Whether credit of CHA/GTA services admissible in case of export of goods?

Case:- COMMISSIONER OF CUS. & C.EX., HYDERAABAD-IV VERSUS POKARNA LTD.

Citation:-2013(30) S.T.R. 379 (Tri.-Bang.)

Brief Facts:-In appeal Nos. E/1621 and 1622/2010 filed by Department, two issues arise for consideration viz.

1.    Whether the respondent was entitled to take CENVAT credit on CHA service which was used in connection with import of certain goods during 2008-09
.
2.    Whether the respondent was entitled to take CENVAT credit on ‘Business Auxiliary Services’ received from foreign and domestic commission agents during 2008-09.

There is no representation for the respondent in Appeal NO. E/245/2010 despite notice. However, as the issue involved in the case is similar to one of the issue of involved in the other two appeals, Tribunal was inclined to take up the said Appeal No. E/245/2012 also for disposal. The Department argue that the definition of ‘place of removal’ cannot be applied in the context of determining the respondent’s eligibility for CENVAT credit. Hence the appeal has made.

Appellant’s Contention:-The appellant submitted that the interpretation given to ‘place of removal’ by the learned Commissioner (Appeals) is not correct. The definition of ‘place of removal’ given under Section 4(3) of Central Excise Act is meant only for valuation purpose and the same cannot be applied to issues related to CENVAT credit. In this connection, reliance is placed on Commissioner v. ABB Ltd.: 2011(23) S.T.R. 97 (Kar.). It is argued that, as per the Hon’ble High Court’s decision, the definition of ‘place of removal’ cannot be applied in the context of determination the respondent’s eligibility for CENVAT credit. Therefore, the CHA service availed by M/s. Easwar Rubber Products or the GTA service availed by M/s. Pokarna Ltd. cannot be said to be ‘input services’ used for clearance of final products from the ‘place of removal’. In this connection, it is pointed out that this question stands referred by a learned Single Member to Division Bench in case of Commissioner v. Hindustan Zinc Ltd. – 2012(275) E.L.T. 136 (Tri.-Del.). It is further pointed out that any decision by Division Bench on the referred issue is yet to come. The learned Superintendent (AR) has also submitted that there is no nexus between the input service and the manufacture of the exported goods. For all these reasons, the impugned orders are said to be unsustainable in law.

Respondent’ Contention:-The Respondent submitted that the question whether they were entitled to take CENVAT credit on CHA service is impliedly covered in their favour by the Division Bench’s decision in the case of Kuntal Granites Ltd. v. Commissioner- 2007 (215) E.L.T. 515 (Tri.- Bang.) and therefore the issue can be settle without waiting for any decision on the referred issue.

As regards the CENVAT credit taken on ‘Business Auxiliary Services’, it is submitted by the learned counsel that the services of commission agents were availed for collecting purchase orders for the manufacture and supply of goods and thereon such services would qualify to be ‘input services’ for the respondent. Insofar as ‘Business Auxiliary Services’ received from foreign commission agent is concerned, the service tax was paid by the respondent in reverse charge mechanism and they were entitled to take credit thereof by virtue of Rule 3(1)(ixa) of the CENVAT Credit Rules, 2004.

Reasoning of Judgment:-We have considered the submission from both sides and perused the records, we also heard the learned Additional Commissioner (AR) on the above issue related to 'Business Auxiliary Service'.

(i) Whether the respondents were entitled to claim CENVAT credit on GTA service/CHA service availed for export of excisable goods during the relevant period.

It has been argued on behalf of the appellant that the definition of 'place of removal' is applicable only to valuation of excisable goods for the purpose of levy of duty. In this connection, reliance has been placed on the Hon'ble Karnataka High Court's decision in the case of Commissioner v. ABB Ltd. (supra). It is found that clause (t) of Rule 2 of the CENVAT Credit Rules, 2004 was not taken into account by the Hon'ble Karnataka High Court while holding that the definition of 'place of removal' was applicable only to valuation of excisable goods. As per Rule 2(t), words and expressions used in these rules and not defined but defined in the Excise Act shall have the meanings respectively assigned to them in the said Act. It would follow that the definition of 'place of removal' given under Section 4(3) of the Central Excise Act would be applicable to cases arising under the CENVAT Credit Rules, 2004 also as there is no separate definition of 'place of removal' under these Rules. The expression 'place of removal' was examined by a division bench of this Tribunal in the case of Kuntal Granites (supra). The full text of the Tribunal's order reads as follows:-

Both these appeals raises common question of law and facts pertaining to the same assessee and hence they are taken up together for disposal as per law. By O-1-O No. 1/05, dated 21-4-2005, the Commissioner has rejected the application filed by the appellant seeking revision of Central Excise duty under Rule 21 with regard to the goods dispatched to the lorry which met with an accident resulting in spillage of 51 pieces of granite slabs meant for export leading it its destruction. As a result of this rejection, the revenue has confirmed the demand of duty by Order-in-Appeal No. 5/06, dated 10-1-2006 on the ground that assessee is required to discharge duty on the quantity of polished granite slabs which were destroyed in the accident as their prayer for remission of duty has been rejected by the Commissioner. The appellants contention is that in terms of Rule 21 of C.E. Rules they are entitled to claim remission if the goods were destroyed due to unavoidable accident at any time before removal of the goods. It is the submission of the assessee that the place of removal has been defined under Section 4(3)(c) of the Central Excise Act, 1944 which is as under :-

"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."

In this connection learned Counsel draws our attention to the provisions in Central Sales Tax Act. He refers to Section 5 of the Act which is noted herein below:-

"When is a sale or purchase of goods said to take place in the course of import or export. - (1) A sale or purchase of goods shall be deemed to take place in the course of export of the goods out of the territory of India only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have crossed the Customs frontiers of India."

He points out that in respect of export goods, place of removal will be only when the documents are presented to the Customs Officers for export. The finding given by the authorities that the place of removal is factory is not correct in respect of export goods as the sale comes into effect only when the documents of title to the goods are presented at the Customs office in the form of presentation of shipping bills. He submits that when clearances are made under bond, are deemed to be under overall customs control. This has been so held by the Tribunal in the case of Sangita Printers & Exporters v. CCE, Allaliabad [1994 (73) E.L.T. 182 (T)]. He also submits that the Apex Court in the case of M. Exports Ltd. v. CEGAT [1992 (60) E.L.T. 161 (S.C.)] has explained the expression, for "home consumption" vis-à-vis expression "warehousing". He also refers to the ruling rendered by this Bench in the case of Koelenuni India Pvt. Ltd. v. CC, Bangalore [2005 (192) E.L.T. 866 (T-Bang.)] which has clearly held that when the goods are damaged during transportation from factory to the port of export, and due to reasons beyond the control of appellants then, it has to be held that there is no diversion for home consumption and demands were set aside. He points out to another ruling of the Mumbai Bench in the case Associated Capsules Pvt. Ltd. v. CCE, Mine 12007 (207) E.L.T. 613 (Tribunal) = 2006-TIOL-1497- CESTAT-Mum.] on the same point which is in his favour. He submits that the Revenue's reliance on the Northern Bench reliance in the case of Ginni Filaments Ltd. v. CCE, Lucknow [2005 (188) E.L.T. 45 (Tri.-Del.)] is sub silentio to the provisions of Rule 4(3). However, Section 4(3) (c) of the C.E. Act defines the "place of removal" to be read with Section 5 of the Central Excise Act. Therefore the Single Member Bench ruling in the case of Ginni Filaments has no bearing in the matter.

Learned DR relies on the Single Member Bench ruling rendered in the case of Ginni Filaments Ltd.

We have considered the submissions and agree with learned Counsel on the legal point. The SMIB in the case of Ginni Filaments has not examined the provisions of Section 4(3)(12) of Central Excise Act read with Rule 21 of Central Excise Rules and Section 5 of the Central Excise Act. When the goods are removed from the factory for export purposes and the goods are destroyed due to unavoidable reasons, accident caused to the lorry, then in such a circumstances the goods are not deemed to have been removed from the factory gate in terms of Section 5 of the Central Sales Tax Act as sale has not been completed. Section 4(3)(c) of C.E. Act clearly explains that the place of removal is the premises from where excisable goods are to be sold after their clearance from the factory. In the present case, the goods were exported and when export documents are presented to the Customs office, then that is the place of removal as per Section 5 of C.E. Act. The same finding has been rendered by this bench in the case of Koeleman India Pvt. Ltd. v. CC Bangalore [2005(192) E.L.T. 866 (T-Bang.)]. There is no reason to take a different view from same. The finding recovered by SMB in Ginni Filaments Ltd., is sub silent without due consideration to the provisions of law. Hence both the orders are set aside by allowing the appeal with consequential relief if any.”

The learned Superintendent (AR) made an attempt to distinguish the above case by submitting that the above decision was rendered in respect of remission of duty and not in respect of CENVAT credit. This distinction is inconsequential inasmuch as there is only one definition of ‘place of removal’ of excisable goods was examined be the division bench in the above case, with reference to the definition of ‘place of removal’ under Section 4(3) of the Central Excise Act as also to Section 5 of the Central Sales Tax Act. On a harmonious construction of the provisions, it was held that, in respect of the excisable goods cleared from factory for export and subsequently shipped from port, the port of export could be held that the respondents were entitled to treat CHA service/GTA service as ‘input service’ under Rule 2(1) of the CENVAT Credit Rules, 2004 as these services were used for clearance of excisable goods from the ‘place of removal’.

It was submitted by the learned Superintendent (AR) that the decision in Kuntal Granites case was appealed against by the department. However, it was not claimed that the Tribunal’s decision was stayed by the appellate court. The outcome of department’s appeal in Kuntal Granites case is not available. Hence the decision in Kuntal Granites case will be a valid precedent for the present cases.

(ii)   Whether the respondent was entitled to take CENVAT credit on ‘Business Auxiliary Services’ received from foreign and domestic commission agents during the relevant period.

Insofar as the CENVAT credit claimed by one of the respondents on the services of domestic and foreign commission agents is concerned, there is no valid ground for the department’s appeals. The appellant’s plea that there was no nexus between the ‘Business Auxiliary Services’ and manufacture of the goods does not advance their case inasmuch as a nexus between ‘Business Auxiliary Services’ and clearance of goods from ‘place of removal’ has been established by the respondent. This nexus is enough for reckoning the service as ‘input service’ under Rule 2(l) of the CENVAT Credit Rules, 2004. It is not the case of the appellant that the respondent was not entitled to claim CENVAT credit of the service tax paid by themselves under Section 66A of the Finance Act, 1994. Therefore, in the result, the second issue also must be held in favour of the respondent.

Decision:-Appeals are dismissed.

Comment:The crux of this case is that as the place of removal in case of export of goods is the port of export, and so the CHA services and the GTA services availed till the port are admissible as input service credit in view of decision given in Kuntal Granites case. Similarly, credit of commission paid under BAS is also admissible as it related to procuring purchase orders and was in relation to the production of final products.

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