Custom, Excise & Service Tax Tribunal
M/S Ultratech Cement Ltd vs Cce, Raipur on 18 November, 2013
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, NEW DELHI, PRINCIPAL BENCH NEW DELHI,
COURT NO. III
Date of Hearing:14.08.13
Date of Decision:18.11.2013
Excise Appeal No. E/381/2010
M/s Ultratech Cement Ltd. Appellant
Versus
CCE, Raipur Respondent
[Arising out of the Order-in-Original No. COMM./RPR/74/2009, dt. 11.11.2009, passed by The Commissioner of Central Excise, Raipur.] Excise Appeal No. E/2440/2011 M/s Ultratech Cement Ltd. Appellant Versus CCE, Chandigarh Respondent [Arising out of the Order-in-Original No.45/CE/CHD-II/2011,dt. 13.07.2011, passed by The Commissioner of Central Excise, Raipur.] Excise Appeal No.E/112/2012 M/s Ultratech Cement Ltd. Appellant Versus CCE, Raipur Respondent [Arising out of the Order-in-Original No. COMM./RPR/49/2011, dt. 03.10.2011,passed by The Commissioner of Central Excise, Raipur.] Honble Ms. Archana Wadhwa, Member (Judicial) Honble Shri Rakesh Kumar, Member (Technical) 1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3Whether Their Lordships wish to see the fair copy of the Order?
4Whether Order is to be circulated to the Departmental authorities?
Appearance Sh. B.L.Narsimhan, Advocate for the Appellant.
Ms. Sgweta Bector,AR(DR) for the Respondent.
CORAM : Honble Ms. Archana Wadhwa, Member (Judicial) Honble Shri Rakesh Kumar, Member (Technical) Final Order No. 58257-58259/18.11.2013 Per. Rakesh Kumar :-
The facts leading to these appeals are, in brief as under:-
1.1 The Appellants are manufacturers of cement and cement clinker chargeable to Central Excise duty. The period of dispute in appeal No. E/381/2010 is from January 2005 to March 2009, in appeal No. E/112/2012 is from April 2009 to March 2010., and in the appeal No. E/2440/2011 is from July 2009 to 17/5/2010.
1.2 In the appeal No. E/2440/2011, the Appellants sales are through depots. The goods are first transported to depots from where the same are sold to customers. While the Department had allowed the Cenvat credit of service tax paid on GTA service availed for transportation from the factory up to the depot, the Cenvat credit of service tax paid for transportation from the depots to the customers premises was disallowed on the ground that the, GTA service availed for transportation up to the place of removal only can be treated as input service and in respect of the goods sold from the depot it is the depot, which is the place of removal. The Appellant, however, claimed that their sales were on FOR destination basis and hence it is the customers premises, which have to be treated as the place of removal and they would be eligible for Cenvat credit of service tax paid on the GTA service availed for transportation up to the customers premises. The Commissioner of Central Excise, Chandigarh vide order-in-original No.45/CE/CHD-II/2011 dt.12/07/11 has not accepted the Appellants contention regarding their sales being on FOR destination basis and has confirmed the Cenvat credit demand of Rs.1,02,43,969/- along with interest and has imposed penalty of equal amount on the Appellant under Rule 15 (2) of Cenvat Credit Rules, 2004 readwith Section 11AC ibid.
1.3 In the case of two appeals Nos. E/381/2010 & E/112/2012 filed in respect of Hirmi, Distt. Raipur (Chhattisgarh) plant of the Appellant company, while some quantity of the cement manufactured is dispatched from the factory directly to the customers on sale, the remaining quantity of the cement is transferred to a dump from where the same is sold to the customers. The period of dispute in these two appeals is from January 2005 to March 2009 and from April 2009 to March 2010.
1.3.1 In the appeal No E/381/2010, the Commissioner by order-in-original dt. 12.11.09 has confirmed the Cenvat Credit demand of Rs. 3,18,09,421/- for the period from Jan05 to March09 along with interest under section 11AC and has imposed penalty of equal amount under section 11AC by disallowing entire amount of Cenvat Credit of service tax paid on GTA Service availed for transportation of cement from factory gate to customers premises or from factory gate to Dump and Dump to Customers premises. The Appellants claim is that their sales were on FOR destination basis and they are entitled to Cenvat Credit of entire amount of service tax.
1.3.2. In Appeal No. E/112/2012, the Cenvat Credit of the service tax paid on GTA Service availed for transportation of cement from the factory gate to dump in respect of cement sold from the dump has been allowed by treating the cement Dump as the place of removal. The Commissioner, however, has disallowed Cenvat Credit in respect of GTA Service availed for transportation of cement from Dump to customers premises when the supply to the customers was from the Dump or from factory gate to customers premises where the supply was directly from the factory gate to the customers premises. The Commissioner accordingly has confirmed Cenvat Credit demand of Rs. 90,96,082/-. The Commissioner, besides Cenvat Credit demand has also demanded interest on wrongly availed credit under Section 11AB and has imposed penalty equal to the Cenvat Credit demand. The Appellants claim in this appeal also is that their sales were on FOR destination basis and hence they are eligible for Cenvat Credit of service tax paid on GTA Service availed for transportation from dump to Customers premises in respect of supply to customers from dumps and from factory gate to customers premises in case of direct supply to customers from factory gate.
2. Heard both the sides.
3. Sh. B.L.Narsimhan, learned counsel for the Appellant, pleaded that throughout during the period of dispute in these appeals i.e. from Jan.2005 to May2010, the Appellant are eligible for Cenvat Credit of service tax paid on the GTA Service availed for transportation of cement from the factory gate/Depot/Dump to customers premises irrespectively of whether the goods were dispatched to customers premises from factory gate or from depots/dump, as all the sales of the Appellant to their customers are on FOR destination basis and, therefore, in any case, it is the customers premises which is the place of removal and hence in terms of Boards Circular No. 97/6/07-ST dt. 23.08.07, the Cenvat Credit of service tax paid on the GTA Service availed up to the customers premises would be admissible, that in any case, denial of Cenvat Credit in respect of GTA Service availed for transportation of cement from factory gate to Dump in Appeal No. E/381.2010 is absolutely incorrect, as in these cases, even if the customers premises are not treated as the place of removal, the Dump would be the place of removal, that during the period prior to 01.04.08 Cenvat Credit of service tax paid on GTA Service availed for transportation from the factory gate to customers premises or from dump/depots to the customers premise would be admissible, irrespective for whether the sales were on FOR destination, basis or otherwise, as during this period, the definition of input service included any service used by the manufacturer whether directly or indirectly in or in relation to the manufacturer for final product and clearance of final product from place of removal, that in this regard the reliance is placed on the judgment of Larger Bench of the Tribunal in case of ABB Limited Vs. CCE, reported in 2009 (15) STR-23(Tri. Lb.) which has been upheld by Honble Karnataka High Court vide judgment reported in 2011 (23) STR-97 (Kar.) that same view has been taken by Honble Gujrat High Court in case of Parth Poly Wooven Pvt. Ltd., reported in 2012(23) STR-4(Guj.), that for the period with effect from 01.04.08, though Rule 2(l) of Cenvat Credit Rules had been amended so as to substitute the earlier expression clearance of final product from the place of removal, by the expression clearance of final product up to the place of removal, the Appellant would still be eligible for Cenvat Credit in respect of GTA Service, in question, as, as mentioned above, all their sales are on FOR destination basis and all the conditions prescribed in this regard in the Boards Circular No. 97/08/07 dt. 28.07.07 are satisfied, in as much as during transit, the risk of loss of goods or damage to the goods was the Appellant and the freight up to the customers premises was integral part of the price of the goods, that in this regard, it is not material as to whether the duty on the cement was chargeable at a specific rate or at ad-valorem rate on the value determined under section 4, or on value determined under section 4A, that in this regard he relies upon the Tribunals judgment in case of LG Electronics Ltd., reported in 2010(19) STR (Tri. Del.) wherein in para 6 and 6.1 of the judgment, the Tribunal relying upon the Boards Circular No. 137/3/06- Ex dt. 20.07.06 has held that Cenvat Credit of service tax paid on the GTA Service availed for transportation of finished goods from the factory/depot to the customers premises would be admissible when the sales are on FOR destination basis, irrespective whether the duty on the final product is chargeable at specific rate or at ad-valorem rate on the value determined under section 4A, that Rule2(l) of the Cenvat Credit Rules, 2004 is legislation by incorporation and, therefore the definition of place of removal as given in Clause (C) of the Sub section (3) Section 4 of the Central Excise Act, 1944 has to be adopted for Cenvat Credit Rules, 2004 ignoring the words for the purpose of this section with which sub-section (3) of Section 4, starts that the Commissioners findings that the Appellants sales are not on FOR destination basis, are incorrect, that rate of duty on cement, other than that packed in 50 Kg. packs and cleared to Industrial Consumers was 8% ad-valorem or Rs. 230 per MT, whichever is higher and earlier, this rate was 14% ad-valorem or Rs. 400 MT, whichever is higher and in respect of such clearances the duty has been paid at ad-valorem rate on the value determined under Section 4 which included freight up to the customers premises, that in any case, substantial portion of the duty demand for the period from Jan.05 to March2009 raised by Show Cause Notice dt. 20.05.09 and part of the duty demand from July2009 to May 2010 raised by Show Cause Notice dt. 30.11.10 is time barred in as much as during the period of dispute, there were conflicting decisions of different Benches on this issue, till matter was decided by the Larger Bench and hence longer limitation period cannot be invoked for duty demand, in view of Apex Court judgment in case of Continental Foundation Joint Venture Vs. CCE, reported in 2007(216) ELT-177(SC), that for the same reason there is no justification for imposition of equal penalty imposed on Appellant under section 11AC and that in view of the above submissions the impugned orders of the Commissioner are not sustainable.
4. Ms. Shweta Bector, learned DR, defended the impugned orders by reiterating the findings of the Commissioner and pleaded that even during period prior to 01.04.08, Cenvat Credit in respect of outward freight from the factory gate/depot to the customers premises was not admissible unless the sales were on FOR destination basis when it is the customers premises which is the place of removal, that in these cases, the criteria prescribed in the Boards Circular No. 97/6/07-ST dt. 23.08.07 for sales to be treated as FOR sales is not satisfied, that when the rate of duty is specific or an ad-valorem rate on value determined under section 4A or on tariff value fixed under section 3(2) and as such ad-valorem duty is not charged on the value determined under section 4, the definition of place of removal given in section 4(3)(c) of the Central Excise Act,1944, being not relevant, would not be applicable, as from the opening words of section 4(3), it is clear that the definitions of various terms given in this sub-section are for the purpose of this section only, that such an observation has been made by Honble Karnataka High Court in para 15 and 16 of its judgment in case of CCE Vs. ABB Limited, reported in 2011(23) STR-97 (Kar.), that in cases where the rate of duty is specific or at ad-valorem on the value determined under section 4A or section 3(2), the place of removal would be the factory gate on removal from where the duty is liable to be paid under Rule 4 of the Central Excise Rules, 2002 and as such the Cenvat Credit in respect of outward freight from factory gate to the customers premises would not be admissible, irrespective of whether the Appellants sales were on FOR destination basis or otherwise, that in this regard, she relies upon the Tribunal judgment in case of Lafarge India Pvt. Ltd., reported in 2010 (19) ELT- 390 and that since Appellant have suppressed the relevant facts from the Department, the extended period under proviso to section 11A(1) has been correctly invoked and penalty under section 11AC has been correctly imposed. She, therefore, pleaded that there is no infirmity in the impugned order.
5. We have considered the submissions from both the sides and perused the records. While the period of dispute in Appeal No. E/381/2010-EX is from Jan.05 to March2009, the period of dispute in Appeal No. E/112/2010-EX is from April09 to March2010 and in Appeal No. E/2440/2011-EX is from July09 to 17.05.2010.
5.1 The definition of input service as given in Rule 2(l) of Cenvat Credit Rules, 2004 during period prior to 01.04.08 was as under:-
input service means any service:-
(i) used by a provider of taxable service for providing an output service or ;
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal;
and includes services used in relation to setting up, modernization renovation or repairs 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 up to the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation up to the place of removal.
Thus during period prior to 01.04.08 the definition of input service covered services used by a manufacturer directly or indirectly in or in relation to manufacturer for final product and clearance of final product from the place of removal and also the service of inward transportation of input or capital goods or outward transportation up to the place of removal.
5.2 During period with effect from 01.04.08 the definition of input service under Rule 2(l) for Cenvat Credit Rules was amended. The amended definition is as under:-
input service means any service:-
(i) used by a provider of taxable service for providing an output service, or;
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal;
and includes the services used in relation to setting up; modernization, renovation on repair of a factory, premises of provider of output service or an office relating to storage up to the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation up to the place of removal. Thus by the amendment w.e.f 01.04.08, in the main definition portion the expression clearance of final products from place of removal was replaced by the expression clearance of final product up to the place of removal.
5.3 There is no dispute that during the period with effect from 01.04.08, the GTA Service availed for transportation of finished products only up to the place of removal are eligible for Cenvat Credit. However, during the period prior to 01.04.08 there was dispute on this point, the Tribunal in case of Gujrat Ambuja Cement Ltd. Vs. CCE, reported in 2007(6) STR-249 (Tri. Del.) relying upon the Apex Courts judgment in case of Reserve Bank of India Vs. Peerless Co., reported in (1987) 1SCC-424 held that the main definition portion in Rule2(l) dealing with the general provision and the inclusive portion of the definition including certain specific services in the definition of input service are not to be read disjunctively to bring about conflict and defeat the scheme of the law, that the purpose of interpretation is to find harmony and reconciliation among various provisions that it is well settled that inclusion clause casts its shadow on the main definition and this warrants joint consideration of the main definition and the inclusion clause and since the inclusive portion of the definition restricts the transport service credit up to the place of removal, such Cenvat Credit of service tax paid on GTA Service availed for transportation of finished goods beyond place of removal would not be admissible. Based on this judgment of the Tribunal, Central Board of Excise & Custom issued a Circular No. 97/6/07-ST dt.27.08.07 clarifying that:-
(a) Cenvat Credit of service tax paid on GTA Service availed for transportation of finished goods would be admissible only up to the place of removal.
(b) Since the expression place of removal is not defined in Cenvat Credit Rules,2004, in accordance with Rule2(l) of these Rules, the definition of the place of removal in Section 4(3)(c) of Central Excise Act, 1944 is to be adopted; and
(c) Accordingly the Cenvat Credit of service tax paid on GTA Service availed for transportation of finished goods from the factory gate/depot to the customers premises would be admissible only when sales are on FOR destination basis and as such transfer of ownership takes place at the customers premises.
In this circular the Board also specified the criteria for determining as to when the sales of goods are to be treated as on FOR destination basis.
5.4. The above judgment of the Tribunal in case of Gujrat Ambuja Cement Ltd. (Supra) was challenged before the Honble Punjab & Haryana High Court. Honble High Court in its judgment reported in 2009 (236) ELT-431 (P&H) held that Cenvat Credit of service tax paid on outward transportation of finished goods up to the customers premises would be admissible when the sales are on FOR destination basis and in this regard Honble Punjab & Haryana High Court relied upon Boards Circular dt. 23.08.07 observing the same is binding on the Department.
6. However, subsequently the issue of admissibility of Cenvat Credit of service tax paid on GTA Service availed for transportation of finished goods from the factory gate/depot to the customers premises was considered by other Benches who doubted the correctness of the Tribunals judgment in case of Gujrat Ambuja Cement Ltd.(Supra) and this matter was referred to a Larger Bench in case of M/s. ABB Limited. The Larger Bench of the Tribunal vide judgment reported in 2009 (15) STR-23(Tri. Lb.) in case of M/s. ABB Limited. held that:-
(a) The expression clearance of final product from place of removal in the main definition of input service would include outward transportation of finished goods from the place of removal and it is not restricted to the transportation up to the place of removal;
(b) GTA Service for outward transportation of finished goods from place of removal is also recovered by expression activity relating to business in the inclusive portion in the definition of input service, as transportation of the goods to the customers premises is an activity relating to business; and
(c) There is no requirement that cost of freight up to the customers premises should be part of the transaction value on which the excise duty is paid, as the issue of valuation of the final products and the issue of Cenvat Credit in respect of the input/input service are independent of each other and have no relevance to each other.
7. The Revenue filed an appeal against above judgment of the Larger Bench before the Honble Karnataka High Court and Honble Karnataka High Court vide judgment reported in 2011(27) STR-97 (Kar.) has held that order of the Larger Bench does not suffer from any infirmity, but not for the reasons given by the Tribunal in that order. In particular, Honble High Court in its judgment did not agree with the decision of the Larger Bench that the expression activity relating to business, in the inclusive portion covers the outward transportation of finished goods from the place of removal (para 32). Similarly Honble High Court has neither discussed nor affirmed the Tribunals observation in para 18 & 19 of its judgment holding that the issue of valuation of the finished goods and the issue of Cenvat Credit in respect of inputs/input services are two different issues independent of each other and that for admissibility of Cenvat Credit of service tax paid on outward transportation of finished goods up to the customers premises, it is not necessary that the cost of freight is part of the transaction value on which the excise duty had been paid. However in para 30 of the judgment, Honble High Court after observing that:-
(a) the definition of input service contains both the words means and includes and not means and includes; and
(b) while the portion of the definition to which the word means applies has to be construed restrictively, as it is exhaustive and the portion of the definition to which the word includes applies has to be construed liberally as it is exhaustive, has held as under:-
The definition of input service contains both the word means and includes, but not means and includes. The portion of the definition to which the word means applies has to be construed restrictively as it is exhaustive. However, the portion of the definition to which the word includes applies has to be construed liberally as it is extensive. The exhaustive portion of the definition of input service deals with service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products, it also includes clearance of final products from the place of removal till it reaches its destination falls within the definition of input, service. What are the services that normally a manufacturer would render to a customer from the place of removal? They may be packing, loading, unloading, transportation, delivery etc. Though the word transportation is not specifically used in the said section in the context in which the phrase clearance of final products from the place of removal is used, it includes the transportation charges. Because, after the final products has reached the place of removal, to clear the final products nothing more needs to be done, except transporting the said final products to the ultimate destination i.e. the customers/buyer of the said product, apart from attending to certain ancillary services as mentioned above which ensures proper delivery of the finished product up to the customer premises. Therefore, all such services rendered by the manufacturer are included in the definition of input service, However as the legislature has chosen to use the word means in this portion of the definition, it has to be construed strictly and in a restrictive manner. Alter defining the input service used by the manufacturer in a restrictive manner, in the later portion of the definition, the legislature has used the word includes. Therefore, the later portion of the definition has to be construed liberally. Specifically what are the services which fall within the definition of input service has been clearly set out in that portion of the definition. Thereafter, the words activities relating to business an omni-bus phrase is used examples are given. It also includes transportation. The words used are (a) inward transportation of inputs or capital goods (b) outward transportation up to the place of removal. While dealing with inward transportation, they have specifically used the words inputs or capital goods. But, while dealing with outward transportation those two words are conspicuously missing. The reason being, after inward transportation of inputs or capital goods into the factory premises, if a final product emerges, that final product has to be transported from the factory premises till the godown before it is removed for being delivered to the customer. Therefore, input service includes not only the inward transportation of inputs or capital goods but also includes outward transportation of the final product up to the place of removal. Therefore, in the later portion of the definition, an outer limit is prescribed for outward transportation, i.e. up to the place of removal.
7.1 However Honble Gujrat High Court in case of Commissioner of Central Excise & Customs Vs. Parth Poly Wooven Pvt. Ltd., reported in 2012 (23) STR-4 (Guj.) has held in clear terms that during period prior to 01.04.08 the Cenvat Credit for service tax, paid on outward transportation of finished goods up to the customers premises would be admissible.
8. For the period of dispute prior to 01.04.08, the Appellants plea is that in view of judgment of Honble Karnataka High Court in case of ABB Limited (Supra) and judgment of Karnataka High Court in case of Parth Poly Wooven Pvt. Ltd.,(Supra) the issue stands decided in their favour and, therefore, irrespective of whether their sales were on FOR destination basis or otherwise, the Cenvat Credit of service tax paid on outward transportation of finished goods up to the customers premises would be admissible. Another plea of the Appellant is that in any case, in the Appeal No. E/381/2010-EX where the period of dispute is from Jan.05 to March09, the demand for the period prior to 01.04.08 which had been raised vide Show Cause Notice dt. 20.05.09 would be time barred, as on account of conflicting decisions of the Tribunal during that period on the point as to whether the GTA Service availed for transportation of finished goods only up to the place of removal in cenvatable or beyond the place of removal is also cenvatable, the allegation of suppression of facts cannot be made against the Appellant and hence longer limitation period would not be applicable and the entire demand for the period prior to 01.04.08 would be time barred.
8.1 So far as the Cenvat Credit demand for the period prior to 01.04.08 is concerned, after considering the submissions from both the sides, we are of the view irrespective of the merits of the Appellants case for this period, the longer limitation period under proviso to section 11 A(1) of Central Excise Act, 1944 would not be invokable, as during the period of dispute there were conflicting judgments on the point of admissibility of Cenvat Credit of service tax paid on GTA Service availed for transportation of finished goods from the factory gate/depot to the customers premises, inasmuch as while the Tribunal in case of Gujrat Ambuja Cement Ltd. (Supra) had held that this Cenvat Credit would be limited only to the GTA Service availed for transportation of finished goods up to the place of removal., the Larger Bench of the Tribunal in case of ABB Limited and Honble Karnataka High Court and Honble Gujrat High Court had taken a contrary view. The Apex Court in case of Continental Foundation Joint Venture, reported in 2007 (216) ELT-177(SC) has held that when there is scope for entertaining doubt on some points on account of conflicting decisions of the Tribunal or High Courts, longer limitation period under proviso to Section 11 A(i) would not be invokable. In view of this we hold that irrespective of the merits of the case, so far as the Cenvat Credit demand for the period prior to 01.04.08 in Appeal No. E/381/2010-EX is concerned, the same is time barred.
9. Demand for period with effect from 01.04.2008.
9.1 For this period, there is no dispute that on account on amendment to Rule (l) of Cenvat Credit Rules, 2004, the Cenvat Credit of service tax paid on the GTA Service availed for transportation of finished goods only up to place of removal is admissible. However on this point the Appellants plea is that all their sales were on FOR destination basis satisfying the criteria prescribed in this regard in the Boards Circular No. 97/6/07-ST dt. 23.08.07, inasmuch as during transit, the risk of loss of goods or damage to the goods was of the Appellant and the freight charges up to the customers premises were part of the transaction value and hence in accordance with the above mentioned Circular of the Board, it is the customers premises which would be the place of removal. The Department, however, disputes this claim of Appellant and it has been pleaded that the Appellants sales were not on FOR destination basis, as the criteria prescribed in this regard in the Boards Circular dt. 23.08.07 is not satisfied. It is also pleaded on behalf of the Department that since the duty on cement during entire period of dispute was not on ad-valorem basis but at specific rate, the definition of place of removal as given in Rule 4(3)(c) of the Central Excise Act, 1944 would not be applicable and as such it is the factory gate which would be the place of removal and in this regard the learned DR relies upon the Tribunal judgment in case of Lafarge India Pvt. Ltd., reported in 2012 (285) ELT-390. The learned counsel Sh. B.L.Narsimhan for the Appellant, however, relies upon the Tribunals judgment in case of LG Electronics Ltd., reported in 2010(19) STR-340 wherein relying upon the Boards Circular No.137/3/06-EX-4 dt. 02.02.06 it was held that Cenvat Credit of service tax paid on outward transportation of finished goods up to the customers premises would be admissible if the sales are on FOR destination basis, even if the duty on the finished goods is payable at specific rate on or the value determine under section 4A of the Central Excise Act.
9.2 With regard to the Cenvat Credit demand for the period from 01.04.08, in all the three appeals, we have considered the submissions from the sides and perused the records. For this period, there is no dispute that the definition of input service as given in Rule (l) covered GTA Service availed for transportation of finished goods only up to the place of removal. The main point of dispute for this period is as to what is the place of removal, whether the factory gate or depot/dump or customers premises.
9.3 In term of the Boards Circular No.97/8/07-ST dt. 23.08.07 since the place of removal is not defined in the Cenvat Credit Rules, 2004, in terms of the Provisions of 2(t) of these Rules, this expression shall have meaning assigned to it in Central Excise Act, 1994 and since Section 4(3)(c) of Central Excise Act defines place of removal, this definition of place of removal shall be adopted for Cenvat Credit Rules and accordingly in the cases where the sales are on FOR destination basis and the transfer of ownership takes place at the customers premises, it is the customers premises which would be the place of removal and as such the Cenvat Credit of service tax paid on GTA Service availed for transportation of finished goods from the factory gate/depot to the customers premises would be admissible. In the Board Circular No.137/3/06-EX-4 dt. 02.02.06 it has been clarified that in cases where the goods after removal from the factory to the depot are sold from the depot, it is the depot which would be the place of removal and Cenvat Credit of service tax paid on transportation of finished goods up to such depot would be admissible, irrespective of whether the duty on the finished goods is chargeable at specific rate or at ad-valorem rate or on value determined under section 4A. It is only on the basis of this Circular that the Tribunal in case of LG Electronics Ltd., reported in 2011(19) STR-340 (Tri. Del.) had held that the Cenvat Credit of service tax paid on GTA Service availed for transportation of finished goods from the factory gate to customers premises would be admissible when sales are on FOR destination basis irrespective of whether the duty on the finished goods was paid on the value determine under section 4A and not on the value determined under section 4. However learned DR points out that this view is not correct as the definition of place of removal in section 4(3)(c) of the Central Excise Act, as is clear from the opening words of the sub-section(3) for purpose of this section is for the purpose of this section only and this section i.e. section 4, is applicable only when duty on any excisable goods is chargeable with reference to their value and goods are not covered by the provisions of section 3(2) or section 4A and the assessable value is required to be determined under Section 4. It has, therefore, been pleaded that since the duty on cement is at specific rate, the definition of place of removal as given in section 4(3)(c)would not be applicable and as such the place of removal will be the factory gate i.e. place on removal from where the duty payable is payable.
9.4 According to section2(t) of Cenvat Credit Rules, 2004 words and expression used in these Rules and not defined, but defined in the Excise Act or the Finance Act shall have meanings respectively assigned to them in these Acts. There is no definition of place of removal in Finance Act,1994. However this expression is defined in sub-section(3) of sub-section 4 of the Central Excise Act, 1944. But the opening words of sub-section(3) of section 4 are for the purpose of this section which shows that the definition of various terms given in this sub-section is only for the purpose of this section. As is clear from the provisions of section 3(2) read with sub-
section(2) of section(4) of Central Excise Act, 1944 and section 4A ibid., the provisions of the section 4 are applicable only when duty on any goods is chargeable with reference to their value, and but neither the goods are notified for determination of their assessable on the basis of their MRP under section 4A nor any tariff value has been fixed by the Government in respect of these goods under section 3(2). The question arises as to whether the definition of place of removal in section 4(3)(c) which is for the purpose of this section, can be adopted for the purpose of Cenvat Credit Rules,2004 by invoking Rules2(t) of these Rules.
9.5 In our view this is a case of legislation by reference and not a case of legislation by incorporation, as Rule 2(t) simply refers to Excise Act or Finance Act without mentioning which Excise Act or which Finance Act. This would have been a case of legislation by incorporation if the provision of Rule 2(t) of Cenvat Credit Rules,2004 had been that place of removal shall have the same definition that as given in section 4(3)(c) of the Central Excise Act, 1944, which is not the case. There is difference between adoption of a particular provision of an earlier statute in a later statute by incorporation and by reference. The incorporation means as if the provision of the earlier Act which has been incorporated into a later Act, has been written in a pen and ink or printed into that Act. The incorporated provision become part of the later statute in which it has been incorporated. In the case of legislation by incorporation, unless the later Act and the earlier Act are supplemental to each other or are in pari materia, the provision incorporated in later statute remains unaffected by repeal or amendment of the parent statute from which the same had been adopted by incorporation, while in the case of legislation by reference, it is not so. In case of legislation by incorporation, when a particular provision of an earlier statute A has been incorporated in a later statute B, the scope of the incorporated provision in statute B would be unaffected by some other provision in the parent statute A which had restrictive effect in that act on the operation of the incorporated provision and that provision is not allowed to be read while construing the incorporated provision in the later Act. Apex Court in case of Onkarlal Nandlal Vs. State of Rajasthan reported in 1986 AIR-SC-2146 has held that when only Sub-section(2) of a Section of the earlier Act was incorporated in the later Act, the Sub-section(1) of the parent Act which had a restrictive effect on the operation of Sub-section (2) in the parent Act, cannot be allowed to be read for the purpose of construing Sub-section(2) as incorporated in the later Act. But in case of legislation by reference, where a statute only refers to some provision of an earlier statute and the referred provision has not been incorporated and has not become part of the later statute, the provision of the earlier statute, as referred to in the later statute, has to be construed by reading it in the context of and along with the other provisions of the parent statute, even if those provisions have not been referred to in the later statute. In case of Tata Tea Ltd. Vs. State of Bombay reported in AIR 1988 SC- 1435, the Apex Court, while construing the term Agricultural Income in Art 366(1) of the Constitution of India which define, this term as Agricultural Income as defined for the purpose of enactments relating to Indian Income Tax, has held that the meaning of this term has to be considered not merely by looking to the Income Tax Act, 1922 or Income Tax Act, 1961 but also with reference to the rules made under these Acts for computation of Income when the same is derived in part from agriculture and in part from business and on this basis held that only 60% of the income from the sale of tea grown and manufactured by an assessee, as provided on Income Tax Rules can be held to be agricultural income which the states can tax. The ratio of this judgment of the Apex Court is squarely applicable to this case.
9.5.1 Applying the above principle, the scope of definition of place of removal as given in Clause (c) of Section 4(3) of Central Excise Act, 1944, when adopted in Cenvat Credit Rules, 2004, would not have been restricted by the other provisions of section 4, if the definition of place of removal in Section 4(3)(c) of the Central Excise Act, 1944 had been adopted in Cenvat Credit Rules, 2004 by incorporation, but since this is a case of legislation by reference, the meaning of the place of removal as given in section 4(3)(c) of the Central Excise Act, 1944, would have to be determined, keeping in view the other provisions of this section, from which it is clear that the definition of various terms including place of removal given in Section 4(3) are for the purpose of this section only, which is applicable only when the rate of duty chargeable on the excisable goods is with reference to their value and neither the tariff value have been fixed by the Government under section 3(2) for those goods, nor those goods have been notified for determining value on the basis of their MRP under section 4A. Therefore, when the duty on the finished goods is chargeable at ad-valorem rate on value determined under section 4, only then the definition of place of removal as given in section 4(3)(c) can be adopted for the purpose of Cenvat Credit Rules, 2004 and in other cases the natural meaning of the expression place on removal i.e. the place on removal from which the duty on the goods is liable to be paid i.e. the factory gate or Bonded Warehouse, which would have to be adopted. In fact Honble Karnataka High Court in case of ABB Ltd,(Supra) in para 15 & 16 of the judgment has observed that though the expression place of removal is defined under section 4(3) of the Central Excise Act, its applicability is confined as is clear from the opening words of sub-section(3) for the purpose of section 4 only.
9.6 This issue can also be looked at from another angle. The place of removal as defined in Section 4(3) extends the scope of this term to depot or consignment agents premises or any other place or premises from where the excisable goods are sold after their clearance from the factory. Thus if goods after being cleared from the factory are sold from the depot, the depot, would be the place of removal or if after clearance from factory are sold from the consignment agents premises, then the consignment agents premises would be the place of removal and if after clearance from the factory are sold from any other premises, that premises would be the place of removal. However in these cases the time of removal, as per the definition of this expression given in Section 4(3)(cc), is deemed to be the time at such goods are cleared from the factory and accordingly, though place of removal is depot or consignment agent premises or customers premises depending upon from where the sale takes place, the time of removal is deemed to be the time at which the goods leave the factory and the duty liability is required to be discharged only at that time i.e. at the time of removal from the factory. The natural definition of the expression the place of removal in respect of any goods would be the location of the goods at the time of removal i.e. at the time when the goods leave the factory or Bonded Warehouse which is the time when duty is required to be paid. Thus the place of removal as defined in section 4(3)(c), read with Section 4(3)(cc) ibid, is a legal fiction. It is settled law that legal fiction is to be applied only for the purpose for which it has been created and not for any other purpose. Therefore, when the place of removal has been defined under section 4(3)(c) for the purpose of determining value under section 4, in our view the definition of place of removal , cannot be adopted for Cenvat Credit Rules, 2004 when the duty on the finished goods is at specific rate or is chargeable at ad-valorem rate on the tariff value fixed under section 3(2) or on value determined under section 4A in which cases the definition of place of removal in Section 4(3)(c) is not relevant.
9.6.1 Moreover, the Cenvat Credit Rules have been framed by the Central Government under Section 37(1) of the Central Excise Act, 1944 under delegated legislative powers. The provisions of Cenvat Credit Rules, 2004, therefore, have to be deemed to be in accordance with the provisions of Central Excise Act,1944, not in conflict with the provision of the Act. Therefore when Section 4(3) restricts the scope of the terms defined in this section only for the purpose of Section 4, by invoking Rule 2(t) of Cenvat Credit Rules, 2004, the definition of place of removal in Section 4(3)(c) cannot be applied to cases when the rate of duty on the final product is at specific rate or if it is at ad-valorem rate, the value is determined under Section 3(2) or Section 4A and as such, the definition of place of removal in Section 4(3)(c) is irrelevant. The interpretation of Rule 2(t) of the Cenvat Credit Rules, 2004, which is in conflict with the provision of Central Excise Act, 1944, has to be avoided.
9.7. We, therefore, hold that for the period w.e.f. 01.04.08, while Cenvat Credit of service tax paid on the GTA Service availed for transportation of the finished goods up to the place of removal would be admissible, the definition of place of removal, as given in section 4(3)(c) would be applicable only in the cases where the rate of duty on the finished goods is chargeable at ad-valorem rate on the value determined under section 4 and in other cases the place of removal would be the factory gate.
10. A consequence of applying the definition of place of removal as given in Section 4(3)(c) of the Central Excise Act, 1944 to Cenvat Credit Rules, 2004 even in the cases where the duty on the final product is levied at specific rate or at ad-valorem rate but on the value determined on the basis of MRP under Section 4A or on tariff value fixed under Section 3(2), would be that the net duty payable by the manufacturer after adjusting the Cenvat Credit would depend upon the location of the place of removal i.e. location of depot, consignment agents premises or customers premises (in case of FOR sales), as while the duty payable on the final products at specific rate or at ad-valorem rate on tariff value or on the value determined under section 4A is fixed, the Cenvat Credit on account of availability of credit in respect of GTA Service and other services availed up to the place of removal would vary. It would be advantageous for a manufacturer to have sales on FOR destination basis or from far off depots/Consignment Agents premises, as without increase in his gross duty liability on the goods, he gets more Cenvat Credit. This advantage would not be there if duty on the final product is chargeable at ad-valorem rate on the value determined under section 4, as while the manufacturer will be getting Cenvat Credit of the service tax paid on GTA Service and other services availed up to the place of removal i.e. Depot or consignment agents premises or Customers Premises (in case of FOR sale), he will also have to pay duty on higher value which would include the freight expenses and value of other services availed up to the place of removal. The net duty liability after adjusting the Cenvat Credit should not vary much with the change of location of the place of removal as:- :-
(a) Honble Bombay High Court in case of Coca Cola India Pvt.Ltd. Vs. CCE, Pune-III, reported in 2009(242) ELT-168(Bom.), taking note of amendment to Section 3(1) of the Central Excise Act, 1944 w.e.f. 12.05.2000, has, in para 33 of the judgment, held that the above amendment will show that the manifest object of legislature is to levy and collect excise duty as value added tax; and
(b) since value added tax operates by taxing final product and giving credit of duty the suffered by the inputs or input services, and since the tax on value addition is the difference between the tax on the final product and the tax on inputs and/or input services, for value added tax on any goods cleared by a manufacturer to neutral with regard to place of removal, increase in input/input service credit should be accompanied by increase in the tax on the final product.
10.1 Therefore the Appellants plea based on the Boards Circular No.137/3/06-CX-4 dt. 02.02.06 is against the very character of the Central Excise duty which is to be collected as a value added tax. The Boards Circular No.137/3/06-CX-4 dt. 02.02.06 clarifying that the definition of place of removal as given in Section 4(3)(c) is to be adopted for the purpose of Cenvat Credit Rules, 2004 even in cases when the final products are chargeable to duty at specific rate on at ad-valorem rate on value determined under section 4A, is contrary to the provisions of law. In fact, the view that the issue of valuation and the issue of Cenvat Credit on inputs/input service are two independent issues having no connection, is not a correct view and the same has not even been affirmed by Honble Karnataka High Court in its judgment reported in 2011(23) STR-97 (Kar.). In the case of LG Electronics Ltd. (Supra) cited by the learned counsel for the Appellant, the Tribunal had simply relied upon the Boards Circular No. 137/3/06-CX-4 dt. 02.02.06 and had not gone into the question of its correctness.
11. The finished goods in these appeals are cement on which during the period of dispute, the tariff rate of duty was always a specific rate. Even the effective rate of duty in respect of cement packed in 50Kg packs was at specific rate and only in the cases of cement not in packed condition and sold to industrial consumers, the rate of duty was 8% ad-valorem or Rs. 230/- per MT, whichever is higher/14% ad-valorem or Rs. 400 per MT, which is higher, which can be treated as ad-valorem rate. Therefore, only in the cases where the rate of duty is ad-valorem chargeable on value determined under section 4 and the Appellants sales were on FOR destination basis in terms of the criteria prescribed in this regard in Board Circular dt. 23.08.07, the Cenvat Credit of service tax paid on GTA Service availed up to the customers premises would be admissible. In other cases, where the rate of duty is specific, the place of removal would be the factory gate and as such there would be no question of permitting Cenvat Credit of service tax paid on GTA Service availed for outward transportation of the cement from the factory to Depot/Dump or the Customers Premises. The duty demand in these appeals would have to be worked out by this criteria for which these matters would have to be remanded. As regards the question of limitation which would arise in the Appeal No. E/381/2010 and Appeal No. E/244/2011, for the reasons as discussed in para 8.1 above, only the normal limitation period would be applicable. For the same reason, penalty under section 11AC would also not be attracted.
14. In view of the above discussion the following order is passed.
14.1 The Cenvat Credit demand for period prior to 01.04.08 and interest thereon under section 11AB in Appeal No. E/381/2010-EX is set aside as time barred.
14.2 As regards the Cenvat Credit demand for the period w.e.f. 01.04.08 in all the three appeals, the impugned order are set aside and the matters are remanded to the respective Commissioner for de-novo adjudication keeping in view our observations in this order.
(Order Pronounced in open court on ___________) (Archana Wadhwa) Member (Judicial) (Rakesh Kumar) Member (Technical) S.Kaur 2