can credit of courier services for outward transportation of goods be availed?

PJ/Case Law/2016-17/3361

Case:-COMMISSIONER OF C. EX. VersusAMBALAL SARABHAI ENTERPRISES LTD.

Citation:-2016 (45) S.T.R. 174 (Guj.)

Brief facts:-Revenue was in appeal against judgment of CESTAT dated 22-7-2009 raising following questions for our consideration :
“(i) Whether the CESTAT was right in considering the service namely Outward Transportation in respect of courier service and clearing agents, availed by the assessee, as eligible services for availing input service credit as defined under Rule 2(l) of the CCR, 2004?
(ii) Whether tribunal committed error in overlooking the definition of “place of removal” prescribed under Rule 4(3)(c) of Cenvat Credit Rules, 2004, more particularly when goods are cleared by assessee from place of manufacturing after payment of duty?”
Short facts were as follows. Respondent-assessee had claimed Cenvat credit on service tax paid on the courier service provided by various courier agencies. Service of such courier agencies were utilised for transportation of finished goods from factory and also for bringing inputs into the factory. These facts emerge clearly from the order-in-original passed by adjudicating officer in his order dated 31-7-2008, relevant portion of which reads as under :
“2. On scrutiny of E.R.I returns for the period from January, 2007 to December, 2007, it was noticed that the assessee has taken service tax Credit on courier services paid to couriers service providers namely M/s. XPS Couriers, M/s. Gati Couriers and SAFEX Express (P) Ltd., Ab’ad & clearing agent namely Gujarat State Export Corporation & UTI worldwide Export corporation. The said couriers service providers and clearing agents took delivery of the finished goods from the factory and inputs into the factory. The service tax on couriers services paid to the clearing agents and courier service providers is not admissible as per Rule 2(l) of the Cenvat Credit Rules, 2004. Therefore, Service Tax paid on couriers services and clearing agents of the goods is not eligible for availment of Cenvat Credit. The said assessee had taken credit of service Tax of Rs. 75727/-, Rs. 1545/ as Education Cess and S.H.E. Cess of Rs. 613/ on courier services & clearing agent as per details provided by the assessee on Service tax appears to be recoverable alongwith interest.”
The Adjudicating Officer was of the opinion that assessee was not entitled to avail such credit. He, therefore, after issuance of show cause notice and hearing the respondents passed order dated 31-7-2008. The assessee challenged the order before the appellate authority. Commissioner (Appeals) by his order dated 17-3-2009 dismissed the appeal upon which the assessee approached the tribunal. Tribunal by way of impugned order dated 22-7-2009 allowed the appeal relying on the decision of Larger Bench of the Tribunal in case of ABB Ltd. and Ors.v. CCE & ST, Bangalore & ors. reported in 2009 (92) RLT 665 = 2009 (15)S.T.R.23 (Tri.-LB).Thereupon, the Revenue has approached this Court in the present tax appeal.
Appellant’s contention:-AdvocateShri Y.N. Ravani, appeared on behalf of the appellant.

Respondent’s contention:-Advocate Shri Dhaval Shah appeared on behalf of the respondent.

Reasoning of judgment:-From the facts on record, it clearly emerges that the assessee had transported its goods from the factory through courier service. On service tax paid on such courier service, assessee seeks Cenvat credit. Entire issue revolves around definition of “input service” contained in Rule 2(l) of the Cenvat Credit Rules, 2004. Rule 2(l) reads as under :
(l) “Input service” means any service 
(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 used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relation to such factory or premises, advertisement or sales promotion, market research, storage up to the place of removal, procurement of inputs, activities relating to business, such as 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 up to the place of removal;”
Issue of similar nature came up before this Court in Tax Appeal No. 419/2010, wherein the assessees were claiming credit of service tax paid on the Goods Transport Agency (“GTA” for short) service on outward transportation of the goods beyond the place of removal relying on Rule 2(l) of the Cenvat Credit Rules, 2004. This Bench framed question in following manner:
“Whether in the facts of the case, the Tribunal was justified in holding that the assessee was entitled to receive Cenvat credit on the service tax paid on GTA service on outward transportation of the goods beyond the place of removal in view of definition contained in rule 2(l) of the Cenvat Credit Rules, 2004 defining term ‘input service’?”
This Court by judgment dated 6-4-2011, after considering the statutory provisions applicable and series of decisions cited, answered the question in favour of the assessee and against the Revenue. Tribunal’s judgment was confirmed. Tax Appeals were dismissed. Reliance was placed on definition of “input service” contained in Rule 2(l) of the Cenvat Credit Rules, 2004 which was interpreted to be expansive in nature. It was observed as under :
“18. Bearing in mind the above judicial pronouncements, if we revert back to the definition of the term ‘input service’, as already noticed, it is coined in the phraseology of “means and includes”. Portion of the definition which goes with the expression means, is any service 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. This definition itself is wide in its expression and includes large number of services used by the manufacturer. Such service may have been used either directly or even indirectly. To qualify for input service, such service should have been used for the manufacture of the final products or in relation to manufacture of final produce or even in clearance of the final product from the place of removal. The expression ‘in relation to manufacture’ is wider than ‘for the purpose of manufacture’. The words ‘and clearance of the final products from the place of removal’ are also significant. Means part of the definition has not limited the services only up to the place of removal, but covers services used by the manufacturer for the clearance of the final products even from the place of removal. It can thus be seen that main body of the definition of term ‘input service’ is wide and expansive and covers variety of services utilized by the manufacture. By no stretch of imagination can it be stated that outward transportation service would not be a service used by the manufacturer for clearance of final products from the place of removal.
19. When it is held that outward transportation would be an input service as covered in the expression ‘means’ part of the definition, it would be difficult to exclude such service on the basis of any interpretation that may be offered of the later portion of the definition which is couched in the expression ‘includes’. As already observed, it is held in several decisions that the expression ‘includes’ cannot be used to oust any activity from the main body of the definition if it is otherwise covered by the expression ‘means’. In other words, the expression ‘includes’ followed by ‘means’ in any definition is generally understood to be expanding the definition of the term to make it exhaustive, but in no manner can the expression ‘includes’ be utilized to limit the scope ofdefinition provided in the main body of the definition. To our mind this was also not the intention of the Legislature in the present case.”
Issues being similar, the present tax appeal were also required to be decided similarly relying on abovementioned judgment dated 6-4-2011 passed in Tax Appeal No. 419/2010 and connected matters. We may notice that natures of services used in both cases are though different. In the group of cases decided, question was with respect to service tax paid on GTA service on outward transportation of goods. In the case on hand they were concerned with courier service utilised by the manufacturer for transportation of goods from factory and also bringing inputs into the factory. Such service would certainly be covered within the expression: any service used by the manufacturer directly or indirectly in or in relation to the manufacture of final products and clearance of final products from the place of removal : used in Rule 2(l).
In the result, tax appeal is dismissed.

Decision:-Appeal dismissed.

Comment:-The gist of the case is that the assessee availed courier service of transportation of finished goods from and inputs into the factory. In a precedent case, issue in respect of GTA services for such transportation was already held in favour of assessee therefore following the ratio of same, credit in respect of the aforesaid courier service was made available to the assessee as per Rule 2(l) of Cenvat Credit Rules, 2004. The input services provided were covered under the definition of input services as they come under the expression “any service used by the manufacturer directly or indirectly in or in relation to the manufacture of final products and clearance of final products from the place of removal” and hence credit can be availed.
Prepared by:- Praniti Lalwani

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PJ/Case Law/2016-17/3361

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