2018 (2) TMI 117 - SC - Central Excise

CENVAT credit denied for goods transport services beyond manufacturer's premises to customers under Rule 2(l)

The SC held that CENVAT credit on goods transport agency services for transporting final products from the manufacturer's premises to customers' premises ... Admissibility of Cenvat credit on Goods Transport Agency (GTA) service - Definition of input service under Rule 2(l) of Cenvat Credit Rules, 2004 - Interpretation effect of amendment changing 'from the place of removal' to 'upto the place of removal' - Scope and non-applicability of Board Circular 97/8/2007 to post-amendment regime - Post-removal transport not being an input for manufactureAdmissibility of Cenvat credit on Goods Transport Agency (GTA) service - Definition of input service under Rule 2(l) of Cenvat Credit Rules, 2004 - Post-removal transport not being an input for manufacture - Cenvat Credit on GTA service for transport of goods from the place of removal to the buyer's premises is not admissible as input service for the period in question. - HELD THAT: - Rule 2(l)(ii) includes services used by the manufacturer 'in or in relation to the manufacture of final products and clearance of final products upto the place of removal.' The 2008 amendment replaced the word 'from' with 'upto', thereby terminating eligibility at the place of removal. The Court held that once final products are cleared from the factory (place of removal) post-removal transport cannot be said to be used in or in relation to manufacture or clearance within the meaning of the Rule. Reading the definition as a whole and having regard to established precedents, post-removal transportation is a different activity and cannot be treated as an input service; extending credit beyond the place of removal would be contrary to the scheme of the Cenvat Credit Rules. [Paras 6, 7, 15]Cenvat credit claimed on outward transportation from factory to customer's premises is not permissible and the Order-in-Original demanding such credit is restored.Scope and non-applicability of Board Circular 97/8/2007 to post-amendment regime - Interpretation effect of amendment changing 'from the place of removal' to 'upto the place of removal' - Board Circular 97/8/2007, issued under the unamended definition, cannot be invoked to permit credit beyond the place of removal after the 2008 amendment. - HELD THAT: - The Circular clarified 'place of removal' in the context of the pre-amendment definition of input service that used the expression 'from the place of removal.' The 2008 amendment altered the statutory test by substituting 'upto' thereby changing the extent of admissibility. Applying the Circular to post-amendment cases would conflict with the amended Rule 2(l) and would be impermissible. Consequently, satisfaction of factual conditions set out in the Circular does not confer entitlement to credit for transport beyond the place of removal in the post-amendment legal regime. [Paras 10, 11, 12, 13]The Board's 2007 Circular cannot override or be applied to the amended wording of Rule 2(l); it does not entitle the assessee to credit for transportation beyond the place of removal.Final Conclusion: Appeal allowed; High Court judgment set aside; Order-in-Original dated August 22, 2011 restored holding that Cenvat credit on GTA service for transport from place of removal to buyer's premises is not admissible for the period January, 2010 to June, 2010. Issues Involved:1. Admissibility of Cenvat Credit on Goods Transport Agency (GTA) service for transportation from the place of removal to the buyer's premises.2. Interpretation of 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004.3. Impact of the 2008 amendment to Rule 2(l) on the admissibility of Cenvat Credit.4. Applicability of the CBEC Circular dated August 23, 2007, post-amendment.Issue-wise Detailed Analysis:1. Admissibility of Cenvat Credit on GTA Service:The core issue revolves around whether Cenvat Credit can be claimed for service tax paid on outward transportation of goods from the factory to the buyer's premises. The respondent availed Cenvat Credit for this service during January 2010 to June 2010. The Revenue argued that transportation from the factory to the customer's premises does not qualify as input service under Rule 2(l) of the Cenvat Credit Rules, 2004.2. Interpretation of 'Input Service' under Rule 2(l):'Input service' is defined under Rule 2(l) of the Rules, 2004, which includes services used directly or indirectly in relation to the manufacture and clearance of final products up to the place of removal. The original definition included services used 'from the place of removal,' but the 2008 amendment changed this to 'up to the place of removal,' significantly altering the scope of admissible services for Cenvat Credit.3. Impact of the 2008 Amendment:The 2008 amendment replaced the word 'from' with 'up to,' limiting the scope of services eligible for Cenvat Credit to those used up to the place of removal. This amendment terminated the eligibility of services used beyond the place of removal, including outward transportation to the buyer's premises. The Supreme Court emphasized that the amendment changed the entire scenario, and the benefit of Cenvat Credit now ends at the place of removal.4. Applicability of the CBEC Circular Dated August 23, 2007:The Commissioner (Appeals) and CESTAT relied on the CBEC Circular dated August 23, 2007, which clarified the definition of 'place of removal' and mentioned three conditions for determining it. However, the Supreme Court clarified that this Circular related to the unamended definition of 'input service.' Post-amendment, the Circular is not applicable as it would violate the amended Rule 2(l). The Supreme Court found the approach of the lower courts untenable for relying on the Circular for post-amendment cases.Conclusion:The Supreme Court concluded that Cenvat Credit on goods transport agency service availed for transport of goods from the place of removal to the buyer's premises is not admissible. The appeal was allowed, setting aside the High Court's judgment and restoring the Order-in-Original dated August 22, 2011, of the Assessing Officer. The Court emphasized that the amended Rule 2(l) must be interpreted to restrict Cenvat Credit to services used up to the place of removal, aligning with the legislative intent of the 2008 amendment.