Cenvat Credit on GTA service on Outwards Transportation of goods beyond place of removal

Case: COMMISSIONER OF C.EX & CUSTOMS versus PARTH POLY WOOVEN PVT.LTD

Citation: 2012 (25) S.T.R 4 (Guj.)

Issue:- Cenvat credit on GTA service on outward transportation of goods beyond place of removal – admissibility of in view of definition contained in Rule 2(1) of CCR, 2004 defining term 'input service’?

Brief Factc:- The Respondent-assessee, in case on hand, is engaged in manufacture of printed film. During the course of audit of the records by the Excise Department, an objection was raised that the respondent had taken Cenvat credit of Rs. 1,46,417/- towards service tax paid on Goods Transport Agency (GTA for short) on outward transportation of the goods. Believing that the same cannot be termed as input service and that, therefore, Cenvat credit was not admissible, issue was taken up with the assessee. The assessee initially paid up the amount in question with interest. However, later on filed a refund claim on the ground that such tax paid on GTA outward transportation was eligible for Cenvat Credit in terms of Central Board Circular No, 97/8/2007, dated 23-8-2007. The Adjudicating Authority by order dated 17-10-2008 rejected such refund claim on the ground that the case of the Assessee did not fall within the Board's circular dated 23-8-2007 and that the assessee failed to prove the place of removal beyond factory gate. The Assessee carried the issue in appeal. Commissioner of Appeals by order dated 24-2-2009 upheld the order of the Adjudicating Authority and rejected the appeal of the respondent assessee. In the appellate order, the Commissioner observed that when the assessee is claiming that the sale was on FOR basis, the assessee has to establish the place where the sale and transfer of the property had taken place. The assessee had not produced any documentary evidence before the authorities in terms of the Board's circular from which it can be established that the place of removal was beyond the factory gate and sale was on FOR basis. He further observed that the documents produced do not prove that the ownership of the goods remained with the assessee till the delivery at the door-step of the purchaser. Not satisfied with the order, the assessee carried the issue further in appeal before the Tribunal. The Tribunal, as already noted, by the impugned order allowed the appeal, reversed the orders of the Revenue Authorities. There-upon the Department has filed the Tax Appeal before us. Broadly stated, case of the assessee is that service tax paid on GTA for outward transportation of the goods even beyond the place of removal is eligible for Cenvat Credit in view of the definition contained in Rule 2(1) of the Cenvat Credit Rules defining the term "input service". On the other hand, stand of the department is that for outward transportation of the goods beyond the place of removal, no credit can be claimed on the service tax paid. It is further the case of the Revenue that in any case, without establishing that the sale was on FOR basis, that the goods were delivered by the assessee at his cost at the door-step of the purchaser, the assessee cannot take the benefit of Board's circular dated 23-8-2007.

Appellant’s Contention:- The Appellant contended that in view of the definition of 'input service' under Rule 2(1) of the Cenvat Credit Rules, no credit can be availed for service tax paid on outward transportation beyond the place of removal. He drew our attention to the statutory provisions applicable and relied on the following decisions: (i) In the case of Maruti Suzuki Ltd. v. Commissioner of Central Excise, 2009 (240) E.L.T. 641 (S.C.) wherein the Apex Court was examining the assessee's claim of credit on the eligible inputs utilized in generation of electricity, part of which was cleared on the contractual for rates in favour of joint ventures, vendors, etc. which was sold at a be price. The Apex Court held that the assessee is entitled to credit on the eligible inputs in utilization of generation of electricity to the extent to which they were using the same within the factory for captive consumption, but not to the extent of excess electricity cleared and sold at a price. The Apex Court in this context observed that the expression "used in or in relation to manufacture" have many shades and would cover various situations based on the purpose for the which the input is used. However, the specified input would eligible for credit only when used in or in relation to the manufacture of final product. (ii) In the case of Escorts JCB Ltd. v. Commissioner of Central Excise, 2002 (146) E.L.T. 31 (S.C.), wherein the Central Excise Officers found that the amount of transit insurance charges was not added to the value DR of the goods sold by the assessee and sought to add the same. The issue went upto the Apex Court. The Apex Court, finding that It is not necessary that insurance of the goods and the ownership of the property insured must all always go together. It may be depending upon various facts and circumstances of a particular transaction and terms and conditions of sale. A reference has also been made to Colnvauz' s Law of Insurance, Sixth Edition by Robert Merkin to indicate that there may he be insurance to cover the interest of others that is to say not the person insuring the interest must be the owner of the property." (iii) In the case of Prabhat Zarda Factory Ltd. v. Commissioner of Central Excise, 2002 (146) E.L.T. 497 (S.C.), the Apex Court followed the earlier judgment in the case of Escorts JCB Ltd. (supra). a r (iv) In the case of Commissioner of Central Excise v. Accurate Meters Ltd., 2009 (235) E.L.T. 581 (S.C.), the Apex Court was examining the question whether the freight and insurance charges constitute the value of goods for the purpose of computation of excise duty. In this case the Apex Court held that : "In that view of the matter They have no doubt in there mind that the authority in appeal as also the Tribunal were correct in their view that the amount claimed by way of transportation charges and insurance cannot be considered for determining the value of the electric meters supplied."

Respondent’s Contention:- The Respondent submitted that the definition of the term 'input service' is sufficiently wide and Legislature has used the expression 'means and includes'. Since the outward service of transportation is covered in the main body of the definition "means", later portion of the definition which is inclusive in nature cannot be utilized to exclude such service from the term "input service". He contended that in the later portion of the definition providing for transportation upto the place of removal has a bearing when the goods are being transported from the factory gate to some other place, such as warehouse or depot from where the same would be ultimately removed. The learned Counsel relied on a decision of the Punjab & Haryana High Court in the case of Ambuja Cements Ltd. v. Union of India, 2009 (14) S.T.R. 3 (P & H) = 2009 (236) E.L.T. 431 (P & H). This, however, was a case where the High Court considered the effect of the Board's Circular dated 23-8-2007 and held that the Board's circulars are binding on the Revenue. It was in this background, the High Court observed in para 11 that the only question is whether the appellant fulfils the requirements of circular. They further relied on a decision of the Apex Court in the case of Contship Container Lines Ltd. v. D.K. Lall and Others, (2010) 4 SCC 256 to highlight as to when it can be stated that title of the goods passed on from the seller to the buyer.

Assessee contended that the case of the assessee falls with the main body of the definition of input service. He submitted that the term input service is defined to include large number of services and no restrictive meaning to the definition can be given. It was further submitted that the use of the word activities in the phrase activities relating to business further signifies the wide import of the phrase "activities relating to business. The Rule making authority has not employed any qualifying words before the word activities like main activities or essential activities etc. Therefore, it must follow that all and any activity relating to business falls within the definition of input service provided there is a relation between the manufacturer and the activity. Therefore, the phrase 'activities relating to business' are words of wide import."

Reasoning of Judgment:- The High Court of Gujarat are informed that the said decision was carried in appeal by the Revenue. The Karnataka High Court, however, has confirmed the view of the Tribunal. Copy of the judgment, however, is not yet available and therefore not placed before us. If they peruse the definition of the term 'input service' closely, They find that the same is expressed in the form of 'means and includes'. Legislature often uses expression, means, includes and sometimes means and includes; each having different connotation, different purpose and different meaning to be conveyed. It is by now well settled that when a word is defined to mean such and such, the definition is, prima facie, restrictive, whereas where the word is defined to include something, the definition is prima facie expansive. On the other hand, when the Legislature uses the expression 'means and includes', the definition is meant to be exhaustive. Such principles, however, are subject to exceptions.

In the case of V.F. & G. Insurance Co. v. M/s. Fraser & Ross, AIR 1960 SC 971, the Apex Court observed that when expression "means" is used, generally the definition is exhaustive. In the case of State of Bombay v. Hospital Mazdoor Sabha, AIR 1960 SC 610, it was observed that "it is obvious that the words used in art inclusive definition denote extension and cannot be treated as restricted in any sense" "Where we are dealing with an inclusive definition it would be inappropriate to put a restrictive interpretation upon terms of wider denotation". In the case of Ramanlal Bhailal Patel v. State of Gujarat, AIR 2008 SC 1246 the Apex Court found that 'person' is defined in an inclusive definition. It was observed that in such a case, the use of word 'includes' indicates an intention to enlarge the meaning of the word used in the Statute. In the case of Bharat Cooperative Bank (Mumbai) Ltd. v. Coop. Bank Employees Union, AIR 2007 SC 2320, the Apex Court observed as follows: "On the other hand, when the word "includes" is used in the definition, the legislature does not intend to restrict the definition; makes the definition enumerative but not exhaustive. That is to say, the term defined will retain its ordinary meaning but its scope would be extended to bring within it matters, which in its ordinary meaning may or may not comprise. Therefore, the use of the word "means" followed by the word "includes" in Section 2(bb) of the ID Act is clearly indicative of the legislative intent to make the definition exhaustive and would cover only those banking companies which fall within the purview of the definition and no other."

In the case of P. Kasilingam v. P.S.G. College of Technology, AIR 1995 SC 1395, wherein the Apex Court brought out the difference in the expression 'means and includes' in the definition clause observing that: "It has been urged that in Rule 2(b) the expression "means and includes" has been used which indicates that the definition is inclusive in nature and also covers categories which are not expressly mentioned therein. We are unable to agree. A particular expression is often defined by the Legislature by using the word 'means' or the word 'includes'. Sometimes the words 'means and includes' are used.

The use of the word 'means' indicates that "definition is a hard and fast definition, and no other meaning can be assigned to the expression than is put down in definition." They then contended that the definition of 'owner' repels the interpretation submitted by the petitioners that the definition means not only the owner who is the permit holder but also a booking agency who may be in charge of the vehicle without being a permit holder. The entire accent in the definition of owner is on the holder of a permit in respect of the public service motor vehicle. It is the permit which entitles the holder to the vehicle. It is because the vehicle is being plied that the passengers and consignors of goods carried by that vehicle become liable to pay not only fare and freight to the owner but also tax thereon to the owner. The words "or any person for the time being in charge of such vehicle or responsible for the management of the place of business of such owner" indicate that the permit holder will include any person who is in charge of such vehicle of the permit holder or any person who is responsible for the management of the place of business of such owner. The owner cannot escape the liability by stating that any person is for the time being in charge of such vehicles and, therefore, such person is the owner and not the permit holder. 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 product 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 upto 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 manufacturer. 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. it is held in several decisions that 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 of definition provided in the main body of the definition. To our mind this was also not the intention of the Legislature in the present case. There, of course, are certain areas which still remain to be cleared. It was vehemently contended before us by the counsel for the Revenue that later portion of the definition which provides for the inclusion clause limits the outward transportation service up to the place of removal. That being so, according to them, the outward transport service utilized by the manufacturer beyond the place of removal would not qualify as an input service within the definition of Rule 2(1).

The High Court held that it may only notice two things in this regard. Firstly, in our view, when we find that outward transport service is covered by the main body of the definition which provides for means part, as specifically including any service directly or indirectly in or in relation to manufacture of final product or clearance of final product from the place of removal, no interpretation of the later part of the definition would permit us to exclude such a service form the sweep of the definition. Secondly, we notice that the definition of the term 'input service' came to be amended with effect from 1-4-08 and instead of words "clearance of final products from the place of removal", the words "clearance of final products upto the place of removal" came to be substituted. In so far as the cases on hand are concerned, the statutory provisions cover the service used by the manufacturer in relation to the manufacture of the final products or even the clearance of final products from the place of removal. The High Court of Gujarat must, however, for our curiosity reconcile the expression "from the place of removal" occurring in the earlier part of the definition with words 'upto the place of removal" used in inclusive part of the definition. Counsel for the assessees submitted that when a manufacturer transports his finished products from the factory without clearance to any other place, such as godown, warehouse etc. from where it would be ultimately removed, such service is covered in the expression 'outward transportation up to the place of removal" since such place other than factory gate would be the place of removal. We do appreciate that this could be one of the areas of the application of the expression 'outward transportation upto the place of removal The High Court of Gujarat are unable to see whether this could be the sole reason for using such expression by the Legislature. They are of the opinion that the outward transport service used by the manufacturers for transportation of finished goods from the place of removal upto the premises of the purchaser is covered within the definition of "input service" provided in Rule 2(1) of the Cenvat Credit Rules, 2004. The High Court of Gujarat answered the question accordingly in favour of assessee and against the revenue & all the tax appeal was dismissed by them.

Decision:- Appeal Dismissed.

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PJ/Case Laws/2011-12/1490

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