Whether credit of service tax paid on outward freight admissible in case of MRP based assessment ?

Case:-ULTRATECH CEMENT VERSUS COMMISSIONER OF CENTRAL EXCISE AND CUSTOMS, RAIPUR

Citation:-2014-TIOL-1437-HC-CHHATTISGARH-CX

Brief Facts:-The assessee manufactures cement and supplies to different consumers. While paying excise duty on the cement, it had also taken benefit of Cenvat credit for the service tax paid to the Goods Transport Agency (GTA) for supplying goods upto the consumer's premises.
The Central Excise Commissioner, Raipur (the Commissioner-Raipur) issued a show cause notice dated 20.05.2009 asking the assessee as to why the Cenvat credit taken for the period April, 2008 to March, 2009 be not reversed and penalty alongwith interest be not imposed. It was further provided in the notice to show cause as to why the period be not extended to January 2005 under the proviso to section 11A of the Central Excise Act, 1944 (the Act). This show cause notice has ultimately given rise to Tax Case No. 09 of 2014.
The Commissioner-Raipur also issued another notice dated 03.05.2010 asking the assessee to show cause why the similarly availed Cenvat credit for the period April 2009 to March, 2010 be not reversed. This show cause notice has ultimately given rise to Tax Case No. 08 of 2014.
The aforesaid two show cause notices were decided on 11.11.2009 and 03.10.2011 by the Commissioner-Raipur confirming the notices on the ground that the service tax paid on the transport service from the gate of the factory upto the premises of the consumer was not an input service.
Similarly, the Central Excise Commissioner, Chandigarh (the Commissioner-Chandigarh) also issued a show cause notice to the assessee for the factory situated at Jalandhar, Punjab to show cause as to why the similarly availed Cenvat credit for the period July, 2009 to 17th May, 2010 be not reversed. The Commissioner-Chandigarh upheld the notice by his order dated 13.07.2011.
The assessee filed three appeals before the Tribunal. These three appeals were consolidated and were partly allowed on 18.11.2013. The Tribunal held that:
a)    There was some confusion in the law and as such, the extended period of limitation was not available so far as the notice dated 20.05.2009 is concerned;
b)    In case the excise duty is charged on the specified rate, then the place of removal is the factory gate;
c)    In the present case as on cement, the excise duty is charged on the specified rate, the place of removal is the factory gate of the assessee and not the premises of the consumer.
In view of the second and third finding recorded by the Tribunal, it remanded back the matter to the Commissioner-Raipur for re-quantification.
Aggrieved by the aforesaid order, the Assessee has filed two tax cases before this Court which arise from the notices issued by the Commissioner, Raipur. We are informed that the assessee has also filed one tax case (Central Excise Appeal - 15 of 2014) before the Punjab and Haryana High Court in respect of the order of the Tribunal arising in the appeal from Punjab.

Appellant Contentions:-The two tax cases filed by the Assessee before this court were admitted on 10.04.2014 on the following two questions of law:
(I) Whether in the case, where the rate of duty is specific, the place of removal would be factory gate or the customer premises.
(ii) Whether the authorities below have confirmed the demand after disallowing the credit on an issue, which was not proposed in the show cause notice.

Respondent Contentions:-The Department has also filed Tax Case- 23 of 2014 against the first finding recorded by the Tribunal. This tax case was admitted on 19.06.2014 on the following question of law:
'Whether in the facts and circumstances of the case, the extended period of limitation was invokable under the proviso to section 11A(1) of the Central Excise Act, 1944 or not.'

Reasoning of Judgment:-We have heard counsel for the parties. We first decide Tax Case- 23 of 2014 filed by the Department.
Tax Case -23 of 2014
The Tribunal, in its order relying upon different decisions held that there was some confusion in the law and as such recorded a finding that it cannot be said that there was a suppression on the part of the assessee. There is no illegality in this finding.
In view of above, there is no merit in the tax case filed by the Department and it is dismissed. The question is answered in negative and in favour of the assessee.
Tax Case- 08 and 09 of 2014
The Act provides levy of excise duty by different methods. One method is by specified rate on the weight of the goods. This is done under section 3 of the Act entitled 'Duties specified in the Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 to be levied'.
Another method of charging excise duty is on the value of the goods and for this purpose, the valuation is calculated under section 4 of the Act entitled 'Valuation of excisable goods for purpose of charging of duty of excise'.
There are other ways as well namely capacity based collection of duty etc for charging duty, but that is not relevant for deciding these tax cases.
Section 37 of the Act is titled as 'Power of Central Government to make rules'. It empowers the central government to make rules.
Sub-section (1) of section 37 {37(1)} of the Act empowers the central government to make rules to carry into effect the purposes of the Act. Sub-section (2) of section 37 {37(2)} of the Act empowers the central government to make rules in respect of particular subject. It is without prejudice to the powers conferred under section 37(1) of the Act.
Clause (xiva) of section 37(2) of the Act empowers the central government to frame the rules for giving credit on the input goods for manufacture of excisable goods.
Clause (xivaa) of section 37(2) of the Act empowers the central government to frame the rules for taking credit of service tax leviable under Chapter V of the Finance Act, 1994 paid or payable on taxable services used in or in relation to the manufacture of excisable goods.
In pursuance of the aforesaid powers, the central government has framed Cenvat Credit Rules, 2004 (the Rules). The Rules provided for a procedure for taking credit of the excise duty paid on input goods as well as on input service.
Rule 2 of the Rules is definition clause. Sub-rule (I) of rule 2 {2(l)} of the Rules defines input service. It is as follows:
(I) "input service" means any service,-
(i) used by a provider of output service for providing an output service; or
(ii) used by a manufacturer, whether directly or indirectly, in or in relation to manufacture of final product and clearance of final product upto the place of removal,
And includes services used in relation to modernization, renovation or repair 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, accounting, auditing, financing, recruitment and quality control; coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal.
Rule 2(l) of the Rules provides ‘input services’ to mean, apart from other things, the service used by the manufacturer for clearance of the final product upto the place of removal. It further clarifies that input service includes an outward transportation upto the place of removal.
In this case, the Tribunal has held that in case where the excise duty is charged on the specified rate, then the place of removal is the gate of the factory. It has been held as presumption of law.
There is no provision in the Act or in the Rules or in any circular issued by the Board of Central Excise and Customs, New Delhi (the Board) to hold that in case the duty is charged on the specified rate, then the place of removal will be factory gate.
If the legislature or the central government, or the Board wanted the 'place of removal' to be the factory gate in case of payment of excise duty on specified rate then they could so define it in the Act or in the Rules or in any of the circulars. They having failed to do so have clarified their intention that in such a case factory gate cannot be place of removal as a presumption of law.
In view of above, the presumption by the Tribunal that the place of removal is factory gate of the manufacturer in case the excise duty is charged on the specified rate, is incorrect.
A division bench of this court in which one of the present members was also a member, namely Tax Case- 34 of 2011 (Lafarge India Limited v. Commissioner, Central Excise, Raipur) (the Lafarge case) has held as follows:
'Section 4 of the Act is titled as 'Valuation of excisable goods For purpose of charging of duty of excise'. Though, section 4(3)(c) defines the word 'place of removal' for purpose of that section but in absence of its meaning for other sections, it would be applicable unless it is otherwise provided.
In section 4(3)(c), 'Place of removal (see Appendix-Ill) means— ... a depot, premises, ... or any other place ... from where the excisable goods are to be sold after their clearance from the factory.'
If under the terms of the contract, the sale takes place at the destination then that place may be the place of removal and service tax paid on the GTA-Service for transporting the goods, upto destination might be available for taking cenvat credit.'
In our opinion, it is to be decided on the facts and circumstances of each case as to what is the place of removal.
In view of above, the two tax cases namely Tax Case- 08 and 09 of 2014 filed by the ssessee are partly allowed. The matter is sent back to the Commissioner-Raipur to re-determine the question as to what is the place of removal: whether it is factory gate of the assessee; or it is the premises of the consumer. In case it is held that the place of removal is the premises of the consumer, then the assessee will be entitled to take the Cenvat credit on such service as it will be deemed to be input service.
It is hereby clarified that the assessee will be entitled to adduce further evidence before the Commissioner-Raipur, if it so desires.
Our conclusions are as follows:
The two tax cases namely Tax Case- 08 and 09 of 2014 filed by the Assessee are partly allowed. The Commissioner-Raipur may again decide the place of removal and then decide the case afresh. This may be done in the light of the observations made in this judgement;
The tax case namely Tax Case- 23 of 2014 filed by the Department for invoking larger period of limitation is dismissed and the finding of the Tribunal in that regard is upheld;
In view of our conclusions, Tax Cases- 08 and 09 of 2014 are partly allowed and Tax Case - 23 of 2014 is dismissed.

Decision:-Assessee’s appeal allowed by way of remand/Revenue appeal dismissed.

Comment:-The analogy drawn from this case is that when there is no provision in the statue that place of removal in case of MRP based assessment is only factory gate, the same cannot be confirmed and credit cannot be denied of the service tax credit taken on outward freight. As the place of removal is not defined anywhere except in section 4 of the Central Excise Act, 1994, the meaning as defined would be considered for availment of cenvat credit under the Cenvat Credit Rules, 2004. Accordingly, if the conditions of FOR sale has been satisfied, the credit of outward freight would be admissible even if the assessment is being made under MRP basis. Moreover, with the Budget 2014, the definition of place of removal has been inserted in the Cenvat Credit Rules, 2004 itself and so there is no ambiguity as regards availment of credit of service tax on outward freight as far as the conditions of FOR sale has been satisfied.

Prepared by: Hushen Ganodwala.

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PJ/Case Law/2014-15/2350

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