2026 (2) TMI 517 - AT - Central Excise

Admissibility of CENVAT credit on GTA services remanded for contractual place of removal verification; extended limitation and penalty set aside

Denial of CENVAT credit on GTA services cannot rest solely on the amendment withdrawing reverse charge utilisation; where the service remains an 'input ... Admissibility of CENVAT credit on Goods Transport Agency (GTA) services - definition of 'input service' under Rule 2(l) - effect of amendment to 'output service' under Rule 2(p) (01.03.2008) - abatement notifications and restriction applicable to GTA service provider (not recipient) - determination of 'place of removal' and FOR destination contracts - limited remand for verification of contractual place of removal - extended period of limitation under proviso to Section 11A(4) - requirement of suppression/fraud for invoking extended limitation - penalty under Rule 15(2)/Section 11AC vis-a-vis Rule 15(1) - Admissibility of CENVAT Credit on GTA Services - HELD THAT:- We hold that the denial of CENVAT credit on GTA services solely on the basis of the amendment to Rule 2(p) of the CENVAT Credit Rules, 2004 and the conditions contained in the abatement notifications is legally unsustainable. We have found that the amendment to Rule 2(p) w.e.f. 01.03.2008 only withdrew the facility of utilisation of credit for payment of service tax on GTA services under reverse charge, and did not operate as a substantive bar on availment of credit where the service continues to fall within the definition of “input service” under Rule 2(l). We have further held that the restriction in abatement notifications such as Notification No. 32/2004-ST and Notification No. 13/2008-ST applies only to the GTA service provider and not to the service recipient, as clarified by CBEC Circular F. No. 166/1/2006-CX.4 dated 03.10.2007 and Circular No. 354/15/2014-TRU dated 10.07.2014. The Larger Bench decision of this Tribunal in M/s. The Ramco Cements Ltd. v. CCE, [2023 (12) TMI 1332 - CESTAT CHENNAI-LB] has underscored that admissibility of outward GTA credit depends upon determination of the correct “place of removal” based on contractual terms, applying the binding principles laid down by the Hon’ble Supreme Court in Roofit Industries Ltd. [2015 (4) TMI 857 - SUPREME COURT], read with CBIC Circulars dated 20.10.2014 and 08.06.2018. Since the relevant purchase orders, FOR destination clauses, risk transfer conditions and documentary evidence have not been examined, the issue cannot be conclusively decided at this stage. Accordingly, the matter is remanded to the adjudicating authority for the limited purpose of verifying the contractual place of removal and thereafter deciding admissibility of GTA credit strictly in accordance with Rule 2(l) and the binding precedents noted above. Limitation, extended period and penalty - HELD THAT:- We find that the proceedings arise out of two Show Cause Notices issued on the very same issue of availment of CENVAT credit on GTA services. The availment of credit was consistently disclosed in statutory ER-1 returns and was therefore within the knowledge of the Department. Once the Department had issued the first notice on the same facts, invocation of suppression or fraud again in the second notice is impermissible. The Hon’ble Supreme Court in Nizam Sugar Factory v. CCE, [2006 (4) TMI 127 - SUPREME COURT] has categorically held that where the facts are already in the knowledge of the Department, the extended period cannot be repeatedly invoked in subsequent notices on the same issue. Accordingly, we hold that the extended period under the proviso to Section 11A(4) is not invocable. The first SCN, to the extent it travels beyond the normal period, is hit by limitation, and the second SCN is necessarily restricted to the normal period alone. Consequently, penalty under Rule 15(2) read with Section 11AC cannot be sustained. At best, if any inadmissible credit is determined after remand, penalty, if at all imposable, can only fall under Rule 15(1). Interest and penalty shall therefore be purely consequential and shall be re-determined only after fresh adjudication on remand, limited only to such credit as may ultimately be held inadmissible, and subject to verification of actual utilisation of credit in terms of Rule 14. Accordingly, the impugned Order-in-Original Nos. 32 & 33/2022-C.Ex. (Commr.) dated 25.03.2022 are set aside to the extent indicated above. The matter is remanded to the adjudicating authority for limited verification and fresh decision on admissibility of GTA credit strictly in terms of Rule 2(l), contractual place of removal and the binding judicial precedents. The demand, if any, shall remain restricted to the normal period alone. Penalty under Rule 15(2) read with Section 11AC is set aside, and penalty, if any, shall be confined only to Rule 15(1) on re-adjudication. Interest shall also be re-determined consequentially only upon final outcome and subject to verification of utilization of the disputed credit. Appeal is thus allowed by way of remand in the above terms, with consequential relief in accordance with law. Issues: (i) Whether CENVAT credit of service tax paid on Goods Transport Agency services for the period April 2008 to August 2012 is admissible; (ii) Whether invocation of the extended period of limitation and imposition of penalty is sustainable.Issue (i): Admissibility of CENVAT credit of service tax paid on GTA services for April 2008 to August 2012.Analysis: The amendment to Rule 2(p) w.e.f. 01.03.2008 withdrew only the limited facility of treating certain reverse-charge liabilities as 'output service' for utilisation purposes; it did not amend Rule 2(l) which defines 'input service'. Rule 2(l) continued to include inward transportation of inputs/capital goods and outward transportation up to the place of removal. Abatement notifications imposing a condition of non-availment of credit apply to the GTA provider to prevent double benefit and do not prohibit the recipient who pays tax under reverse charge from availing credit. Binding judicial and administrative authorities require determination of the correct 'place of removal' based on contractual terms (transfer of property, allocation of risk) before admissibility of outward transportation credit can be conclusively decided. In the present record, contractual terms and documentary evidence regarding place of removal were not examined, and the adjudicating authority proceeded solely on the basis of Rule 2(p) amendment and abatement conditions without verifying contractual place of removal.Conclusion: Denial of CENVAT credit solely on the basis of amendment to Rule 2(p) and abatement notifications is unsustainable. The matter is remanded to the adjudicating authority for limited verification of contractual place of removal and fresh decision on admissibility strictly in terms of Rule 2(l) and binding precedents.Issue (ii): Whether invocation of the extended period of limitation and imposition of penalty is sustainable.Analysis: The availment of credit was disclosed in statutory returns and was within departmental knowledge. Proceedings arose from successive show cause notices on the same issue; once the Department initiated proceedings earlier on identical facts, subsequent invocation of extended limitation alleging suppression cannot be sustained. The dispute arises from an interpretational controversy extensively litigated; mere audit objection or difference of opinion does not establish suppression, fraud or wilful misstatement required to invoke extended period or mandatory penalty under Rule 15(2)/Section 11AC. Any penalty, interest or demand must be limited to the normal period and be consequential only upon final adjudication after remand, and penalty, if any, can only be under Rule 15(1) for civil consequence where mens rea is not established.Conclusion: Extended period under the proviso to Section 11A(4) is not invocable; demand is restricted to the normal period; penalty under Rule 15(2)/Section 11AC is set aside; penalty, if any after remand, shall be confined to Rule 15(1); interest and penalty shall be re-determined only consequentially after fresh adjudication and verification of utilisation of disputed credit.Final Conclusion: The impugned orders are set aside to the extent indicated and the matter is remanded for limited verification of contractual place of removal and fresh adjudication on admissibility of GTA credit in accordance with Rule 2(l) and binding precedents; the demand, if any, shall be restricted to the normal period and penalties under Rule 15(2)/Section 11AC are set aside.Ratio Decidendi: Amendment to Rule 2(p) withdrawing the facility of treating reverse-charge liabilities as 'output service' does not, by itself, bar eligibility of CENVAT credit where the service continues to qualify as an 'input service' under Rule 2(l); admissibility of outward transportation credit depends on the contractual determination of the place of removal and abatement conditions apply to the service provider, not the recipient.