COMMISSIONER OF CUSTOMS CENTRAL EXCISE AND SERVICE TAX, GUNTURversusM/S. THE ANDHRA SUGARS LTD.

                         [2018] 1 S.C.R. 435                             435


   COMMISSIONER OF CUSTOMS CENTRAL EXCISE AND                            A
              SERVICE TAX, GUNTUR
                                  v.
               M/S. THE ANDHRA SUGARS LTD.
                  (Civil Appeal No. 11711 of 2016)                       B
                       FEBRUARY 05, 2018
          [A. K. SIKRI AND ASHOK BHUSHAN, JJ.]
       Cenvat Credit Rules, 2004 – r. 2(l) – Cenvat Credit – Input
services – Place of removal – Assessee took credit of input services
                                                                         C
namely service tax paid on transportation charges upto the place
of customers – Admissibility – Held: As per the definition of input
service, service used by the manufacturer of clearance of final
products ‘from the place of removal’ to the warehouse or customer’s
place etc., was exigible for Cenvat Credit – It cannot be said that
the outward transportation provided beyond the place of removal          D
is not eligible for input service for availing Cenvat Credit – Once it
is accepted that place of removal is the factory premises of the
assessee, outward transportation ‘from the said place’ would amount
to input service – That place can be warehouse of the manufacturer
or it can be customer’s place if from the place of removal the goods
                                                                         E
are directly dispatched to the place of the customer.
      Dismissing the appeals, the Court
      HELD: Having regard to the definition of ‘input service’
that was prevailing at the relevant time i.e. prior to April 1, 2008,
the submission of the Department that outward transportation             F
engaged for removal of goods from factory to customer premises,
cannot be considered as an input service since premises of
customer is not recognized as a place of removal under the Central
Excise Act, cannot be accepted. As per the said definition, service
used by the manufacturer of clearance of final products ‘from the
place of removal’ to the warehouse or customer’s place etc., was         G
exigible for Cenvat Credit. The three conditions which were
mentioned explaining the ‘place of removal’ are defined in Section
4 of the Act. It is not the case of the Department that the three
conditions laid down in the said Circular are not satisfied. If the
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                                 435
436            SUPREME COURT REPORTS                        [2018] 1 S.C.R.


A     contention of the Department, is accepted, it would nullify the
      effect of the word ‘from’ the place of removal appearing in the
      said definition. Once it is accepted that place of removal is the
      factory premises of the assessee, outward transportation ‘from
      the said place’ would clearly amount to input service. That place
      can be warehouse of the manufacturer or it can be customer’s
B
      place if from the place of removal the goods are directly dispatched
      to the place of the customer. One such outbound transportation
      from the place of removal gets covered by the definition of input
      service. [Paras 6-8][439-F-H; 442-C-D]
            Commissioner of Central Excise and Service Tax,
C           Bangalore v. ABB Ltd. Vadodara 2011 (23) STR 97
            (Kar); Commissioner of Central Excise Belgaum v. M/
            s. Vasavadatta Cements Ltd.; Gujarat Ambuja Cements
            Ltd. v. CCE, Ludhiana 2007 (6) STR 249 Tri-D; M/s
            Ultratech Cements Ltd v. CCE Bhavnagar 2007-TOIL-
D           429-CESTAT-AHM – referred to.
                              Case Law Reference
      2011 (23) STR 97 (Kar)                  referred to      Para 3
      2007 (6) STR 249 Tri-D                  referred to      Para 8
E
            CIVIL APPELLATE JURISDICTION: Civil Appeal No. 11711
      of 2016.
            From the Judgment and Order dated 16.07.2014 of the High Court
      of Judicature at Hyderabad for the State of Telangana and The State of
F
      Andhra Pradesh in Central Excise Appeal No. 88 of 2014.
                                      WITH
            C. A. Nos. 11872, 11873 and 11910 of 2016.
            K. Radhakrishnan, Sr. Adv., Ms. Nisha Bagchi, Arijit Prasad, Ms.
G     Shirin Khajuria, Ms. Sanskriti Bhardwaj, Ms. Ayushi Gaur, Ms. Pooja
      Sharma, B. Krishna Prasad, Kartik Kurmy, Praveen Kumar, Advs. for
      the Appellant.
            Ms. Kiran Suri, S. K. Bagaria, Sr. Advs., S. J. Amith, Dr. (Mrs.)
      Vipin Gupta, Balaji Srinivasan, V. Lakshmikumaran, L. Badri Narayanan,
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COMMNR. OF CUSTOMS CENTRAL EXCISE & SERVICE TAX,                                437
         GUNTUR v. ANDHRA SUGARS LTD.

Aditya Bhattacharya, Victor Das, Chanakya Lakshmikumaran, Punit                 A
D. Tyagi, Apeksha Mehta, Ajit Kumar, Yogendra A., M. P. Devanath,
Advs. for the Respondent.
      The Judgment of the Court was delivered by
      A. K. SIKRI, J. 1. The question of law which needs
determination in all these appeals is identical. It pertains to Cenvat Credit   B
in respect of service tax paid on goods that are transported to the
purchaser after the sale. The question, therefore, which needs
determination is as to whether the expression ‘input service’ as defined
in Rule 2(l) of the Cenvat Credit Rules, 2004 (hereinafter referred to as
the ‘Rules, 2004’), in the context of a service provider, would also include    C
services which are used in or in relation to providing taxation output
services described in the definition and the outward transportation to the
purchaser would be treated as beyond the ‘place of removal’.
       2. For the sake of convenience, we may reproduce the events
from Civil Appeal No. 11711 of 2016. The respondent M/s. Andhra                 D
Sugars Ltd. are the manufacturers of sugar, molasses etc. at their Tanuku,
Taduvai & Bhimadole units and manufacturers of various inorganic
chemicals at their Kovvur and Saggonda units. They were availing credit
on inputs, capital goods and input services and utlising the same for
payment of duty. It came to the notice of the Revenue that during the
periods December, 2007, the respondent at their unit Saggonda, had taken        E
credit of input services namely service tax paid on transportation charges
upto the place of customers which according to the Revenue is
inadmissible. Accordingly, show cause notice dated November 3, 2008
was issued to the respondent demanding the Cenvat Credit of Rs.3,87,763/
- availed during the above mentioned period along with interest and             F
proposing to impose penalty under Rule 15 of the Rules, 2004. The
aforesaid show cause notice was duly adjudicated by the Assistant
Commissioner, Eluru Division vide Order-in-Original No. 01/2009 dated
January 9, 2009 confirming the demands initiated in the aforesaid show
cause notice.
                                                                                G
      3. The respondent being aggrieved by the Order-in-Original No.
01/2009 dated January 9, 2009 filed appeal before the Commissioner
(Appeals), Guntur. Vide Order-in-Appeal Nos. 46/2011 (G) ST dated
December 2, 2011, allowed the appeals by setting aside the Order-in-
Original with consequential relief to the respondent. The Revenue
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438               SUPREME COURT REPORTS                          [2018] 1 S.C.R.


A     challenged the Order-in-Appeal No. 46 of 2011 (G) ST dated December
      2, 2011 by preferring appeal bearing Appeal No. E/510/2012-DB before
      the Customs, Excise and Service Tax Appellate Tribunal (CESTAT),
      Bangalore. The CESTAT vide final Order No. 26346/2013 dated August
      14, 2013 dismissed the appeal filed by the Revenue holding that the
      same is covered by the decision of the High Court of Karnataka in the
B
      case of Commissioner of Central Excise and Service Tax, Bangalore
      v. ABB Ltd., Vadodara1. Further, the CESTAT observed that the
      Revenue could not have filed appeals as per the instructions of the CBEC
      vide Circular F. No. 390/Misc./163/2010-JC dated August 17, 2011, as
      the amount involved is less than Rs.5 lakhs. Not satisfied with this
C     outcome, the Revenue took the matter to the High Court in the form of
      Appeal No. 88/2014. The High Court vide its impugned judgment dated
      July 16, 2014 has dismissed the appeal filed by the Revenue holding that
      “on an identical issue, this Court dismissed Central Excise Appeal No.
      31 of 2013. Hence, this appeal is also dismissed.”
D            4. Before we proceed further, it would be necessary to take note
      of the definition of ‘input service’ which was prevailing at the relevant
      period i.e. prior to April 1, 2008. This definition contained in Section 2(l)
      of the Rules, 2004 reads as under:
              “Input Service” means any service-
E             (i) Used by a provider of taxable service for providing an output
              service; or
              (ii) Used by the manufacturer, whether directly or indirectly, in or
              in relation to the manufacture of final products and clearance of
              final products from the place of removal, and includes services
F             used in relation to setting up, modernization, renovation or repairs
              of a factory, premises of provider of output service or an office
              relating to such factory or premises, advertisement or sales
              promotion, market research, storage upto the place of removal,
              procurement of inputs, activities relating to business, such as
G             accounting, auditing, financing, recruitment and quality control,
              coaching and training, computer networking, credit rating, share
              registry, and security, inward transportation of inputs or capital
              goods and outward transportation from the place of removal;

      1
          2011 (23) STR 97 (Kar)
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COMMNR. OF CUSTOMS CENTRAL EXCISE & SERVICE TAX,                                 439
   GUNTUR v. ANDHRA SUGARS LTD. [A. K. SIKRI, J.]

       The phrase ‘place of removal’ is defined under Section 4 of the           A
       Central Excise Act, 1944. It states that-
       ‘place of removal’ means,-
       (i) a factory or any other place or premises of production or
       manufacture of the excisable goods;
       (ii) a warehouse or any other place or premises wherein the               B
       excisable goods have been permitted to be stored without payment
       of duty;
       (iii) a depot, premises of a consignment agent or any other place
       or premises from where the excisable goods are to be sold after
       their clearance from the factory; from where such goods are               C
       removed.”
        5. We may also refer to Circular No. 97/8/2007-ST dated August
23, 2007 issued by the Central Board of Excise and Customs (CBEC)
(hereinafter referred to as the ‘Board’) as per which the definition of
‘input service’ was clarified and the Circular also provided the conditions      D
which are to be satisfied to cover the case within ‘place of removal’.
The three conditions contained in the circular are (i) regarding ownership
of the goods till the delivery of the goods at the purchaser’s door step;
(ii) seller bearing the risk of or loss or damage to the goods during transit
to the destination and; (iii) freight charges to be integral part of the price
of the goods.                                                                    E
       6. As mentioned above, in these cases, the assessees are claiming
Cenvat Credit in respect of service tax paid on outward transportation
from their factory to the premises of customers. As per the Department,
outward transportation engaged for removal of goods from factory to
customer premises cannot be considered as an input service since                 F
premises of customer is not recognized as a place of removal under the
Central Excise Act. To put it differently, the Department contends that
the outward transportation provided beyond the place of removal is not
eligible for input service for availing Cenvat Credit.
       7. Having regard to the definition of ‘input service’ that was            G
prevailing at the relevant time i.e. prior to April 1, 2008, the aforesaid
contention of the Department cannot be accepted. As per the said
definition, service used by the manufacturer of clearance of final products
‘from the place of removal’ to the warehouse or customer’s place etc.,
was exigible for Cenvat Credit. This stands finally decided in Civil Appeal
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440            SUPREME COURT REPORTS                            [2018] 1 S.C.R.


A     No. 11710 of 2016 (Commissioner of Central Excise Belgaum v. M/
      s. Vasavadatta Cements Ltd.) vide judgment dated January 17, 2018.
      The matter is squarely covered by the Board’s Circular dated August
      23, 2007, relevant portion whereof is as under:
            “ISSUE: Up to what stage a manufacturer/consignor can take
B           credit on the service tax paid on goods transport by road?
            COMMENTS: This issue has been examined in great detail by
            the CESTAT in the case of M/s Gujarat Ambuja Cements Ltd.
            vs CCE, Ludhiana [2007 (6) STR 249 Tri-D]. In this case,
            CESTAT has made the following observations:-
C           “the post sale transport of manufactured goods is not an input
            for the manufacturer/consignor. The two clauses in the definition
            of ‘input services’ take care to circumscribe input credit by stating
            that service used in relation to the clearance from the place of
            removal and service used for outward transportation upto the place
D           of removal are to be treated as input service. The first clause
            does not mention transport service in particular. The second clause
            restricts transport service credit upto the place of removal. When
            these two clauses are read together, it becomes clear that transport
            service credit cannot go beyond transport upto the place of
            removal. The two clauses, the one dealing with general provision
E           and other dealing with a specific item, are not to be read
            disjunctively so as to bring about conflict to defeat the laws’ scheme.
            The purpose of interpretation is to find harmony and reconciliation
            among the various provisions”.
            Similarly, in the case of M/s Ultratech Cements Ltd vs CCE
F           Bhavnagar 2007-TOIL-429-CESTAT-AHM, it was held that after
            the final products are cleared from the place of removal, there
            will be no scope of subsequent use of service to be treated as
            input. The above observations and views explain the scope of the
            relevant provisions clearly, correctly and in accordance with the
            legal provisions. In conclusion, a manufacturer / consignor can
G
            take credit on the service tax paid on outward transport of goods
            up to the place of removal and not beyond that.
            8.2 In this connection, the phrase ‘place of removal’ needs
            determination taking into account the facts of an individual case
            and the applicable provisions. The phrase ‘place of removal’ has
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COMMNR. OF CUSTOMS CENTRAL EXCISE & SERVICE TAX,                                441
   GUNTUR v. ANDHRA SUGARS LTD. [A. K. SIKRI, J.]

    not been defined in CENVAT Credit Rules. In terms of sub-rule               A
    (t) of rule 2 of the said rules, if any words or expressions are used
    in the CENVAT Credit Rules, 2004 and are not defined therein
    but are defined in the Central Excise Act, 1944 or the Finance
    Act, 1994, they shall have the same meaning for the CENVAT
    Credit Rules as assigned to them in those Acts. The phrase ‘place
                                                                                B
    of removal’ is defined under section 4 of the Central Excise Act,
    1944. It states that,-
    “place of removal” means-
    (i) a factory or any other place or premises of production or
    manufacture of the excisable goods ;                                        C
    (ii) a warehouse or any other place or premises wherein the
    excisable goods have been permitted to be stored without payment
    of duty ;
    (iii) a depot, premises of a consignment agent or any other place
    or premises from where the excisable goods are to be sold after             D
    their clearance from the factory;
    from where such goods are removed.”
    It is, therefore, clear that for a manufacturer/consignor, the
    eligibility to avail credit of the service tax paid on the transportation
                                                                                E
    during removal of excisable goods would depend upon the place
    of removal as per the definition. In case of a factory gate sale,
    sale from a non-duty paid warehouse, or from a duty paid depot
    (from where the excisable goods are sold, after their clearance
    from the factory), the determination of the ‘place of removal’
    does not pose much problem. However, there may be situations                F
    where the manufacturer /consignor may claim that the sale has
    taken place at the destination point because in terms of the sale
    contract /agreement (i) the ownership of goods and the property
    in the goods remained with the seller of the goods till the delivery
    of the goods in acceptable condition to the purchaser at his door
                                                                                G
    step; (ii) the seller bore the risk of loss of or damage to the goods
    during transit to the destination; and (iii) the freight charges were
    an integral part of the price of goods. In such cases, the credit of
    the service tax paid on the transportation up to such place of sale
    would be admissible if it can be established by the claimant of
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442                SUPREME COURT REPORTS                       [2018] 1 S.C.R.


A             such credit that the sale and the transfer of property in goods (in
              terms of the definition as under section 2 of the Central Excise
              Act, 1944 as also in terms of the provisions under the Sale of
              Goods Act, 1930) occurred at the said place.”
             8. As can be seen from the reading of the aforesaid portion of the
B     circular, the issue was examined after keeping in mind judgments of
      CESTAT in Gujarat Ambuja Cement Ltd. and M/s. Ultratech Cement
      Ltd. Those judgments, obviously, dealt with unamended Rule 2(l) of
      Rules, 2004. The three conditions which were mentioned explaining the
      ‘place of removal’ are defined in Section 4 of the Act. It is not the case
      of the Department that the three conditions laid down in the said Circular
C     are not satisfied. If we accept the contention of the Department, it
      would nullify the effect of the word ‘from’ the place of removal appearing
      in the aforesaid definition. Once it is accepted that place of removal is
      the factory premises of the assessee, outward transportation ‘from the
      said place’ would clearly amount to input service. That place can be
D     warehouse of the manufacturer or it can be customer’s place if from
      the place of removal the goods are directly dispatched to the place of
      the customer. One such outbound transportation from the place of
      removal gets covered by the definition of input service.
           9. We, thus, do not find any infirmity in the impugned judgment.
E     Appeals are devoid of any merit and are accordingly dismissed.


      Nidhi Jain                                                 Appeals dismissed.



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