Pradeep Jain - Chartered Accountant

PJ/Case Laws/09-10/08

CASE LAWS

Central Excise Section

Case: - Andhra Pradesh Paper Mills Ltd. v/s C.C.E & C., Visakhapatnam

Citation: - 2009 (240) E.L.T. 555 (Tri. – Bang.)

Issue: - Whether assessee is eligible to avail Cenvat credit on the various goods utilized in construction of civil structures in new plant for supporting the boiler and other machinery which are in turn used for manufacture of finished goods?

Brief Facts: - Appellants are manufacturers of paper and paper board. They started expansion and development of new pulp manufacturing plant. For this, they imported some capital goods and also procured indigenous goods. Appellant’s availed credit on the duty paid on the said goods. Revenue noticed that the said goods were utilized in the expansion of the plant for the construction of civil structures and to support the boiler and other machinery for manufacture of pulp on which credit was not allowable. Show cause notice was issued to appellant for payment of Cenvat credit wrongly availed along with interest and penalty.

Appellant’s Contention: - Appellant contended that the items in dispute were used by them for the purpose of supporting structures of the plant which manufactures their finished goods. Appellant also produced photographs of their mill development plan to prove that the items on which credit is sought to be denied is used by them for the said plant. They have relied upon the decisions given in Divi’s Laboratories Ltd v/s CCE, Vishakhapatnam [2006 (196) ELT 285, Jindal Vijayanagar Steels Ltd v/s CCE, Belguam [2005 (191) ELT 459], Bhushan Steel & Strips Ltd [2008 (223) ELT 517 (Tri-Bom) and Aditya Cement v/s Union of India [2008 (221) ELT 362 (Raj.)].

Respondent’s Contention: - Respondent contended that the appellant has not been able to prove the correlation between inputs and the photograph. This clearly indicates that these are plant for the civil or mechanical construction and fabrication activity took place in the plan. They also rely upon the decision in the case of Navabharat Ferro Alloys Ltd. v/s CCE, Hyderabad [2004 (174) E.L.T. 375] and Kisan Cooperative Sugar Factory Ltd. v/s CCE, Meerut [2007 (212) E.L.T. 541]. They further stated that these goods are used in the construction of structures for supporting the machinery and to provide access to various machines and cannot be considered as parts and accessories of any machine or machinery, which is used in producing or processing of any goods.

Reasoning of Judgment: - The Tribunal noted that in the show cause notice itself it has been contended that “Basically all these goods are used in the construction of structures for supporting the machinery and to provide access to various machines and cannot be considered as parts and accessories of any machinery or machinery which is used in producing or processing any goods.” This fact has also not been disputed by the Adjudicating Authority. Then it does not make any sense that the Adjudicating Authority held that there is no evidence to correlate that the said inputs were used as components, spares and accessories for any equipment or any machinery. The Tribunal relied upon the judgments given in Divi’s Laboratories Ltd v/s CCE, Vishakhapatnam, Jindal Vijayanagar Steels Ltd v/s CCE, Belguam, Bhushan Steel & Strips Ltd and Aditya Cement v/s Union of India. In these judgments it was basically held that the definition of capital goods was very wide. The capital goods can be machines, machinery, plant equipments, apparatus, tools or appliances. Any of these goods if used for producing or processing of any goods or for bringing about any change in any substance for the manufacture of final product would be “Capital goods”, and therefore, qualify for availing Modvat credit. That the goods enumerated on clause (c) need not be used for producing final product or used in the progress of any goods for the manufacture of final product or used for bringing about any changed in any substance for the manufacture of final product. The only requirement is that the same should be used in the factory of the manufacturer.

The Tribunal held that the issue has been clearly decided in the favour of appellant in the said case laws cited and considered. Impugned order set aside.

Decision: - Appeal allowed with consequential relief.

Comment: - The Government has tried to deny the credit on such material by amending the definition of “Input” from this Budget. But if the material falls under the definition of “Capital goods” then the credit will be allowed. We have also written an article on the same subject and it can be viewed in our Article section.

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Case: - Shree Valsad S.K.Udyog Mandali Ltd. v/s C.C.E. & C, Daman

Citation: - 2008 (228) E.L.T. 561 (Tri. – Ahmd.)

Issue: - Whether Show cause notice is essential for reversal of Cenvat credit, is this also applies to case of re-credit of reversed credit.

Brief Facts: - Appellants are engaged in the manufacture of sugar. During the year 2000 appellants availed capital goods credit on various items and when the invoices covering the capital goods were submitted to the Range Superintendent, he refused the credit in respect of items like chains, boiler tubes etc. on the ground that these items fall under Chapter 73 and the credit is not admissible. The appellants reversed the credit taken on 30th Sept. 2000. They received legal advice that the credit cannot be disallowed without issue of show cause notice and there is no time limit for taking credit on capital goods. On its basis, the appellants of their own re-credited the reversed amount and informed the Superintendent on 27th Sept. 2002. The Range Superintendent in his letter dated 10th October, 2002 informed the appellants that he had convinced them that the Cenvat credit is not permissible before reversal and they have willingly reversed the credit. Therefore, after 2 years, they couldn’t take credit again. Appellants reversed the credit again on 11th October 2002. Appellants approached the Commissioner (A). The Commissioner (Appeals) rejected the appeal mainly on the ground that the initial reversal on 30.09.00 was voluntary and show cause notice was required only if the appellant had not reversed the credit. Against this order, appellants have come before the Tribunal in this appeal.

Appellant’s Contention: - Appellants stated that the show cause notice should have been issued before requiring reversal of the credit taken. Only because of the threat and penal action they had re-credited the amount in 2002.

Appellants relied upon the decision in the case of C.C.E., Calcutta-II v. Shree Laxmi Iron & Steel Works Pvt. Ltd. [1994 (69) E.L.T. 530] wherein it was held by the Tribunal that for disallowance or reversal, show cause notice is required. He also relies upon Board’s Circular No. 1999/33/96-CX, dated 23-4-96 in support of the claim that there is no time limit for availment of credit on capital goods. The same view was taken by the Tribunal in Vikrant Tyres Ltd. [1999 (112) E.L.T. 728].

Respondent’s Contention: - The Respondent contended that the reversal on 30-9-2000 was voluntary and show cause notice was required only if the appellant had not reversed the credit, there was no need to issue show cause notice and the case law cited by the assessee are not relevant, since those are the cases where the assessee had not paid the amount voluntarily without issue of show cause notice.

Reasoning of Judgment: - The Tribunal considered the statement of the Commissioner (A) that “in view of voluntary reversal, there was no need to issue show cause notice and the case law cited by appellant are not relevant since those are the cases where the assessee had not paid the amount voluntarily without issue of show cause notice”. The Tribunal held that this observation amounted to stating that every time the department requires the assessee to do or not to do something, the assessee should take the legal advice and require the department to issue show cause notice.

The Tribunal held that the requirement of show cause notice before requiring reversal is well settled and supported by the appellant’s judgment cited above. There is no difficulty in considering the eligibility of capital goods as per law since there was no delay in taking the credit initially. The proper procedure for the department to follow was to issue show cause notice and after considering the reply of the appellant pass a speaking order. Accordingly, matter is remanded for deciding the availability of credit on merits by the appropriate adjudicating authority after following the principles of natural justice.

Decision: - Appeal allowed accordingly.

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Case: - Kisan Sahkari Chini Mills v/s Commr. Of C.Ex., Meerut-1

Citation: - 2008 (228) ELT 609 (Tri.-Del.)

Issue: - Whether endorsed invoices by job worker are acceptable documents for availing credit? Is reversal of credit required on clearance of damaged capital goods for rectification/replacement under warranty?

Brief Facts: - There are three issues involved: -Firstly, Appellants have availed credit on the basis of invoices wherein the job worker’s name was mentioned, but were endorsed by jobworker/contractor in the favour of appellant. Revenue contended that credit was admissible if the procedure laid down in Rule 57-T (7) of erstwhile Central Excise Rules, 1944. However, appellant had not followed the procedure under Rule 57-T (7) and therefore, credit was not admissible.

Secondly, the job of extension was undertaken by the job worker or contractor on behalf of the manufacturer. The credit was admissible as provided under Rule 57-T (7). But the invoices were issued in the name of appellant and job worker or contractor. The appellant was shown as buyer and job worker as consignee. The department objected that the credit is not admissible on such an invoice. But the appellant submit that his name is also appearing on invoice and as such he can take the credit.

Thirdly, the appellant had cleared the damaged capital goods to M/s Triveni Engg Industries Ltd without reversing the credit during the warranty period. Capital goods were received after replacement/rectification, and appellant received the new goods on payment of duty. Modvat credit was taken by the appellants on the impugned goods. The Commissioner (A) held that the appellants received new capital goods under the cover of Central Excise invoice from the supplier. Therefore, there is no scope of availment of double credit on the same capital goods.

Reasoning of Judgment: - In the first issue, the Tribunal held that Rule 57-T (7) provides a procedure to allow credit on the invoices where duty paid by a contractor or job worker and therefore, compliance of the procedure is substantially required. Credit cannot be allowed on endorsed invoice. Therefore, Credit is disallowed.

In the second issue, the Tribunal held that the credit will be allowed by the Assistant Commissioner as provided under Rule 57-T (7) of the Rules. The lower authorities had overlooked the fact that the invoices were issued in favour of the appellant and therefore, the submission of appellant in this regard requires to be examined by the Adjudicating Authority.

In the Third issue, the Tribunal held that the revenue can at the best demand duty on clearance of the damaged goods cleared under Rule 57-T challan if it was not returned back. However, there is no provision for adjustment of credit against the clearance of the damaged goods and receipt of new capital goods. Therefore, denial of credit is set aside.

Decision: - Appeal disposed off accordingly.

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Case: - Commissioner of Central Excise, Raipur v/s Bharat Aluminium Co. Ltd.

Citation: - 2009 (240) E.L.T. 231(Tri.- Del.)

Issue: - Whether the Cenvat credit can be taken on parts of machinery? Whether Cenvat credit was available on welding electrodes and other equipments by treating them as capital goods when they are used in the repair & maintenance of plant & machinery?

Brief Facts: - Respondents are engaged in manufacture of aluminium products. They availed Cenvat credit under Rule 57Q read with Rule 57T of the erstwhile Central Excise Rules, 1944. Department contended that the respondents had wrongly availed credit on Bucket elevator chain, Bucket for elevator, Gas collecting hood, Maly kote grease, Welding electrodes, Gas filling used in smelter house, HA refractory cement, Rigid stem thermal, Aluminium wire, Brass wire, M.S. forged round, M.S. round, Forged steel round, Hot dia steel. Additional Commissioner disallowed Credit on the ground that these items did not fall under the category of capital goods. The Commissioner (A) allowed credit on the said items. Hence, Revenue has filed this appeal.

Appellant’s Contention: - Revenue contended that Bucket elevator chain and Bucket for elevator are parts of handling equipment/parts of electrostatic precipitator and they did not play any role in the functioning of any machinery of which they had claimed to be parts.

Further Revenue claimed that electrodes used for welding purposes and other items used for repair and maintenance of anode studs of electrolytic cells, cannot be used directly as capital goods or parts/spares/accessories of the capital goods.

Reasoning of Judgment: - The Tribunal held that it was admitted in the Show Cause Notice that these items are parts of material handling equipment/ electrostatic precipitator. It is not the case of the Department that material handling equipments/electrostatic precipitators are not machines, machinery, plant equipment etc. used for producing or processing any goods or for bringing about any change in any substance for the manufacture of final products. Hence, the parts thereof which are the disputed items qualify for being considered as capital goods.

For, welding electrodes, the Tribunal has relied upon the judgment of Rajasthan High Court in the case of Hindustan Zinc Ltd v/s Union of India [2008 (228) ELT 517 (Raj.)] in which it was held that Cenvat credit is admissible on the welding electrodes used for repairs and maintenance of plant & machinery.

The case of Union of India v/s Hindustan Zinc Ltd [2007 (214) ELT 510 (Raj.)] which is upheld by the Apex Court in [2007 (214 ELT A115 (SC)] was relied upon by the Tribunal in which it was held that MS/SS plates used in workshop meant for repair and maintenance of machinery which are used for manufacture of final product are eligible to avail credit. Therefore, it was held that once items, used for repair and maintenance of machinery, have been held to be eligible for Cenvat/ Modvat credit, there is no substance in Department’s plea that the said items are not eligible to Cenvat/ Modvat credit.

Accordingly, it was held by the Tribunal that Bucket elevator chain and Bucket for elevator are eligible to credit as parts of handling equipment and other items which are used for repair and maintenance of machinery are eligible to credit. Impugned order upheld.

Decision: - Appeal rejected.

Comment: - The issue of welding electrodes is not coming to an end. Recently, the Delhi Bench of tribunal has once again given decision that the credit on welding electrodes used in repair of machinery will not be allowed. This mean that the issue is not settled yet.

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Case: - M/s. Savita PoLymers Ltd. v/s Commissioner of C. Ex. , Raigad

Citation: - 2009(240) E.L.T. 616 (Tri. - Mumbai)

Issue: - Whether invocation of larger period of limitation in case of no intention to evade payment of duty, is sustainable?

Brief Facts: - The appellant had two units i.e. at Raigad and at Silvassa. The Raigad unit imported solid wax and after melting the wax, it was cleared to Silvassa unit. While clearing molten wax to sister unit, duty was paid by availing Modvat credit of CVD. Department contended that since there was no manufacturing involved in melting of slack wax and removal of molten wax to sister unit amounted to removal of input as such and therefore, Modvat credit of CVD taken thereon was required to be reversed. The Department also objected to the Modvat availed by Appellant on furnace oil used for melting slack wax which was subsequently cleared to Silvassa Unit. It was contended that these transactions were covered by Rule 57C of the Central Excise Act and that the Modvat taken on furnace oil, without payment of duty, to the Silvassa unit was required to be reversed. Show Cause Notice was issued in year 2001 for the period Sept. 97 to March 99. Demand was confirmed by the Adjudicating Authority and by the Commissioner (A) in further appeal. Appellant have therefore, come in appeal before the Tribunal.

Appellant’s Contention: - Appellant have contended that demand of duty on molten wax was time barred. There was no reason to invoke extended period of limitation under the provisions of Section 11A (1) as there was no intention to evade any payment of duty. It is also contended that the case is revenue neutral as the duty paid by one unit on goods cleared to its sister unit was available as Modvat credit to the sister unit. Appellant have relied upon the Larger Bench decision in Jay Yuhshin Ltd v/s CCE, New Delhi [2000 (119) ELT 718 (Tribunal-LB)] in which it was held that a revenue neutral situation arose where any duty paid by an assessee was available to himself as Modvat Credit.

Reasoning of Judgment: - The Tribunal held that on merits the demand of duty on molten wax was justified. However, the demand is time barred and extended period of limitation cannot be invoked as there was no intention on the appellant’s part to evade payment of duty. The case cited by appellants is squarely applicable.

On the demand for reversal of Modvat credit on furnace oil, the Tribunal held that during the material period fuels used as inputs were expressly excluded from the category of inputs to which Rules 57C & 57CC were applicable. Therefore, demand is not sustainable.

Both the demands were set aside.

Decision: - Appeal allowed.

Comment: However, the Apex Court has reversed the position in respect of fuel. The decision reported at 2009-TIOL-96-SC-CX has held that if the fuel is used in manufacture of exempted and dutiable product then reversal is to be done.

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Case: - Commissioner of C. Ex. & Cus., Rajkot v/s Jyoti CNC Automation Pvt. Ltd.

Citation: - 2009 (240) E.L.T. 618 (Tri. - Ahmd.)

Issue: - Is demand of duty on job work process sustainable when department is unable to prove that such process is manufacturing process?

Brief Facts: - Respondent-assessee was engaged in the manufacture of CNC Turning Machines. During audit, it was found that the respondent had shown certain amount as income form job work done in their Balance sheets. When they were asked to explain it, the appellants produced cash memos, wherein the name of the party, from whom the said amount was received, was not mentioned. Respondent explained vide their letters that they had performed various work like machining and turning work on the components supplied by their parties. That since all the amounts were less than Rs. 20,000/- and were paid in cash, therefore, they had not kept record of names and addresses of the parties in their cash vouchers and had not maintained any document or register other than cash vouchers. Demand of duty was raised. The Adjudicating Authority as well as Commissioner (A) held that demand of duty could not be sustained because of following reasons: -

(i) Since the department could not put forth the nature and process of machining carried out by the assessee on jobwork basis and process declared by the assessee does not amount to manufacture.

(ii) The burden that the process carries out by the assessee amounts to manufacture and duty is payable is on the department and the same has not been discharges.

(iii) The processes such as machining, repairing, reconditioning do not amount to manufacture.

Reasoning of Judgment: - The Tribunal held that the department could not prove that process carried out by assessee is manufacture and duty is leviable on it. In absence of any evidences, there is no case for Revenue. No new points were placed.

Decision: - Appeal rejected.

Comment: - If the department knew at the time of issue of demand that it will quashed in this fashion then the department should have given demand of service tax under “BAS”. But now the department cannot go beyond the show cause notice and as such the demand is not sustainable. One fit Hindi proverb for such a case is “DHOBI KA KUTTA GHAR KA NA GHAT KA.”

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Case: - M/s. United Phosphorus Ltd. v/s Commissioner of C. Ex., Surat II

Citation: - 2009 (240) E.L.T. 596 (Tri. - Ahmd.)

Issue: - No penalty can be imposed when there is no default in payment of duty in absence of obligation to pay duty.

Brief Facts: - Appellant are manufacturers of Phosphorus Acid crystal. Inputs were sent to job workers for further processing. A bye product Hydrochloric Acid emerged during processing. The job worker did not return the said bye product and cleared it without payment of duty. However, the appellant paid duty with interest. The department imposed penalty. Appellant has challenged the imposition of penalty.

Appellant’s Contention: - Appellants submitted that there is no obligation on the principal manufacturer to bring back scrap generated at the job workers end or pay excise duty on scrap after 31.3.2000, in view of amended Rule 57AC of the Cenvat Credit Rules and other similar Rules enacted subsequently. They have relied upon decision of Bombay High Court in Rocket Engineering Case [2008 (223) ELT 347 (Bom)] and contended that demand for duty and interest is to be set aside. When there is no obligation to pay duty, the question of imposition of penalty also does not arise.

Respondent’s Contention: - The Revenue cited many cases and contended that the liability to pay duty is of principal manufacturer only. They were of view that if any scrap or by product arises at the job worker premises then on payment of duty by manufacturer or by job worker on behalf of principal manufacturer, it can be cleared.

Reasoning of Judgment: - The Tribunal held that the appellant had only contested against imposition of penalty, were not contesting the liability to pay duty with interest. Reliance has been placed on the decision of Bombay High Court in Rocket Engineering case, wherein it has been held that principal manufacturer need not pay duty on scrap which was not returned by the job workers and in view of the fact that waste and scrap and by products were treated at par in Modvat credit Rules. The contention of the appellants that no penalty is imposable, is to be upheld. Duty has been paid by the appellant in the case of emergence of bye product and its clearance so already paid duty and interest becomes final. Penalty imposed is to be set aside.

Decision: - Appeal allowed.

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Case: - Ind-Swift Laboratories Ltd v/s Union of India

Citation: - 2009-TIOL-440-HC-P&H-CX

Issue: - Whether interest was payable from the date of wrongly taking Cenvat credit or from the date of utilization of Cenvat credit?

Brief Facts: - Petitioner-company is engaged in manufacture of bulk drugs. Petitioner took credit on the basis of invoices received by it during 01.11.01 to 31.03.06. They utilised certain portion of the credit taken for payment of duty liability in the month of March, 2006. When the premises were raided by staff of Director General of Central Excise Intelligence they pointed towards wrong availment of credit taken by petitioner. Accordingly, petitioners reversed part of the Cenvat credit in November, 2006. They also deposited remaining portion through RG 23 A Part-II. Department issued show cause notice to recover the Cenvat credit availed fraudulently by petitioner under Rule 12 of Cenvat Credit Rules, 2001-02 and Rule 14 of Cenvat Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1944. Petitioner invoked jurisdiction of Custom and Central Excise Settlement Commission. An order was passed settling the dispute but it was ordered that petitioner has to pay interest @ 10% per annum on Cenvat credit wrongly taken from the dates the duty became payable as per Section 11AB till the dates of payment. The petitioner was asked by the Department to deposit interest on the amount of credit actually debited by the petitioner on 31.01.07 in its PLA. The Department was contending that interest was payable from the date of wrongly taking of credit and not from the date of utilization of credit. Petitioner filed miscellaneous application for clarification before Settlement Commission. It was held that interest was payable from the date of wrongly taking of credit and not from the date of utilization of part of credit by petitioner. Petitioner has filed this writ petition in the High Court.

Petitioner’s Contentions: - Petitioner has relied upon the judgment of Apex Court in Commissioner of Central Excise, Mumbai v/s Bombay Dyeing & Mfg Company Ltd [2007 (215) ELT 3 (SC)] to contend that since assessee is free to reverse credit before utilization of Cenvat credit and therefore, liability of payment of tax does not fall on the assessee even if Cenvat credit has been wrongly taken. Availment of credit by itself does not create any liability of payment of any excise duty. The availment of credit enables an assessee to off set such credit against excise duty payable in terms of Rule 3 (4) of Cenvat Credit Rules, 2004. It was further contended that Department was not justified in claiming interest till 31.01.07 when the petitioner had deposited the due amount on 08.03.06.

Respondent’s Contention: - Revenue contended that as per Rule 14 of Cenvat Credit Rules, interest is payable even if Cenvat credit has been taken. Respondents further claimed that interest on Cenvat credit was payable till 31.01.07 when debit entry was made in PLA.

Reasoning of Judgment: - The High Court held that Cenvat credit is a credit of duties already leviable or paid. Such credit in respect of duties already paid can be adjusted for payment of duties payable under the Central Excise Act and the Rules framed thereunder. Under Section 11AB, liability to pay interest arises in respect of any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded from the first day of the month in which the duty ought to have been paid. Interest is leviable if duty of excise has not been levied or paid. Interest can be claimed or levied for the reason that there is delay in payment of duties.

The decisions in Pratibha Processors v/s Union of India [1996 (88) ELT 12 (SC)] and in Commissioner of Customs v/s Jayathi Krishna & Co. [2000 (119) ELT 4 (SC)] were relied upon in which it was held that interest is compensatory in nature and is imposed on an assessee who has withheld payment of any tax as and when it was due and payable. Accordingly, the High Court held that no liability of payment of any excise duty arises when the petitioner availed Cenvat credit. The liability to pay duty arises only at the time of utilization. Even if Cenvat credit is wrongly taken, that does not lead to levy of interest as liability of payment of excise duty does not arise with such availment of Cenvat credit by an assessee. Therefore, interest is not payable on the amount of Cenvat credit availed of and not utilised.

High Court further held that Rule 14 has to be read down to mean that where Cenvat credit has been taken and utilised wrongly, interest should be payable on the Cenvat credit taken and utilised. The reason is that Cenvat credit has been wrongly taken as such availment by itself does not create any liability of payment of excise duty. On the conjoint reading of Section 11AB of the Act and that of Rule 3 and 4 of the Credit Rules, it was held that interest cannot be claimed from the date of wrong availment of Cenvat credit. Interest will be payable from the date Cenvat credit is wrongly utilised.

Further, in view of clarification given in clause 3.3 of the Central Excise Manual, Chapter 3, Part V, it was held that interest was payable till 08.03.06 when the amount was deposited in the Bank through TR-6 Challan and not till 31.01.07, when the said amount was debited in PLA account. Accordingly, direction is given to respondents to re-calculate the amount of interest keeping in view the observations made in the judgment.

Decision: - Writ Petition disposed of.

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Service Tax Section

Case: - M/s Cadila Pharmaceuticals Ltd v/s CCE, Ahmedabad

Citation: - 2009-TIOL-1336-CESTAT-AHM

Issue: - Whether the Cenvat credit on Management consultancy services in respect of Logistics is available as Cenvat credit?

Brief Facts: - Appellants availed input service credit on management consultant service utilised by them. The Adjudicating Authority denied credit on the ground that the same was in respect of logistic activities relatable to removal of the finished goods and as such cannot be said to be covered under the definition of input service. Adjudicating Authority also imposed penalty.

Appellant’s Contention: - Appellants submitted that apart from the fact that part of the service was utilised for removal of goods, the same also related for movement of raw material as also movement of the goods within the factory premises. It was further submitted that even if Revenue’s contention that such service availed in respect of logistic activities for removal of final product is accepted, the same would be covered by the definition of input service. The Appellants have relied upon the Larger bench decision in ABB Ltd & Others v/s CCE & Service Tax, Bangalore [2009 (92) RLT 665 (CESTAT-LB) in which it was held that the definition uses the expression as “activities relating to business” and as such outward transportation of goods from place of removal has been held to be input service. By adopting the same criteria, management consultant service for logistic activities for removal of the goods would get covered by the definition of input service. Appellants have also relied upon another Larger Bench decision in Commissioner of CE, Mumbai v/s GTC Industries Ltd [2008 (12) STR 468 (Tri-LB)] wherein out door catering service in canteen of the manufacturer was held to be input service for the purposes of Modvat credit. Appellants have also challenged the impugned order on the ground of limitation.

Respondent’s Contention: - They have reiterated the findings of lower authorities.

Reasoning of Judgment: - The Tribunal relied upon the judgment in ABB Ltd and held that the definition of input service includes any services relatable to any “activities relation to business”. In as much as removal of the goods is also a part of the activity relating to business, the services obtained in relation to the same would get covered by the above expression and consequently by the definition of ‘input service’. Impugned orders were set aside.

Decision: - Appeal allowed with consequential relief.

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Case: - Ambuja Cements Ltd v/s Union of India

Citation: - 2009-TIOL-110-HC-P&H-ST

Issue: - Whether the service of transportation upto customer’s doorstep, in case of “FOR destination” sales where the entire cost of freight is paid and borne by the manufacturer, would be “input service” within meaning of Rule 2 (l) of the CC Rules?

Brief Facts: - Appellant-company is engaged in the business of manufacturing and selling of cement. The appellant claimed that when it supplies cement to its customers “FOR destination” it bears the freight in respect thereof upto the doorsteps of the customer that is the destination point. The appellant also bears the service tax on such freight. On that basis, the assessee has asserted that once service tax is paid by it then it becomes entitled to take Cenvat credit of such service tax in accordance with Cenvat Credit Rules, 2004. Appellant took Cenvat credit of service tax paid by it. Revenue issued show cause notice. Adjudicating Authority confirmed the demand of recovery of Cenvat credit taken and interest as well as imposed penalty. Appellant then filed appeal before the Tribunal. The Tribunal also dismissed the appeal by holding that “the extending the credit beyond the point of duty paid removal of the final product would be contrary to the scheme of Cenvat Credit Rules. The Tribunal also held that the interpretation sought to be placed by appellants did not flow from the definition of input service. The main clause in the definition states that the service in regard to which credit of tax is sought, should be used ‘in or in relation to’ clearance of the final products from the place of removal……Further, that transportation (freight) was an entirely different activity from manufacture remains settled by judgments of the Hon’ble Supreme Court in cases of Bombay Tyre International [1983 (14) ELT], Indian Oxygen Ltd [1988 (36) ELT 723] and Supreme Court and Baroda Electric Meters [1997 (94) ELT 13 SC]”.

Appellant’s Contention: - It was contended that the inclusive definition of ‘input service’ given in Rule 2 (l) (ii) shows that it includes inwards transportation of goods or capital goods for outward transportation upto the place of removal. It was further contended that the words which have not been given meaning in the Cenvat Credit Rules but have been given meaning under Central Excise Act, 1944 or the Finance Act, 1994 are to be given that meaning. Accordingly, the expression “place of removal” used in Rule 2 (l) (ii) is to be assigned the meaning given to it by Section 4 (3) (c) of the Central Excise Act. In Section 4 (3) (c) “place of removal” has been given meaning ‘a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after there clearance from the factory’.

Appellant also relied upon Board Circular No. 97/6/2007-ST, dated 23-8-2007 in which conditions have been laid down for being eligible to take Cenvat credit on outward transportation upto place of removal. The said conditions are: (a) the ownership of goods and the property of the goods remained with the seller of the goods till the delivery of goods in acceptable condition to the purchaser at his door step; (b) the seller bore the risk of loss of or damage to the goods during transit to the destination; and (c) the freight charges were an integral part of the price of goods. According to Appellant they are fulfilling all the conditions and therefore, they are eligible to take credit. Appellant has placed reliance on judgment of the Apex Court in Paper Products Ltd v/s Commissioner of Central Excise [(1997) 7 SCC 84] to contend that the revenue is bound by the circular issued by it.

Respondent’s Contention: - Revenue contended that the appellants have not complied with the third condition of merging freight with the price of the goods. It was contended that merely because the assessee has paid service tax on the freight charges would not constitute a basis for allowing Cenvat credit to the extent of tax paid by them.

Reasoning of Judgment: - The High Court perused the definition of ‘place of removal’ as defined in Section 4 (3) and held that for a manufacturer/consignor the eligibility to avail credit of the Service tax paid on the transportation during removal of excisable goods would depend upon the place of removal. The Board Circular No. 97/6/2007-ST was held to have prescribed compliance of certain conditions where sale has taken place at the destination point.

It was held that reliance was rightly placed on judgment of Paper Products Ltd and it is well settled that the circulars issued by the Board are binding and aims at adoption of uniform products. The Revenue was precluded from challenging the correctness of the circular even on the ground of the same being inconsistent with statutory provisions. The circular are binding on the revenue.

Further, it was held that appellant was supplying cement to its customers on “FOR destination”. That the appellant was also bearing freight in respect thereof upto the door step of the customer. The freight charges incurred by it for such sale and supply at the door step of the customer are subjected to service tax which is also duly paid by the appellant. Also for transportation purposes insurance cover was also taken by the appellant, which shows that the ownership of the goods and the property in the goods had not been transferred to the seller till the delivery of the goods in acceptable condition to the purchaser at his door step. Thus the second condition was also fulfilled. The third condition was also fulfilled as the delivery of the goods was “FOR destination” price.

Accordingly, it has been held that the said transportation of goods by appellant amounted to input service and credit of the same was admissible to them. Therefore, allegation of concerning not availing the service within the meaning of ‘input service’ and taking irregular availment of credit was not sustainable. Thus, the question of payment of interest does not arise.

Decision: - Appeal allowed.

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PJ/Case Laws/09-10/08

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