By TIOL News Service

NEW DELHI, FEB 01, 2018: THE dispute relates to admissibility of CENVAT credit of service tax paid on road freight (GTA) towards outward transportation.

Revenue had filed an appeal before the Karnataka High Court aggrieved with the order passed by Tribunal granting credit. The ground taken by the Revenue ws that the Tribunal did not examine whether the Board Circular 96/7/2007 dated 23.08.2007 was complied with and whether the CENVAT credit would be admissible of the service tax on GTA service used for outward transportation from factory to customer.

The High Court while dismissing the Revenue appeal inter alia observed -

+ Facts prove that the goods were delivered on FOR basis and it is responsibility of the appellant to deliver the goods in good condition till it reaches the destination and accordingly ownership/title of the goods were with the appellant and hence the appellant has satisfied all the three conditions as per the Board Circular dated 23.8.2007 i.e. (i) regarding ownership of the goods till the delivery of the goods at the purchaser's door step., (ii) seller bearing the risk of or loss or damage to the goods during transit to the destination and, iii) freight charges to be integral part of the price of the goods.

+ The finding of fact of the lower appellate authority is not challenged and the Tribunal has found that the CENVAT credit on service tax was available, therefore, when the finding of fact is already concluded and not even challenged before the Tribunal (by Revenue), the question of finding of fact shall stand concluded.

+ Any assessee/party may agitate binding effect of the circular but it would not lie in the mouth of the Department-appellant to contend that the circular is not binding.

+ Merely because the matter is carried before the Apex Court against the decision of the Calcutta High Court [ Vesuvious India Ltd. -  2013-TIOL-1038-HC-KOL-ST], there would be no case for consideration, on the contrary, no substantial questions of law would arise since the availment of CENVAT credit is expressly made so permissible by the circular issued by the competent authority and the appellate authority having found that all conditions of the circular were satisfied.

We reported the Karnataka High Court order as 2016-TIOL-1828-HC-KAR-CX .

The indefatigable Revenue had taken the matter to the Supreme Court.

And the Supreme Court today allowed the Revenue appeal.

These are the pearls of wisdom from the apex Court decision -

++ It may be relevant to point out here that the original definition of 'input service' contained in Rule 2(l) of the Rules, 2004 used the expression 'from the place of removal'. As per the said definition, service used by the manufacturer of clearance of final products 'from the place of removal' to the warehouse or customer's place etc., was exigible for Cenvat Credit.

++ However, vide amendment carried out in the aforesaid Rules in the year 2008, which became effective from March 1, 2008, the word 'from' is replaced by the word ' upto '. Thus, it is only 'upto the place of removal' that service is treated as input service. This amendment has changed the entire scenario. [Notification 10/2008-CX(NT) refers]

++ The benefit which was admissible even beyond the place of removal now gets terminated at the place of removal and doors to the cenvat credit of input tax paid gets closed at that place. This credit cannot travel therefrom. It becomes clear from the bare reading of this amended Rule, which applies to the period in question that the Goods Transport Agency service used for the purpose of outward transportation of goods, i.e. from the factory to customer's premises, is not covered within the ambit of Rule 2(l)(i) of Rules, 2004.

++ Whereas the word 'from' is the indicator of starting point, the expression 'upto' signifies the terminating point, putting an end to the transport journey. We, therefore, find that the Adjudicating Authority was right in interpreting Rule 2(l)…

++ The aforesaid order of the Adjudicating Authority was upset by the Commissioner (Appeals) principally on the ground that the Board in its Circular dated August 23, 2007 had clarified the definition of 'place of removal' and the three conditions contained therein stood satisfied insofar as the case of the respondent is concerned, i.e. (i) regarding ownership of the goods till the delivery of the goods at the purchaser's door step; (ii) seller bearing the risk of or loss or damage to the goods during transit to the destination and; (iii) freight charges to be integral part of the price of the goods. This approach of the Commissioner (Appeals) has been approved by the CESTAT as well as by the High Court.

++ We are afraid that the aforesaid approach of the Courts below is clearly untenable for the following reasons:

+++ In the first instance, it needs to be kept in mind that Board's Circular dated August 23, 2007 was issued in clarification of the definition of 'input service' as existed on that date i.e. it related to unamended definition…

+++ As can be seen from the reading of the … portion of the circular, the issue was examined after keeping in mind judgments of CESTAT in Gujarat Ambuja Cement Ltd. and M/s. Ultratech Cement Ltd. Those judgments, obviously, dealt with unamended Rule 2(l) of Rules, 2004. The three conditions which were mentioned explaining the 'place of removal' as defined under Section 4 of the Act, there is no quarrel upto this stage.

+++ However, the important aspect of the matter is that Cenvat Credit is permissible in respect of 'input service' and the Circular relates to the unamended regime. Therefore, it cannot be applied after amendment in the definition of 'input service' which brought about a total change. Now, the definition of 'place of removal' and the conditions which are to be satisfied have to be in the context of 'upto' the place of removal. It is this amendment which has made the entire difference. That aspect is not dealt with in the said Board's circular, nor it could be.

+++ Secondly, if such a circular is made applicable even in respect of post amendment cases, it would be violative of Rule 2(l) of Rules, 2004 and such a situation cannot be countenanced.

Conclusion:

Held that Cenvat Credit on goods transport agency service availed for transport of goods from place of removal to buyer's premises was not admissible to the respondent.

The Revenue appeal was allowed by setting aside the judgment of the Karnataka High Court.

From our archives -

No Cenvat Credit on service tax paid on outward fright from the Place of removal 

Cenvat on Outward Transportation - Amendment puts an end to controversy

(See 2018-TIOL-42-SC-CX)