2018 (3) TMI 993 - SC - Central Excise

CENVAT credit for GTA services allowed for transporting final products from place of removal to first delivery point under Rule 2(l)

The SC held that CENVAT credit for goods transport agency (GTA) services is available for transportation of final products 'from the place of removal' up ... Input service - CENVAT credit - clearance of final products from the place of removal - means (restrictive) and includes (extensive) - interpretation of Rule 2(l) of the CENVAT Credit Rules, 2004 - amendment substituting 'from' by 'upto' w.e.f. 01.04.2008Input service - clearance of final products from the place of removal - CENVAT credit - Whether, under the unamended Rule 2(l) of the CENVAT Credit Rules, 2004, tax paid on transportation of final products from the place of removal to the first point of delivery (depot or customer) is admissible as CENVAT credit - HELD THAT: - The Court accepted the construction adopted by the Full Bench of CESTAT and affirmed by the High Court that the first part of the definition of 'input service' (the portion governed by the word 'means') must be construed restrictively, but that it nonetheless covers services 'used by the manufacturer ... in or in relation to the manufacture of final products and clearance of final products from the place of removal.' The expression 'from the place of removal' was interpreted to include transportation and ancillary acts necessary to effect clearance of final products from the place of removal until their first point of delivery (such as depot or direct delivery to the customer). The Court observed that assessees had claimed only the first leg of outward transportation (from factory/place of removal to depot or customer) and that credit for such transportation was admissible under the unamended Rule. The Court found no error in the view of CESTAT and the High Court and dismissed the Department's appeals on this ground.Tax paid on transport of final products from the place of removal up to the first point of delivery (depot or customer's premises), for the period prior to 01.04.2008, is admissible as CENVAT credit under the unamended Rule 2(l).Means (restrictive) and includes (extensive) - interpretation of Rule 2(l) - amendment substituting 'from' by 'upto' w.e.f. 01.04.2008 - The legal effect of the amendment made w.e.f. 01.04.2008 substituting the phrase 'from the place of removal' by 'upto the place of removal' - HELD THAT: - The Court noted that the rule-making authority amended Rule 2(l) by substituting 'from the place of removal' with 'upto the place of removal' effective 01.04.2008. That amendment demonstrates the legislative intent to alter the earlier scope: prior to the amendment, 'clearance of final products from the place of removal' was construed to include outward transportation from the place of removal to the first point of delivery; after the amendment and from 01.04.2008, the availability of CENVAT credit is restricted to services only up to the place of removal. The Court relied on this amendment to reinforce the correctness of the pre-amendment interpretation in favour of the assessees for the relevant earlier period.The amendment w.e.f. 01.04.2008 narrows the scope prospectively; it does not affect the admitted availability of credit for outward transportation from the place of removal for periods prior to 01.04.2008.Delay in filing appeal - benefit of judgment - Condonation of delay in filing appeal (Civil Appeal No. 11400 of 2016) and entitlement to the benefit of the Court's judgment - HELD THAT: - The Court recorded that the CESTAT had rejected the appellant's appeal for delay (85 days) and the High Court upheld that rejection. Noting that the substantive legal issue had been decided in identical terms by this Court in the connected matters, the Court exercised its discretion to condone the delay and held that the appellant is entitled to the benefit of the ruling delivered in the connected appeals.Delay of 85 days in filing the appeal is condoned and the appellant is entitled to the benefit of this Court's judgment in the connected matters.Allowance of appeals in terms of connected order - Disposition of Civil Appeal No. 18897 of 2017 filed by the assessee(s) - HELD THAT: - The Court allowed the assessee's appeal by applying the same reasoning and conclusions as recorded in the connected order (Commissioner of Central Excise Belgaum Versus M/s. Vasavadatta Cements Ltd. and connected matters), thereby granting the relief sought to the assessee(s) consistent with those decisions.Civil Appeal No. 18897 of 2017 is allowed in terms of the order passed in the connected matters.Final Conclusion: The appeals by the Department challenging CESTAT's and the High Court's construction of the unamended definition of 'input service' stand dismissed: for periods prior to 01.04.2008 CENVAT credit is admissible for transportation and ancillary services effected from the place of removal upto the first point of delivery (depot or customer). The subsequent amendment substituting 'from' by 'upto' with effect from 01.04.2008 narrows the scope prospectively. Delay in one connected appeal is condoned and other appeals are disposed in terms of the connected orders. Issues Involved:1. Interpretation of 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004.2. Eligibility of CENVAT credit on goods transport agency service for transport of goods from the place of removal to depots or buyers' premises.3. Impact of the amendment to Rule 2(l) effective from 01.04.2008.Issue-wise Detailed Analysis:1. Interpretation of 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004:The primary issue revolves around the interpretation of 'input service' as defined in Rule 2(l) of the CENVAT Credit Rules, 2004. The definition is divided into two parts: the first part uses the term 'means' and the second part uses 'includes.' The first part defines input service as any service used by a provider of taxable service for providing an output service or 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.' The second part lists specific services included as 'input services.'2. Eligibility of CENVAT credit on goods transport agency service for transport of goods from the place of removal to depots or buyers' premises:The appeals by the Central Excise Department challenge the CESTAT's decision, which allowed the assessees CENVAT credit on goods transport agency service availed for transporting goods from the place of removal to depots or buyers' premises. The Full Bench of CESTAT, upheld by the Karnataka High Court, interpreted the first part of the definition of 'input service' to include services used in the clearance of final products 'from the place of removal.' The CESTAT concluded that input services used for transportation from the place of removal to depots or customers' premises qualify for CENVAT credit. The court emphasized that the term 'from the place of removal' implies that CENVAT credit should be allowed for transportation from the place of removal to the first point, whether it is a depot or the customer's location.3. Impact of the amendment to Rule 2(l) effective from 01.04.2008:The judgment also addresses the amendment to Rule 2(l) effective from 01.04.2008, where the phrase 'from the place of removal' was changed to 'upto the place of removal.' This amendment clarified that after 01.04.2008, CENVAT credit is available only up to the place of removal. The court noted that the interpretation of the rule before the amendment allowed CENVAT credit for transportation from the place of removal to the first point of delivery, whether a depot or the customer's premises.Judgment:The appeals by the Central Excise Department were dismissed, affirming the CESTAT's interpretation of 'input service' and eligibility for CENVAT credit on transportation from the place of removal to depots or buyers' premises. The court found no error in the CESTAT's approach, as upheld by the Karnataka High Court. Additionally, the court acknowledged the amendment effective from 01.04.2008, which restricts CENVAT credit to services up to the place of removal.Separate Judgments:- Civil Appeal No. 11400 of 2016: The CESTAT had rejected the appeal due to a delay of 85 days, upheld by the High Court. The court condoned the delay and allowed the appeal, granting the appellant the benefit of the judgment in Commissioner of Central Excise Belgaum vs. M/S. Vasavadatta Cements Ltd.- Civil Appeal No. 18897 of 2017: This appeal by the assessee was allowed in terms of the order passed in Commissioner of Central Excise Belgaum vs. M/S. Vasavadatta Cements Ltd.In conclusion, the court upheld the CESTAT's interpretation of 'input service' and dismissed the Department's appeals, affirming the eligibility for CENVAT credit on transportation services from the place of removal to depots or buyers' premises, while also acknowledging the impact of the amendment effective from 01.04.2008.