2025 (10) TMI 1188 - AT - Central Excise

Appeals allowed: CENVAT credit for goods transport agency outward FOR destination transport admissible; penalty under r.15(1) unsustainable

CESTAT New Delhi allowed the appeals, setting aside impugned orders and holding that CENVAT credit of service tax paid on goods transport agency services ... Admissibility of CENVAT credit of service tax paid on goods transport agency availed for outward transportation of goods on Free on Road [FOR] destination basis from the factory gate of the appellant to the premises of the customers, from railway sidings to godowns/depots and from depots to the premises of the customers - levy of penalty u/r 15 (1) of the CENVAT Credit Rules, 2004 - HELD THAT:- The admissibility of CENVAT credit of service tax paid on goods transport agency availed for outward transportation of goods on FOR destination basis has been upheld in M/s Prism Johnson Ltd. It also needs to be noted that in the own case of the appellant for the subsequent period from July 2014 to March 2015 as well as for the previous period from October 2011 to March 2012 this precise issue was decided in favour of the appellant by this Tribunal - These two decisions are (i) : M/s Manglam Cement Ltd. versus CCE & ST, Udaipur [2017 (12) TMI 81 - CESTAT NEW DELHI] and (ii) M/s Mangalam Cement Ltd. versus CCE & ST, Jaipur – I [2017 (12) TMI 81 - CESTAT NEW DELHI]. These two decisions were assailed before the High Court by the Department, but the appeals were dismissed by the High Court on the ground of monetary limit. Thus, it is not possible to sustain the orders impugned in the four appeals. Accordingly, they are set aside and all the four appeals are allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether CENVAT credit of service tax paid on goods transport agency services for outward transportation of finished goods is admissible under rule 2(l) of the CENVAT Credit Rules, 2004 when sales are effected on Free on Road (FOR) destination basis and removal occurs at the buyer's premises. 2. Whether show cause notices proposing recovery of CENVAT credit under rule 14 with interest and imposition of penalty under rule 15(1) are sustainable where the outward transportation services relate to delivery up to customers' premises on FOR destination basis. ISSUE-WISE DETAILED ANALYSIS Issue 1: Admissibility of CENVAT credit of service tax on goods transport agency services for outward transportation on FOR destination basis Legal framework: Rule 2(l) of the CENVAT Credit Rules, 2004 defines 'input services' and the scope of admissible CENVAT credit on services used for manufacture or clearance of final products. The question turns on the 'place of removal' concept and whether transportation up to buyers' premises (FOR destination) qualifies the transport service as an input service admissible for credit. Precedent treatment: The Tribunal has previously considered this precise issue and upheld admissibility where goods are transported to buyers' premises on FOR destination basis. The present decision relies on a recent Division/Full Bench treatment of the Tribunal (referred to in the judgment) which upheld credit in similar factual and legal circumstances. The appellant's own earlier Tribunal orders on overlapping periods were also decided in favour of admissibility; departmental challenges were dismissed by the High Court on monetary-limit grounds and did not overturn the legal conclusion. Interpretation and reasoning: The Tribunal reasons that when sales are on FOR destination basis the seller remains responsible for delivery to the buyer's premises, bears transit risk and arranges outward transportation to the buyer's premises (including movement from factory gate, railway siding to depots, and depot to customers). Consequently, the place of removal for such sales is the buyer's premises and the outward transportation service is integrally connected with clearance of final products. Under rule 2(l), such services qualify as input services for which CENVAT credit of service tax paid is admissible. Ratio vs. Obiter: The holding that transportation services up to the buyer's premises for FOR destination sales constitute admissible input services under rule 2(l) is ratio decidendi. References to prior orders of the same appellant and to other Tribunal decisions applying the same legal principle are treated as binding support and are applied rather than merely obiter. Conclusions: CENVAT credit of service tax paid on goods transport agency services for outward transportation of finished goods to buyers' premises under FOR destination contracts is admissible under rule 2(l) of the 2004 Credit Rules. The Tribunal follows and applies its earlier consistent decisions affirming this legal position. Issue 2: Validity of show cause notices proposing recovery under rule 14 and imposition of penalty under rule 15(1) Legal framework: Rule 14 authorizes recovery of inadmissible CENVAT credit and interest; rule 15(1) provides for imposition of penalty for contravention of CENVAT Credit Rules. Precedent treatment: Where the Tribunal has held the credit admissible on the legal and factual matrix, notices seeking recovery and penalty based on a contrary view of 'place of removal' cannot be sustained. The Tribunal cites prior favourable decisions for the appellant and the Tribunal's more recent decisions, treating them as determinative of the legal point. Interpretation and reasoning: Because the transportation services in question qualify as admissible input services (see Issue 1), the foundational premise of the show cause notices - namely that the place of removal is the factory gate and therefore outward transportation credit is inadmissible - is factually and legally incorrect for FOR destination sales. There is therefore no basis for recovery of the CENVAT credit or imposition of penalty on that ground. Ratio vs. Obiter: The determination that recovery and penalty cannot be sustained where credit is held admissible is ratio decidendi as applied to the facts and regulatory provisions. Observations concerning departmental litigation and High Court dismissal on monetary grounds are explanatory and supportive, not central to the legal holding. Conclusions: The show cause notices and consequent orders directing recovery with interest under rule 14 and imposing penalty under rule 15(1) are unsustainable in respect of outward transportation services up to buyers' premises when sales are on FOR destination basis; such orders should be set aside. Cross-references and application Decisions of the Tribunal addressing the same issue and earlier orders in the appellant's own matters for adjacent periods are applied and followed. The Tribunal treats those authorities as directly on point and dispositive of the admissibility question, thereby necessitating setting aside of the impugned recovery and penalty orders. Final disposition Because the outward transportation services for FOR destination sales qualify as admissible input services under rule 2(l) and prior Tribunal authorities support this conclusion, the impugned orders directing recovery of CENVAT credit with interest under rule 14 and levying penalty under rule 15(1) cannot be sustained and are set aside. The appeals are allowed.