2026 (3) TMI 1587 - AT - Central Excise

CENVAT credit, place of removal and limitation turn on contract terms, buyer acceptance and disclosure in records.

CENVAT credit distributed through Input Service Distributor invoices remains open to scrutiny at the recipient unit, and its admissibility still depends ... CENVAT credit of service tax paid on input services distributed through Input Service Distributor (ISD) invoices - Place of removal - definition of “input service” under Rule 2(l) - Outward transportation as input service - Extended period of limitation - Wilful Suppression - Bona Fide Belief - Ownership and Risk in Transit - 100% Export Oriented Unit with a Customs bonded warehouse licence under the Customs Act, 1962 and clears finished goods both to Domestic Tariff Area (DTA) customers and for export. Whether CENVAT credit distributed to the appellant through Input Service Distributor (ISD) invoices is legally admissible and whether proceedings could validly be initiated against the appellant instead of the Input Service Distributor. - HELD THAT:- The Tribunal held that distribution of credit through ISD invoices does not place the recipient manufacturer beyond scrutiny. While the recipient unit cannot claim immunity merely because the credit originated from an ISD, the ultimate admissibility of the credit must still be tested on merits with reference to the definition of input service and the facts of the recipient unit. [Paras 7] The objection to the proceedings on the sole ground that the credit was distributed through ISD invoices was rejected. Place of removal - Outward transportation as input service - Contractual transfer of property - HELD THAT:- Hon’ble Supreme Court in CCE vs Ultra Tech Cement Ltd.[2018 (2) TMI 117 - SUPREME COURT], wherein the Court held that outward transportation beyond the place of removal cannot be treated as an input service. However, it is important to note that the said judgment was rendered in the context of a situation where the sale of goods was completed at the factory gate and the transportation thereafter was arranged by the buyer. The Hon’ble Supreme Court in Padmini Products vs CCE [1989 (8) TMI 80 - SUPREME COURT] held that where the dispute relates to interpretation of statutory provisions and the assessee entertains a bona fide belief regarding the eligibility of duty or credit, the extended period of limitation cannot be invoked. In the present case the dispute essentially concerns the interpretation of the definition of “input service” under Rule 2(l) of the CENVAT Credit Rules and the determination of the “place of removal” based on contractual terms governing the transaction. Such issues have been the subject matter of considerable judicial interpretation and therefore the appellant could reasonably entertain a bona fide belief regarding the eligibility of credit on the services in question. The Tribunal held that admissibility of credit on outward transportation depends on the place of removal. Where contractual terms establish that delivery, installation, commissioning and acceptance at the buyer's premises form an integral part of the transaction, the sale is completed only there and not at the factory gate. In such a case, transportation up to that point remains part of clearance up to the place of removal. The printed invoice condition disclaiming responsibility for loss or damage in transit was treated as a general condition which could not override the substantive contractual clauses governing completion of sale and transfer of property. On the contracts examined, the buyer's premises was held to be the actual place of removal. Though the Tribunal observed that other contracts could require verification for parity of terms, it confined that aspect to a limited remand in principle. [Paras 8, 9, 11] On the contractual terms placed before it, the Tribunal held that the buyer's premises constituted the place of removal and that credit on the courier services could not be denied on the footing that transportation was beyond the factory gate. Extended period of limitation - Wilful suppression - Interpretational dispute - HELD THAT:- The Tribunal found that the appellant had regularly filed statutory returns and maintained records showing availment of credit on ISD invoices, so the material facts were available to the department. It held that invocation of the extended period requires wilful suppression or misstatement with intent to evade duty, which was absent here. The dispute turned on interpretation of input service and determination of place of removal, an interpretational controversy on which a bona fide belief could exist. Since the notice was issued for the period June 2014 to January 2015 only on 07.02.2017, the demand was held time-barred, and on that ground alone the demand, interest and penalty were unsustainable. [Paras 10, 11] The entire demand of credit along with interest and penalty was held unsustainable as barred by limitation. Final Conclusion: The Tribunal held that the recipient unit could be proceeded against notwithstanding distribution of credit through ISD invoices, and further held on the contracts examined that the buyer's premises was the place of removal, making outward transportation up to that point eligible in principle. However, since the demand for June 2014 to January 2015 had been raised only by invoking the extended period without proof of wilful suppression, the entire demand with interest and penalty was set aside as barred by limitation. Issues: (i) Whether CENVAT credit distributed through Input Service Distributor invoices could be denied to the recipient unit and whether proceedings could be initiated against it; (ii) whether courier services used for transportation of finished goods to customers qualified as input service under Rule 2(l) of the CENVAT Credit Rules, 2004; (iii) whether the place of removal in the facts of the case was the factory gate or the buyer's premises; (iv) whether the extended period of limitation was invocable and whether interest and penalty could survive.Issue (i): Whether CENVAT credit distributed through Input Service Distributor invoices could be denied to the recipient unit and whether proceedings could be initiated against it.Analysis: Credit passed through Input Service Distributor invoices does not confer immunity from scrutiny at the recipient unit. The admissibility of the credit must still be tested on merits with reference to the definition of input service and the facts surrounding the recipient's activity.Conclusion: Proceedings against the recipient unit were not invalid merely because the credit came through Input Service Distributor invoices.Issue (ii): Whether courier services used for transportation of finished goods to customers qualified as input service under Rule 2(l) of the CENVAT Credit Rules, 2004.Analysis: The definition of input service covered services used for clearance of final products up to the place of removal. Where the contractual arrangement shows that delivery, installation, commissioning and acceptance at the customer's premises are integral to the supply, outward transportation up to that point falls within the scope of input service.Conclusion: Courier services used for transportation up to the buyer's premises were capable of qualifying as input service, subject to the contractual terms governing the transaction.Issue (iii): Whether the place of removal in the facts of the case was the factory gate or the buyer's premises.Analysis: The contracts showed that commissioning was complete only upon acceptance by the buyer, installation was incomplete until full commissioning, and the supply itself was not treated as complete until installation, commissioning and acceptance. A printed invoice clause disclaiming transit risk could not override the substantive contractual terms. On those terms, property and completion of sale occurred only at the customer's site.Conclusion: The place of removal was the buyer's premises where the ATMs were installed, commissioned and accepted.Issue (iv): Whether the extended period of limitation was invocable and whether interest and penalty could survive.Analysis: The assessee had disclosed the credit in statutory records and the dispute turned on interpretation of the input service definition and place of removal. In the absence of wilful suppression or intent to evade duty, the extended period could not be invoked. Once the demand was time-barred, the consequential demand of interest and penalty also could not stand.Conclusion: The extended period of limitation was not invocable and the demand, interest and penalty were barred.Final Conclusion: The impugned order was set aside and the appellant obtained relief on the ground that the demand was not sustainable in law, particularly because the extended limitation period could not be applied.Ratio Decidendi: Where the contract shows that delivery, installation, commissioning and acceptance at the buyer's premises are integral to the supply, the buyer's premises may constitute the place of removal for credit on outward transportation, and the extended period cannot be invoked without wilful suppression or intent to evade duty.