order.
1. The cement factories manufacture cement and after the manufacture of cement, they have to clear them either from the factory or from the depot. When the finished goods are cleared from the factory, the factory is place of removal. In several cases, the finished goods are transferred to the depots and the final products are removed from the depots. In such cases, the depots become the place of removal. Now the question is whether the services of the goods transport operator to transport the final products from the place of removal can be treated as ‘Input Service’ in terms of Rule 2(1)(ii) of Cenvat Credit Rules, 2004. All. these appellants have availed the Cenvat Credit of the Service Tax paid on the goods transport services availed by them. The point at issue is whether they are entitled for taking credit on the outward transportation of the final products from the place of removal. In other words, whether Cenvat credit can be taken on the Service Tax paid on goods transport services availed by the appellants for the transport of the final products from the place of removal to the place of destination viz., the buyers premises, for payment of duty on final products, treating the above services as ‘Input Service’.
2. The learned advocates argued the case very forcefully by taking us to the definition of the ‘Input Service’ and its interpretation. Our attention was also invited to the decision of the Delhi Tribunal in the case of Gujarat Ambuja Cements Ltd. v. CCE, Ludhiana 2007 (6) S.T.R. 249 (Tri. – Del.) : 2007 (212) E.L.T. 410 (Tri. -Del.) wherein it is held that the parties are not entitled for taking Cenvat credit of the Service tax paid on the GTA service from the place of removal.
3. We have heard both sides elaborately. At the outset, let us examine, the definition of the “Input Services” as per Rule 2(1) of Cenvat Credit Rules, 2004. The relevant rule reads as follows:
Rule 2(1) – “Input Services” 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 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 qualitative 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.
4.1 The learned advocates argued that in the above Rule, the Sub-rule (ii) relates to the ‘Input Service’ with which we are concerned. From the above sub-rule, it is very clear that service used by a manufacture whether directly or indirectly, in or in relation to clearance of final products from the place of removal is an ‘Input Service’. From the place of removal, normally the final products are removed. So the first limb of the definition of ‘Input Service’ defines the ‘Input Service’ as any service used by the manufacture in or in relation not only to the manufacture of final products but also to clearance of final products from the place of removal. The place of removal can be either factory or depot. So it is very clear that Rule 2(1)(ii) covers the services which is in dispute. When the place of removal is factory, the Service Tax paid on the goods transport services availed by the manufacturer from the factory upto to the destination of the buyer is definitely included. Similarly, when the depot is the place of removal, the Service tax paid on the goods transport services availed by the manufacturer is entitled for credit. This is very clear from the first limb of the definition of ‘Input Service’ which is Rule 2(1)(ii).
4.2 Now coming to the second limb of the definition of Rule 2(1)(ii) which includes many items of services. When we examine it carefully, it is seen that the ‘Input Service’ includes inward transportation of inputs or capital goods with which we are not concerned now and outward transportation upto the place of removal. Revenue interprets the above words to mean that the manufacturer can take credit of outward transportation only upto the place of removal forgetting or ignoring the first limb of the definition of ‘Input Service’ in Rule 2(1)(ii). In other words, whatever outward transportation is used and if the Service tax is paid on the goods transport services availed for such outward transportation, then the manufacturer is not entitled for such credit. According to Revenue, as far as outward transportation is concerned the credit is limited to the tax paid on outward transportation upto the place of removal. In our view, the interpretation placed by the Revenue is not correct. Both the limbs of the definition of ‘Input Service’ have to be harmoniously interpreted. For interpreting the provisions harmoniously, we should be very clear as to what is meant by ‘Inward transportation” and what is meant by “Outward transportation”. The manufacturer carries out all the activities with regard to the manufacture in the factory. In order to manufacture, many inputs have to reach the factory. The movement of inputs to the factory from outside is ‘inward transportation’. Even capital goods have to be brought from outside towards the factory from some other place. An ‘inward transportation’ is a transportation towards the factory. Then, we have to interpret the words ‘outward transportation’. ‘Outward transportation’ would mean transportation from the factory and beyond. Now, the entire definition of ‘Input Service’ can be harmoniously interpreted. Suppose the factory is the place of removal of the final product, then the transportation from the factory to the destination of the buyer becomes an ‘outward transportation’. Now this outward transportation is a service used by the manufacturer in relation to clearance of the final products from the place of removal. This cannot be denied. This is a factual thing. Therefore, in terms of Rule 2(1)(ii) [First limb], this service becomes an ‘Input Service’. So long as this an input service, the appellant is entitled for the credit on the tax paid on the input service.
4.3 Let us take another case where the depot becomes the place of removal. In that case, the outward transportation from the depot to the premises of the buyer becomes a service used by the manufacturer in relation to clearance of final products from the place of removal. In such circumstances, this service viz., the ‘outward transportation’ from the place of removal becomes an ‘Input Service’ as far as the manufacturer is concerned. Once it is an ‘input service’, then automatically, the appellant is entitled for the credits. We want to show that these interpretations in no way conflict with the inclusive definition [second limb] where the outward transportation is limited upto the place of removal. This can be explained like this. When the depot is the place of removal that is actually before the removal of the final products from the depot, the goods are brought from the factory to the depot, as far as the factory is concerned, these removals from the factory to the depot becomes is an ‘outward transportation’. This outward transportation i.e. the outward transportation from the factory to the depot which is the place of removal should also be included as ‘Input Service’ because if the outward transportation which actually relates to the clearance of final products from the place of removal is an ‘Input Service’ as per the first limb of the definition of ‘Input Service’. Therefore, there is no reason why the outward transportation from the factory to the depot should not be qualified for being ‘Input Service.’ In order to provide for treating the outward transportation from factory to depot as an ‘Input Service’, the same has been incorporated in the inclusive definition. In other words, the outward transportation from the factory to the place of removal which is depot has been specifically included in the inclusive definition and in the main definition the outward transportation from the factory or depot which are both places of removal to the destination of the buyer is included. Alternatively, there is absolutely no conflict between the main definition and the inclusive definition of ‘Input Service’. This is the way the definition of ‘Input Service’ as given in Rule 2(1)(ii) has to be interpreted.
4.4 Summing up- A careful reading of the definition reveals that any service inter alia used by the manufacturer in or in relation to clearance of final products from the place of removal is an ‘Input Service’. In other words, the outward transportation of the final products from the factory is an ‘Input Service’ and outward transportation of the final product from the depot is an ‘Input Service’. Once these services are defined as ‘Input Service’, the credit cannot be denied. As regards the outward transportation of the final products from the factory to the depot is concerned, it is defined as ‘Input Service’ in view of the inclusive definition which reads as “outward transportation upto the place of removal”. Once outward transportation upto the place of removal is defined as an ‘Input Service’ the credit has to be given. Therefore, what is to be understood and appreciated is the inclusive definition cannot limit the scope of ‘Input Service’ given in the first limb of the definition. It is made clear that the outward transportation from the factory to the depot is an ‘Input Service’ and an outward transportation from the factory and from the depot to the premises of the buyer is also an ‘Input Service’. It follows that once it is an input service there cannot be any denial of the credit.
4.5 In view of the above observations, the view taken by the Commissioner (A) in the three Ordcrs-in-Appeals appears to be legal and proper. The decision of the Commissioner of Customs and Central Excise, Tirupati in the three orders denying Cenvat credit on the Service tax paid in respect of outward transportation from the place of removal to the buyers premises does not appear to be correct.
4.6 Hence, we do not agree with the interpretation of the Tribunal in the Gujarat Ambuja case (supra). Since there is a difference in opinion between the two coordinate benches, the issue has to be resolved by referring the matter to a Larger Bench.
4.7 The issue to be decided is stated in the following manner.
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(1)(ii) of Cenvat Credit Rules, 2004 and thereby enabling the manufacturer to take credit of the Service tax paid on the value of such services?
Or
Whether ‘input Service’ should be limited only to outward transportation upto the place of removal in terms of the inclusive definition as held in the Gujarat Ambuja case cited supra?
4.8 Therefore, the Registry may place this before the Hon’ble President for constituting a Larger Bench to decide this issue. The final order is disposed of in this manner.
