2025 (12) TMI 218 - AT - Central Excise

Storage and warehouse tax credit allowed as input service under Rule 2(l), officers cannot dictate assessee's logistics choices

M/s Dwarikesh Sugar Industries Ltd Versus Commissioner, CGST & Central Excise, Meerut-I

CESTAT allowed the appeal, holding that Service Tax paid on Storage and Warehouse services used for storing duty-paid sugar in an external warehouse ... CENVAT Credit of Service Tax - input services in terms of Rule 2(l) of the CENVAT Credit Rules, 2004 or not - Storage and Warehouse service used for storage of duty paid final product, sugar in the warehouse of M/s CWC, Muzaffarnagar - HELD THAT:- It is not in dispute that there was dearth of storage space within the factory premises of the Appellant and the final product i.e. sugar had to be stored properly and hence storage space was taken on rent at CWC, Muzaffarnagar and the finished product sugar was removed from the factory on the basis of appropriate Central Excise invoices. The dispute in the present appeal is no more res integra and is squarely covered by the Tribunal’s decision in the case of DSCL Sugar V/s Commissioner of Central Excise, Lucknow [2012 (12) TMI 830 - CESTAT NEW DELHI] where it was held that 'The normal interpretation of the words “up to” something is to include the something as is seen from the example quoted by the counsel. Going by such interpretation services for storage at the place of removal should be allowed as input services. If an interpretation is given that services only till the goods reaches the place of removal and not storage at the place of storage, the expression services in relation to storage up to the place of removal used in the inclusive part of the definition to input services becomes meaningless and it is not reasonable to adopt such an interpretation.' The role of the Department is now no more of a tax collector but is that of tax facilitator. The endeavor of the Departmental officers should not only be to collect appropriate tax but also to guide the tax payers/Assessee and not to harass them. How a business has to be run cannot be dictated by the officers of the Department and it should be left to the prerogative and wisdom of the business enterprises to address their businesses exigencies in the best possible manner and the options available to them - In the present case, when there is not enough storage space within the factory of the Appellant-Assessee, what better option Department could have offered then the option availed by the Appellant-Assessee. These practices should be avoided by the officers of the Department in the larger interest of trade, commerce and industry and to contribute in true sense of nation building. The impugned order cannot be sustained and is accordingly set aside - Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether CENVAT credit is admissible on service tax paid on 'Storage and Warehousing' services used for storage of duty paid final product (sugar) in hired godowns located outside the factory premises, under Rule 2(l) of the CENVAT Credit Rules, 2004 for the period April 2007 to March 2009. 1.2 Whether such hired godowns, from which the duty-paid sugar is sold, constitute a 'place of removal' for the purposes of Rule 2(l) of the CENVAT Credit Rules, 2004, and whether 'storage up to the place of removal' includes storage at the place of removal itself. 1.3 Whether, in the facts of the case, denial of CENVAT credit and imposition of equal penalty under Rule 15 of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 was legally sustainable. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Admissibility of CENVAT credit on 'Storage and Warehousing' services for duty-paid sugar stored in hired godowns; meaning of 'input service', 'place of removal' and 'storage up to the place of removal' Legal framework (as discussed by the Court) 2.1 The Court proceeded on the basis of the definition of 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004 as it stood during April 2007 to March 2009, including services 'in relation to storage up to the place of removal' and 'activities relating to business'. 2.2 The Court relied upon the settled position that, for purposes of the CENVAT Credit Rules, the definition of 'place of removal' under Section 4 of the Central Excise Act, 1944 applies, as recognised in earlier Tribunal and High Court decisions and CBEC circular. Interpretation and reasoning 2.3 It was undisputed that the appellant did not have sufficient storage space in the factory and therefore hired storage space from a warehousing corporation, where duty-paid sugar was stored and from which it was cleared to customers under appropriate Central Excise invoices. 2.4 The Court held that the controversy is no longer res integra and is squarely covered by the earlier Tribunal decision in DSCL Sugar, wherein: (a) It was recognised that services used for storage up to the 'place of removal' are covered under 'input service'. (b) The definition of 'place of removal' under Section 4 of the Central Excise Act includes a depot, premises of a consignment agent or any other place or premises from where excisable goods are to be sold after their clearance from the factory. (c) Godowns from which the duty-paid goods are sold after clearance from the factory are to be treated as 'place of removal', notwithstanding that the goods are subject to specific rates of duty. (d) The expression 'storage up to the place of removal' must be interpreted to mean 'storage up to and including the place of removal', because: (i) The normal understanding of 'up to' includes the terminal point. (ii) If interpreted as excluding storage at the place of removal, the expression would become practically meaningless, since there is generally no storage in transit between the factory and the place of removal. 2.5 The Court further relied on the Tribunal decision in Thiru Arooran Sugars Ltd., which held that CENVAT credit on service tax paid for rent of hired godowns used to store final products is admissible, since such storage has a direct nexus with manufacture by removing congestion in the factory and is integrally connected with the business. 2.6 Applying these precedents, the Court held that the hired godown where the appellant stored duty-paid sugar and effected sales is a 'place of removal', and the services of storage and warehousing at such godown fall within the scope of 'input service' under Rule 2(l) for the relevant period. 2.7 The Court also emphasised that business exigencies such as dearth of storage space in the factory and the need to store finished goods safely are matters for the assessee to decide; departmental officers cannot dictate how business is to be run, particularly when the chosen arrangement is commercially reasonable and consistent with the tax law framework. Conclusions 2.8 Services of 'Storage and Warehousing' used for storing duty-paid sugar in hired godowns located outside the factory, from where the goods are sold, qualify as 'input service' within Rule 2(l) of the CENVAT Credit Rules, 2004 for the period April 2007 to March 2009. 2.9 The hired godown constitutes a 'place of removal' and 'storage up to the place of removal' includes storage at that godown. 2.10 Consequently, the denial of CENVAT credit of Rs. 3,20,896/- on such services was unsustainable in law. Issue 3: Sustainability of demand and penalty under Rule 15 of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 Interpretation and reasoning 2.11 Since the underlying premise of the demand was the alleged ineligibility of CENVAT credit on the warehousing services, and that premise stood rejected, the foundation for confirmation of demand and imposition of penalty did not survive. 2.12 The Court also observed that the role of the Department is to act as a tax facilitator, and practices resulting in unwarranted harassment of assessees who act in a commercially prudent and legally permissible manner should be avoided. Conclusions 2.13 The impugned order disallowing CENVAT credit of Rs. 3,20,896/-, confirming the demand, and imposing equal penalty under Rule 15 read with Section 11AC was set aside. 2.14 The appeal was allowed with consequential relief, if any, in accordance with law.