Custom, Excise & Service Tax Tribunal
M/S. Hero Motocorp Ltd vs Cce, Delhi Iii on 21 July, 2014
IN THE CUSTOMS, EXCISE AND SERVICE TAX
APPELLATE TRIBUNAL, NEW DELHI
COURT NO. III
Excise Appeal No. 1261/2010-EX(DB)
[Arising out of Order-In-Original No. 01/SSS/CE/10, Dated 11.03.2010 passed by CCE, Gurgaon]
For approval and signature:
Honble Ms. Archana Wadhwa, Judicial Member
Honble Me. Manmohan Singh, Technical Member
1
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
No
2
Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
Yes
3
Whether Their Lordships wish to see the fair copy of the Order?
Seen
4
Whether Order is to be circulated to the Departmental authorities?
Yes
M/s. Hero Motocorp Ltd. Appellant
Vs.
CCE, Delhi III Respondents
Coram: Honble Ms. Archana Wadhwa, Judicial Member Honble Mr. Manmohan Singh, Technical Member Appearance:
Shri S. Ganeshan, Sr. Advocate and Shri P.K. Ram, Advocate for the Appellant Shri S.K. Panda, JCDR for the Respondent Date of Hearing: 11.09.2013 Date of Decision: 14.03.2014 INTERIM ORDER NO._163/2014_ FO No. 52897/2014 Per Ms. Archana Wadhwa:
The appellant are engaged in manufacture of automobile parts, components and assemblies chargeable to Central Excise Duty under sub-heading 87141900 of the Central Excise Tariff. They also availed Cenvat credit of Central Excise Duty paid on inputs and capital goods and of service tax paid on input services, as per the provisions of Cenvat Credit Rules, 2004 (hereinafter referred to as CCR, 2004). The period of dispute in this case is from April 2006 to December 2008. The appellant while receiving orders from their customers sell the goods from their factory after issue of an invoice and despatch the goods to their customers through courier. The courier service is a taxable service and the appellant accordingly availed Cenvat credit of service tax paid on the courier service availed by them for despatch of the final products to their customers. The total Cenvat credit so availed during period from April 2006 to December 2008 is Rs. 2,61,07,159/-. The department was of the view that the courier service availed for despatch of the goods to their customers being in the nature of outward freight from the place of removal, is not covered by the definition of input service as given in Rule 2 (l) of CCR, 2004. It is on this basis that a show cause notice dated 19/2/09 was issued to the appellant for demand of allegedly wrongly taken Cenvat credit amounting to Rs. 2,61,07,159/- under Rule 14 of Cenvat Credit Rules, 2004 readwith proviso to Section 11A (1) of Central Excise Act, 1944 alongwith interest on it at the applicable rate under Section 11AB ibid and imposition of penalty on them under Rule 15 of the CCR, 2004 readwith Section 11AC of Central Excise Act, 1944. The show cause notice was adjudicated by the Commissioner vide order-in-original dated 11/3/2010 by which the Cenvat credit demand of Rs. 2,61,07,159/- was confirmed alongwith interest and beside this, penalty of equal amount was imposed on the appellant under Rule 15 (2) of CCR, 2004 readwith Section 11AC of Central Excise Act, 1944. Against this order of the Commissioner the present appeal stands filed
2. Heard both the sides.
3 Shri S. Ganeshan, learned Sr. Advocate, appearing for the appellant, pleaded that bulk of the period of dispute pertains to the period prior to 1/3/08 when the definition of input service as given in CCR, 2004 covered the services used for clearance of the final product from the place of removal, that in view of this definition of the input service, Larger Bench of the Tribunal in the case of ABB Ltd. vs. CCE & ST, Bangalore reported in 2009 (15) S.T.R. 23 (Tri. LB) had held that the service of goods transport agency availed for transportation of the goods from the place of removal to the customers premises would be covered by the definition of input service, that ratio of the Larger Bench of the Tribunal is squarely applicable to the facts of this case, that same view has been taken by the Tribunal in the case of Gujarat Sidhee Cement Ltd. vs. CCE, Bhavnagar reported in 2007 (7) S.T.R. 571 (Tri. Ahmd.), that the Tribunal in the case of Universal Cables Ltd. vs. CCE, Bhopal reported in 2007 (5) S.T.R. 142 (Tri. Del.) has held that courier service used by the appellant for despatch of their final product is covered by the definition of input service and is eligible for Cenvat credit, that the appellant have also paid an amount of Rs. 88,11,749/- for the period from 1/3/08 to 31/12/08 by debit entry dated 19/1/09 in the RG-23 Pt. II account, as intimated by them in their letter dated 19/1/09. However, he submits that though he is disputing the above confirmation also but there is absolutely no justification for confirmation of Rs. 1,72,95,410/- for the period prior to March 2008, when in view of the definition of input service, as it existed during that period, the Larger Bench of the Tribunal in the case of ABB Ltd. vs. CCE & ST, Bangalore (supra) has held that the service of goods transport agency availed for outward transportation of the final products from the place of removal would be covered by the definition of input service. The said decision stands upheld by the Honble Karnataka High Court.
4. Shri S.K. Panda learned JCDR appearing for the Revenue reiterated the findings of the adjudicating authority and submits that in the light of the decision of the Honble Punjab & Haryana High Court in the case of CCE, Ludhiana Vs. Gujarat Ambuja Cements Ltd. Reported in 2009 (14) STR 3 (P & H), the credit of service tax paid on the outward transportation of finished goods from the factory/depot to the customers premises can be treated as input service only if the conditions as laid down in the Board Circular No. 97/6/2007-ST dated 23/8/2007 are fulfilled. As per the said decision, the sales have to be on FOR basis. The appellant have not placed any evidence on record to show that the sales were on FOR basis. Accordingly, he prays for rejecting the appeal.
5. We have carefully considered the submissions from both the sides and perused the records.
6. The point of dispute in this case is as to whether during the period from April 2006 to December 2008, the appellant were eligible for Cenvat credit of service tax paid on the courier service availed by them for despatch of the motor vehicle parts to their customers. During the period till 28/2/08, the definition of input service as given in Rule 2 (l) of CCR, 2004 was as under :-
Rule 2 (l) : - 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 upto 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 upto the place of removal ;
7. With effect from 1/3/08 this Rule was amended and in clause (ii) of the main definition, the words and clearance of final product from the place of removal were deleted. According to the appellant, in respect of period from 1/3/08 to December 2008, they have already reversed Cenvat credit of Rs. 88,11,749/- and reported to the department vide letter dated 19/1/09 and beside this, they have also paid an interest of Rs. 5,41,563/- in respect of the same. It stands contented by theld. Sr. Advocate that though they are also contesting the said demand but there is absolutely no basis for confirming the demand of Rs. 1,72,95,410/- pertaining to the period prior to 1/3/08. The main plea of the appellant is that during the period prior to 1/3/08, as per the definition of the term input service as given in Rule 2 (l) of CCR, 2004, this term also included the services used for clearance of final product from the place of removal. According to the appellant since the courier services were used for clearance of final products from the place of removal, the same would be covered by the definition of input service and hence same would be eligible for Cenvat credit and in this regard they rely upon the judgment of Larger Bench of the Tribunal in the case of ABB Ltd. vs. CCE & ST, Bangalore (supra). In the case of ABB Ltd. vs. CCE & ST, Bangalore Larger Bench of the Tribunal while interpreting the provisions of Rule 2 (l) of CCR, 2004, as the same existed during the period prior to 1/3/08, has held that the service of outward transportation of finished goods from the place of removal is covered by the definition of input service and there is no requirement that for the service of outward transportation from the place of removal to be called input service, the cost of freight must be included in the transaction value of the manufactured goods, as valuation of the finished goods and Cenvat credit are independent of each other. Tribunal in this case also observed that the service of outward transportation of finished goods is an activity related to business and for this reason, the same would be covered by the definition of input service irrespective of whether the cost of transportation from the place of removal to the customers premises was part of the assessable value of finished goods or not. Appeal (CEA No. 121/2009) filed by the Department against this judgment of the Larger Bench of Tribunal has been dismissed by Honble Karnataka High Court vide judgment dated 23/3/2011 reported in 2011 TIOL 395 HC (KAR).
8. On the question of eligibility for Cenvat credit of service tax on outward transportation of finished goods from the factory/ Depot to the customers premises, the Central Board of Excise and Customs has issued a Circular No. 97/6/2007-ST dated 23/8/07, wherein it has been clarified that the GTA service availed for outward transportation of the goods from the factory/depot to the customers premises would be treated as input service only when the place of removal of the goods is the customers premises or in other words the sale transaction is on FOR destination basis. As per the Boards clarification in this Circular, for treating a sale transaction as on FOR destination basis, the following three conditions must be satisfied :-
(i) the ownership of goods and the property in the goods remain with the seller of the goods till the delivery of the goods in acceptable condition to the purchaser at his door step ;
(ii) the seller bears the risk of loss of or damage to the goods during transit to the destination ; and
(iii) the freight charges are integral part of the price of goods.
According to the Boards Circular, if the above three conditions are satisfied or in other words the assessable value of the goods on which duty is paid is the FOR destination price, the Cenvat credit of the service tax on freight upto the customers premises would be admissible. Based on this Circular of the Board, Honble Punjab & Haryana High Court in the case of CCE, Ludhiana vs. Gujarat Ambuja Cements Limited reported in 2009 (14) S.T.R. 3 (P & H) has held that the service of outward transportation of finished goods from the factory/depot to the customers premises can be treated as input service if the above-mentioned conditions of the Board Circular dated 23/08/07 are satisfied.
9. In terms of the decision of the Honble Punjab & Haryana High Court in the case of Gujarat Ambuja Cements Ltd. Laid and the Boards Circular, it has to be concluded that if the value of the service availed by the assessee does not form part of the assessable value on which Central Excise duty is payable, that service can not be treated as input service for the purpose of Cenvat credit. As such the main question required to be decided in the present appeal is as to whether the sales were on FOR basis.
10. It is seen that the said question was put to the Learned Senior advocate, during the course of hearing who proceeded on the assumption that the assessable value of the said spare part was being determined under section 4 of the Central Excise Act, 1944. However, subsequent to the conclusion of hearing, the appellant vide their letter dated 16.09.2013 submitted that the spare parts were actually being assessed under section 4A of the Central Excise Act. However, it stands contended that even after deducting the amount of statutory abatement, the assessable value would be in excess of the total amount recovered by them from its dealers including the said courier charges and as such it can be safely concluded that the cost of the courier service is included in the value of the spare parts. As such it is pleaded in the said letter that the appellant submissions deserves to succeeded irrespective of whether the assessable value of the said spare parts was being determined under section 4 or under section 4A of the Act.
11. We find that the Tribunal in the case of M/s Ultra Cement Ltd. vide its order final order No. 58257-58259 dated 18.11.2013 has considered the said issue of clearance of goods under section 4A of the final product and has come to the following finding:-
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.
10.1 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 Hoble 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.
12. In view of the above declaration of law by the Tribunal, it has to be held that where the final product is being cleared either under specific rate of duty or in terms of the MRP declaration as per section 4A of the Act, the place of removal would be factory gate. If that be so the Cenvat credit of Service Tax paid on the courier services from upto the factory gate would not be available to the appellant.
13. However, in terms of the said decision of the Tribunal in the case of ultra Cement, the benefit of limitation stands extended to the appellant. The Tribunal, while extending the benefit of limitation has observed as under:-
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 the Case of ABB Limited and Hobble 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.
14. Inasmuch as show cause notice in the present case stands issued on 19.02.2009 for the period April 2006 to December 2008, the major part of the demand would be barred by limitation. However, a small portion would fall within the limitation period for which the matter is being remanded for quantification of the demand falling within the limitation period.
15. As regards penalty, as we have already observed that the assessee has not suppressed or had any malafide and the issue was bonafide interpretation of law, the imposition of penalty would not be justified. The appeal is disposed of in above manner.
(Pronounce in the open Court on.)
(Archana Wadhwa)
Member (Judicial)
(Manmohan Singh) Member (Technical)
Jyoti*
M/s Hero Motocorp Ltd. Pronounce on 21.07.2014
Excise Appeal No. 1261/2010-EX(DB)
PER MANMOHAN SINGH:
16. I have gone through the order of Ld. Member (Judicial)). Vide Para 12 pf the Order, it has been concluded that where the final product is being cleared either under specific rate of duty or in terms of the MRP declaration as per Section 4A of the Act, the place of removal would be factory gate. If that be so, the CENVAT Credit of Service tax paid on the Courier Service from or upto the factory gate would not be available to the appellant. I concur with this finding.
17. However, on the point of limitation, the order has relied upon tribunals Final Order No.58257-58259 dated 18.11.2003 in the case of M/s Ultra Tech Cements Ltd which was a case in which, a plea was made and was accepted on limitation on the ground that for the period prior or 01.04.2008 the longer period of limitation is not invokable in view of the conflicting decisions in the case of Gujarat Ambuja Cement Ltd. as reported in 2009 (236) ELT 431 (P & H) and the decision of the Larger Bench of the Tribunal in ABB Ltd. case reported in 2009 (15) STR 23 (Tri. LB) which was upheld by the Honble Karnataka High Court vide judgement reported in 2011 (23) STR 97 (Kar.) and which view was also endorsed by the Honble Gujarat High Court in case of M/s Parth Poly Wooven Pvt. Ltd. reported in 2012 (25) STR 4 (Guj.). On this aspect, I find that in ABB Ltd. case before the Larger Bench, the issue before the Honble Tribunal was never in relation to Section 4A or specific rate of duty. Further, when the same matter went up to Karnataka High Court. The Honble High Court had made it clear in Para 15 and 16 that the expression place or removal in its application is to be confined for the purpose of Section 4 only. Meaning thereby that the decision has no applicability in case of assessment under Section 4A and under specific rate of duty.
18. Now, next coming to the judgment of the Honble Gujarat High Court, the issue again was never in relation to Section 4A of specific rate of duty. Further, the judgment of Honble Punjab and Haryana High Court as reported in 2009 (236) E.L.T. 431 (P & H) which has been relied upon to show the conflict of view, the matter did not pertain to clearances which were effected under Section 4A on the basis of MRP based assessment or for assessment based on specific rate of duty.
19. Therefore, I find that there has not been any conflict of judgments on the point as to whether in relation to assessment under Section 4A or for specific rate of duty, the place or removal would be factory gate or not. In fact, I find that there is hardly been any ambiguity on his aspect and even the case of M/s ABB Ltd. decided by the Honble Karnataka High Court clearly pronounced that its observations and conclusions are only for assessment under Section 4 of the Central Excise Act, 1944.
20. In view of the foregoing, I am not convinced about the reasoning of there being conflicting judgments on this aspect resulting in extended period no being invokable on this ground.
21. In view of the foregoing finding on the aspect of limitation, I uphold the findings of the authorities below and do not subscribe to the view that extended period of limitation can not be invoked, as there was a conflict of judgments existing on this aspect.
(MANMOHAN SINGH) MEMBER (TECHNICAL) K. Gupta Difference of Opinion Whether bar of limitation as prescribed under rule 14 of the Cenvat credit rule 2004 read with Section 11A of Central Excise Act, 1944 is invokable and Cenvat credit was not recoverable for extended period as held by Member (Judicial).
Or Whether bar of limitation as prescribed under rule 14 of the Cenvat credit rule 2004 read with Section 11A was not attracted and Cenvat credit was recoverable as held by Member (Technical).
(MANMOHAN SINGH) (ARCHANA WADHWA)
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
K. Gupta
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
West Block No.2, R. K. Puram, New Delhi, Court No. 1
Date of hearing: 15.04.2014
Date of decision: 04.07.2014
Central Excise Appeal No. 1261 of 2010
M/s Hero Motocorp Limited Appellant
Vs.
CCE, Delhi-II Respondent
Appearance:
Shri S. Ganesh, Sr. Advocate & Sh. P. K. Ram, Advocate for the appellant
Sh. R. K. Mishra, DR for the Respondent
Coram: Honble Mr. S. S. Kang, Vice-President
Per: S. S. Kang:
The following difference of opinion has been referred to the third Member.
Whether bar of limitation as prescribed under rule 14 of the Cenvat Credit Rule 2004 read with Section 11A of Central Excise Act, 1944 is invokable and Cenvat Credit was not recoverable for extended period as held by Member (Judicial);
Or Whether bar of limitation as prescribed under Rule 14 of the Cenvat Credit Rule, 2014 read with Section 11A was not attracted and cenvat credit was recoverable as held by Member (Technical).
2. Brief facts of the case are that the appellant are engaged in the manufacture of automobile parts, components and assemblies. The appellant were availing cenvat credit of central excise duty paid inputs and capital goods and service tax paid on input services as per the provisions of Cenvat Credit Rules, 2004. In the present case, show cause notice dated 19.02.2009 was issued to the appellant denying credit of service tax paid on courier services availing for despatch of goods to their customers. The case of the revenue is that the credit of service tax paid on outward freight is not admissible as the same is not covered by the definition of input services as provided under Rule 2(I) of the Cenvat Credit Rules. Learned Member (Judicial) held that the major portion of the demand is barred by limitation. A small portion would fall within the limitation period for which the matter was remanded to the adjudicating authority for quantification of demand, learned Member (Judicial) also held that the appellant had not suppressed or had any malafide intention to avail payment of duty hence the imposition of penalty is not sustainable.
3. Learned Member (Technical) held that the extended period of limitation is invokable.
4. After hearing both the sides, I find that the issue regarding credit of service tax paid on outward transportation is subject matter of many decisions of the Tribunal as well as of the Honble High Court. The matter was referred to the Larger Bench in the case of ABB Limited vs. CCE&ST, Bangalore 2009 (15) STR 23 (Tri. LB).
18. For admissibility to credit for outward transportation there is no requirement that the cost of freight should enter into the transaction value of the manufactured goods. According to the department, since the cost of outward transportation does not form part of the transaction value of the manufactured goods as defined in Section 4 of the Central Excise Act, 1944, any service tax paid for the outward transportation of goods from place of removal cannot be allow as credit to the manufacturer, although, the question of denial of credit does not arise if the cost of the freight is included in the transaction value. However this stand is not tenable. In other words, credit is not to be automatically disallowed in those cases where the freight cost does not part of the transaction value.
5. The revenue filed appeal before the Honble Karnataka High Court and the Honble Karnataka High Court dismissed the appeal reported in 2011 (230) STR 97 (Kar.). The Honble High Court held that prior to 01.04.2008, when the definition of input service has been amended the credit of service tax paid on output service is admissible.
6. Now, a contrary view has been taken by the Honble Calcutta High Court in the case of CCE, Kolkata-IV vs. Vesuvious India Limited (CEXA No. 8 of 2013) vide order dated 28.11.2013 taken a contrary view.
7. The show cause notice was issued only on the ground that credit of service tax paid on outward transportation is not admissible in view of definition of the input service. The credit is not being denied on the ground that the freight is not part of assessable value or any reason. The only allegation in the show cause notice is that the appellant has wrongly availed credit which is not admissible and deliberately suppressed the fact with intent to evade payment of duty.
8. Appellants were regularly filing statutory returns and also utilising the same. In these circumstances and in view of the decision of Larger Bench decision of the Tribunal in the case of ABB Limited (supra) which is upheld by the Karnataka High Court. I agree with the view taken by the ld. Member (Judicial) that the allegation of suppression of facts with intent to evade payment of duty is not sustainable hence the demand beyond the normal period is not sustainable. As the allegation of suppression is not sustainable, hence I agree with the view taken by ld. Member (Judicial) in respect of imposition of penalties also.
(Pronounced on 04/072014).
(S. S. Kang) Vice-President Pant Final Order No. 52897 /2014-Ex(DB) In view of the majority decision, major part of the demand is held to be barred by limitation and is accordingly set aside. However, a part of the demand, which falls within the limitation period is required to be recalculated by the lower authorities. Further, penalty imposed upon the appellant is also set aside.
Appeal is disposed of in the above terms.
(Pronounced in the Court on 21.07.2014 )
( Archana Wadhwa ) Member(Judicial)
( Manmohan Singh )
Member(Technical)
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