Whether credit can avail on outward freight and capital goods falling under chapter heading 94?

PJ/CASE LAW/2015-16/2795

Case:-ORCHEV PHARMA P. LTD. VersusCOMMISSIONER OF CENTRAL EXCISE, RAJKOT

Citation:-2013 (32) S.T.R. 571 (Tri. - Ahmd.)

Brief facts:- This appeal is directed against the Order-in-Appeal No. 32/2011/COMMR(A)/CMC/RAJ, dated 23-2-2011.
The brief facts of this case are that on scrutiny of records of the appellant by the officers of the Central Excise Audit, it was noticed that the appellant had wrongly taken the Cenvat Credit on the “tube lights” as capital goods falling under CETSH No. 9405 10 90 of the Central Excise Tariff Act, 1985 (hereinafter referred to as the Tariff Act) on strength of invoices issued by M/s. FCG Hi-Tech Pvt. Ltd., Daman as detailed below :

Sr. No.	Invoice No. & Date	Cenvat Credit (50%) taken during 2008-09 Rs.	Remaining 50% credit taken during 2009-10 on 2-5-2009 Rs.	Total Cenvat Credit taken Rs.
1.	41/28-4-2008	12620.00	12619.00	25239.00
2.	60/15-5-2008	6870.00	6873.00	13743.00
3.	110/22-6-2008	6205.00	6206.00	12411.00
	TOTAL	25695.00	25698.00	51393.00

The “tube light” falls under Chapter 94 of the Tariff Act and as per definition of the capital goods falling under Chapters 82, 84 and 90 are to be covered only.
During the scrutiny of records, the audit officers also observed that the appellants have availed credit of the Service Tax paid on the outward freight i.e. Service Tax paid on the “Goods Transport Agency” for transportation of the finished goods from the place of removal i.e. factory gate to the buyer’s premises. The appellant sold the goods at factory gate and therefore, the outward freight is not an input service for them. As per term No. 2 of the terms and conditions mentioned on the sales invoices, the responsibility of the appellant ceases as soon as the goods leaves their premises. Therefore, as per Rule 2(l)(ii) of Cenvat Credit Rules, 2004, the Service Tax paid on outward freight is not admissible to the appellant and required to be reversed with interest, as detailed below :

Period	Service Tax (Rs.)	Education Cess (Rs.)	S. & H. Edu. Cess (Rs.)	Total Rs.
1-10-2005 to 31-3-2006	1883	37	0	1920
1-4-2006 to 31-3-2007	3419	68	0	3487
1-4-2007 to 31-3-2008	44322	86	36	4444
4-4-2008 to 31-10-2008	1098	22	11	1131
Total	10722	213	47	10982

The above observations culminated into issuance of Show Cause Notice No. IV/3-24/D/2008-09, dated 17-11-2009 which was adjudicated by the lower authority vide his impugned Order No. 10/D/2010-11. The lower authority confirmed the Cenvat/Service Credit of Rs. 51,736/- under Rule 44 of the Cenvat Credit Rules, 2004 read with proviso to Section 11A(1) of the Central Excise Act, 1944 (hereinafter referred to as the Act) after allowing the Cenvat Credit of Rs. 10,639/- on capital goods. The lower authority proposed to recover interest under Rule 14 of the Rules read with Section 11AB of the Act. The lower authority imposed penalty of Rs. 51,736/- under Rule 15 of the Cenvat Credit Rules, 2004 read with Section 11AC of the Act.

Appellant’s contention:- The ld. counsel appearing on behalf of the appellant would submit that the First Appellate Authority has erred in rejecting the Cenvat credit of the capital goods availed by them inasmuch as the said light fittings are essentially required in the factory premises as inputs used are highly inflammable. He would submit that the issue stands settled by the Hon’ble High Court of Karnataka in the case of CCE, Bangalore v. Madras Cements Ltd. [2010 (259)E.L.T.213 (Kar.)]. He would also submit that the second issue in the case is Service Tax paid by the appellant for outward transportation. It is his submission that the said credit is eligible to them as has been held by the Tribunal in the case of Palco Metals Ltd. v. CCE, Ahmedabad [2012 (280)E.L.T.299 (Tri. - Ahmd.) = 2012 (26)S.T.R.429 (Tribunal)]. It is his further submission that the Cenvat credit availed on the light fittings be allowed to them and Cenvat credit availed on outward transportation be also allowed to them.

Respondent’s contention:- The ld. Departmental Representative, on the other hand, would submit that light fittings sought to be allowed were classified by the seller of the goods under Chapter No. 94; is not covered for the eligibility to avail Cenvat credit as capital goods under Cenvat Credit Rules, 2004. It is his submission that classification of the products cannot be changed in the hands of the assessee and to avail credit. As regards Cenvat credit on Service Tax paid on goods for transportation, it is his submission that the issue is not free from doubt and the period shown in the appeal memorandum is 1-10-2005 to 31-10-2008 and the definition of credit of input service has undergone a change from 1-4-2008.

Reasoning of judgement:- They find that the facts regarding tube light fittings classified under Chapter 94 by seller of the goods is not disputed by both sides. On perusal of invoices, which were produced, they find that the seller has specifically classified these items under Chapter 94 showing as “Tube Light Fittings”. Nothing is on record to indicate that the appellant received fittings and not Tube Light. They find that the appellant herein cannot avail Cenvat credit of item under the head of capital goods, as goods procured are classified by seller under Chapter 94.
The ld. counsel submits that the fittings needs to be considered as accessories and is covered by the clarification in the decision of Hon’ble High Court of Karnataka. The facts of the case in hand are totally different inasmuch as that Tube Light Fittings has been supplied by the supplier classifying the same under Chapter 94, which are ineligible for availment of Cenvat credit as capital goods. They do not find any reason to interfere in the impugned order, and to the extent it is challenged and appeal filed by the appellant needs to be rejected.
As regards the Cenvat credit of Service Tax paid on outward transportation they find that this Bench of the Tribunal in the case of Palco Metals Ltd. had considered the issue. The Bench had held as under :
“4. I have considered the submissions made by Learned Chartered Accountant and I find myself in agreement with his submissions that the purchase orders is on FOR basis and it is the responsibility of the seller to deliver the goods at the buyers premises. Therefore, the conclusion reached by the learned lower authorities that the sale is at the factory gate, cannot be accepted. Further, in the Board’s Circular issued in this regard vide No. 97/8/2007-S.T., dated 23-8-2007 supports the contention of the appellants that the buyers premises has to be considered as a place of removal. The relevant portion of the Circular is extracted and reproduced below :
“....However, there may be situations 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 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 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 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.”
On perusal of the above said ratio of the Tribunal, they find that the issue of availment of Cenvat credit of outward transportation, Service Tax paid up to 31-3-2008 is correct, as the input service definition and the decision of the Tribunal as well as the Hon’ble High Court of Karnataka in the case of Madras Cements Ltd. would cover the issue in favour of the assessee. To that extent, appeal of the assessee need to be allowed.
Accordingly, the appeal filed by the appellant is disposed of in the above terms.

Decision:-Appeal partly allowed.

Comment:- The analogy of the case is that Tube light fittings are specifically classified under Chapter 94 of Central Excise Tariff. As per definition of the capital goods, goods falling under Chapters 82, 84, 85 and 90 only are eligible as capital goods. Goods classified under Chapter 94 are ineligible for availment of Cenvat credit.
Regarding the Cenvat availment on outward freight, reliance was placed in the case of Madras Cements Ltd. wherein it was held thatCenvat credit on outward freight can be availed if agreement is on FOR basis. Hence, appellant can avail cenvat credit of outward transportation.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2795

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