2024 (10) TMI 1738 - AT - Service Tax

Remand to reassess Cenvat credit for outward transportation, assess freight in assessable value and admissibility of input services

CESTAT AHMEDABAD - AT set aside the impugned order and allowed the appeal by way of remand. The matter is returned to the adjudicating authority to ... Eligibility for CENVAT credit in respect of service tax paid - outward transportation of excisable goods - outdoor catering service - construction service. Outward transportation - HELD THAT:- The eligibility of the Cenvat credit in respect of outward transportation is based on the fact of each case after verifying the criteria such as whether the sale is on FOR basis, the freight is included in the assessable value on which excise duty was paid, etc. The adjudicating authority has heavily relied upon the Hon’ble Supreme Court judgment in the case of Ultratech Cement Ltd [2018 (2) TMI 117 - SUPREME COURT] for disallowing the Cenvat credit. However, thereafter the board has issued a circular fixing the criteria for allowing credit on outward transportation. Considering the same this Tribunal in the case of Ultratech Cement [2018 (2) TMI 117 - SUPREME COURT] and Sanghi Industries [2022 (11) TMI 748 - CESTAT AHMEDABAD] decided the matter holding that the appellant are eligible for Cenvat credit on outward transportation subject to fulfillment of certain criterions. These decisions of this Tribunals were upheld by the Hon’ble Gujarat High Court. However, these developments in the law on the issue in hand were not available before the adjudicating authority while passing the adjudication order. Therefore, in the light of the above developments, the adjudicating authority after verifying the facts and applicability of the recent judgments as cited above, needs to reconsider the matter. Outdoor catering and construction service - HELD THAT:- There are numerous judgments on this issue that Cenvat credit is admissible on these services. However, since the entire matter is remanded, the adjudicating authority shall consider the admissibility of input services namely outdoor catering service and construction service. The impugned order is set aside - matter remanded to the adjudicating authority for passing a de-novo order within a period of two months from the date of this order - appeal allowed by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether Cenvat credit is admissible in respect of service tax paid on outward transportation of excisable goods. 2. Whether Cenvat credit is admissible in respect of service tax paid on outdoor catering services used in or in relation to manufacture of final product. 3. Whether Cenvat credit is admissible in respect of service tax paid on construction services used in or in relation to manufacture of final product. 4. Whether the adjudicating authority must reconsider a denial of Cenvat credit when subsequent administrative instructions and judicial decisions altering the legal position become available after the original order. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Cenvat credit on outward transportation of excisable goods Legal framework: Cenvat credit for input services is admissible where the service is used in relation to manufacture of final products; eligibility for credit on outward transportation depends on factual criteria such as whether sales are on FOR basis, whether freight forms part of assessable value on which excise duty was paid, and other case-specific factors. Precedent treatment: The adjudicating authority relied on an earlier apex-court decision that led to disallowance of such credits. Subsequently, the Board issued a circular setting criteria for allowance of credit on outward transportation; Tribunal decisions applying those criteria allowed credit in specific cases, and those Tribunal decisions were later upheld by the High Court. Interpretation and reasoning: The Tribunal emphasizes that entitlement to credit on outward transportation is fact-sensitive and must be determined by applying the post-decision administrative and judicial developments to the facts of each case. Where an earlier adjudication denied credit before those developments, the proper course is to re-examine the factual matrix (FOR terms, freight inclusion in assessable value, etc.) against the clarified criteria. The Tribunal therefore treats the apex-court decision as having been subsequently contextualized by administrative guidance and later adjudications; those later developments materially affect eligibility determinations. Ratio vs. Obiter: The mandatory proposition that credit on outward transportation must be adjudicated by applying the clarified criteria to the facts of each case (and that earlier adverse orders rendered before those developments ought to be reconsidered) is treated as the operative ratio for resolution of such disputes going forward. Observations about the specific earlier decision's reasoning are explanatory and serve as contextual obiter for the need to apply subsequent guidance. Conclusions: The matter was remitted for de novo consideration of credit on outward transportation. The adjudicating authority must verify the factual criteria (FOR basis, inclusion of freight in assessable value, and related factors) and apply the Board circular and subsequent Tribunal/High Court rulings when deciding admissibility of Cenvat credit. Issue 2 - Cenvat credit on outdoor catering services Legal framework: Input service credit is available where the service is used in or in relation to manufacture of final product; the nexus between the service and manufacture is the determinative test. Precedent treatment: Multiple tribunal and other judicial decisions recognize admissibility of credit on outdoor catering where the service is shown to be used in or in relation to manufacture. The adjudicating authority's denial predated or did not apply these later holdings. Interpretation and reasoning: The Tribunal views, prima facie, that outdoor catering services can qualify as input services when they have the requisite nexus to manufacturing activities. However, entitlement remains fact-specific and requires the adjudicating authority to examine whether the particular catering services were used in or in relation to manufacture in the factual matrix of the case. Ratio vs. Obiter: The guidance that outdoor catering services may be eligible for Cenvat credit when used in or in relation to manufacture is treated as persuasive ratio supported by prior decisions; any broad statements beyond application to the facts at hand are obiter. Conclusions: Admissibility of credit on outdoor catering is to be re-evaluated on remand; the adjudicating authority must consider relevant precedents and determine nexus to manufacture before allowing or denying credit. Issue 3 - Cenvat credit on construction services Legal framework: As with other input services, construction service qualifies for Cenvat credit only if it is used in or in relation to the manufacture of final products; proof of nexus and usage is required. Precedent treatment: Judicial decisions have recognized that, in appropriate factual circumstances, construction services can be input services eligible for credit. The adjudicating authority did not apply these later developments when denying credit. Interpretation and reasoning: The Tribunal adopts the position that construction services may be admissible as input services where a sufficient connection to manufacturing is established. Because entitlement is fact-dependent, a fresh inquiry is necessary to determine whether the construction services in question satisfy the nexus test. Ratio vs. Obiter: The direction to examine construction services for admissibility based on nexus to manufacture is treated as ratio for adjudicating similar disputes; expansive commentary not tied to the present facts is obiter. Conclusions: The adjudicating authority shall reconsider claims for credit on construction services on remand, applying relevant precedents and testing the factual nexus to manufacture. Issue 4 - Effect of subsequent administrative/judicial developments and requirement to reconsider earlier orders Legal framework: Administrative circulars and subsequent judicial decisions that clarify eligibility criteria for input service credits alter the legal landscape and can require reconsideration of prior adverse orders if those orders were made before such developments and if the facts permit a different result. Precedent treatment: Tribunal decisions applying the post-adjudication criteria and the High Court's upholding of those decisions demonstrate that subsequent developments can overturn or modify the practical effect of earlier case law relied upon by an adjudicating authority. Interpretation and reasoning: The Tribunal reasons that where an adjudication was rendered before key clarifications (administrative circulars, Tribunal rulings, High Court confirmation), fairness and correctness require remand so that the adjudicating authority may apply the current legal position to the established facts. The Tribunal underscores that remand must be accompanied by full opportunity of personal hearing and a reasoned de novo order within a fixed timeframe. Ratio vs. Obiter: The directive that earlier orders must be set aside and remanded for reconsideration where intervening authoritative clarifications apply to the issue is the operative ratio of the decision. Statements describing the course of events and prior reliance are explanatory obiter supporting that ratio. Conclusions: The impugned order was set aside and the matter remanded for a de novo decision within a stipulated period, with directions to afford adequate hearing and to apply the Board circular and subsequent judicial decisions in determining admissibility of Cenvat credit for outward transportation, outdoor catering, and construction services. Cross-references 1. Issue 1 is factually and legally linked to Issue 4 because the allowance of credit on outward transportation depends on applying post-order clarifications; accordingly, the remand directed under Issue 4 is the mechanism for resolving Issue 1. 2. Issues 2 and 3 share the common legal framework of nexus between input services and manufacture and are to be reconsidered on the same remand following the Tribunal's directions in Issue 4.