Custom, Excise & Service Tax Tribunal
Softgel Healthcare Pvt. Ltd vs Commissioner Of Central Excise on 3 May, 2016
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT CHENNAI
Appeal No. E/40313/2015
[Arising out of Order-in-Appeal No.9/2014 (M-III) dt. 10.11.2014 passed by the Commissioner of Central Excise (Appeals-I), Chennai]
Softgel Healthcare Pvt. Ltd.
Appellant
Versus
Commissioner of Central Excise,
Chennai-III Respondent
Appearance:
Shri M. Karthikeyan, Advocate For the Appellant Shri S. Mohan, AC (AR) For the Respondent CORAM:
Honble Shri P.K.Choudhary, Judicial Member Date of hearing :01.04.2016 Date of Pronouncement : 03.05.2016 FINAL ORDER No.40709/2016 M/s Softgel Healthcare Private Limited, hereinafter referred to as appellants are engaged in the manufacture of P & P Medicaments and Dietary Supplements falling under Chapter Sub Headings 30049099 & 21069099 of the First Schedule to the Central Excise Tariff Act 1985 respectively. The besides are availing the facility of cenvat credit on inputs, capital goods and input services and utilizing the same for payment of duty of the said products manufactured and cleared. The appellant was issued a show cause notice No.12/2012-C.Ex. dated 10.04.2012 and SCN No.26/2012 dt. 16.06.2012 (Page Nos 29 to 36 of this appeal paper book) issued on them. In the said notice it was clearly pointed out that the service tax credit of Rs.1,50,366/- and Rs. 14,658/- availed by them during the period form 2007-2008 to December 2011 in respect of Outward Transportation of final products on the basis that the said services cannot be considered as an input service and it was proposed to recover the said credit under Rule 14 of Cenvat Credit Rules 2004 read with proviso to Section 11A (1) of the Central Excise Act, 1944 along with demand of interest. It was also proposed to impose penalty under Rule 15 (2) of the Rules read with Section 11AC of the Act. It was further stated in the show cause notice that the appellant had utilized the wrongly availed cenvat credit to the tune of Rs.92,013/- and Rs.2,710/- towards the payment of duty, which was also proposed to be demanded.
2. To the above show cause notice the appellant had, sent their reply vide letter dated 03.01.2013 contending that they are eligible to take credit of service tax on the freight expenses incurred towards export outward transportation of goods manufactured. The appellants also submitted in terms of purchase order, they are bound to deliver the goods at the customers place wherein the actual sale of goods takes place. It was further submitted by the appellant that the ownership of the goods remained with the appellants, till they are actually delivered to the customer and the risk of loss during the transit is also borne by them. The appellant placed reliance on the Master Circular dated 23.08.2007 and also various decisions in their favour. The appellants also submitted sample copies of purchase orders, evidencing that the contracts entered with the overseas buyers are of CIF Basis.
3. The Deputy Commissioner of Central Excise, Tambaram-I vide Order in Original No. 06/2013 dated 24.01.2013 confirmed the entire demand of Rs. 2,59,747/- under Rule 15 (2) of Cenvat Credit Rules 2004.
4. Aggrieved with the above said Order in Original dated 24.01.2013, the appellant preferred an appeal before the Commissioner of Central Excise (Appeals), Chennai. The Commissioner (Appeals) vide his Order in Appeal No. 09/2014 dated 10.11.2014 rejected the appeal preferred by the appellant and upheld the above said Order in Original in respect of the credit availed by the appellant for the period from April2008 to December 2011 for a sum of Rs.1,62,740/- relying on the judgment of the Honble Supreme Court of India in the case of Maruthi Suzuki Ltd. Vs CCE Delhi (2009 (240) ELT 641 (SC) and the decision of the Honble Tribunal in the case of CCE Chennai Vs Sundaram Brake Linings - (2010 (19) STR 172).
5. Aggrieved with the above said Order in Appeal dated 10.11.2014 passed by the Commissioner (Appeals), Chennai , the appellant had filed their appeal with the Tribunal.
6. Heard both sides. The appellant contended, inter alia, that the order of the lower authority confirming the recovery of the credit availed on input services such as outward freight by stating that the said services will not fall within the definition of "input services" is not sustainable; that from the definition of the term service as contained in Rule 2(1) of the Cenvat Credit Rules 2004, prior to amendment vide Notification No. 03/2011 dated 01.03.2011, it may be observed that the scope of the said definition is very wide and covers a spectrum of services availed by a Manufacturer; that the services can be used in or in relation to manufacture and clearance of the final product either directly or indirectly; that the service tax credit on freight paid towards outward transportation of finished goods falls very well within the definition of the input services; that the term outward transportation upto the place of removal still remains within the definition of "input services" even after the amendment; that in the present case, the appellant had incurred freight charges for outward transportation of finished goods for exports from the place of manufacture to the customer premises. The purpose of manufacturer is to enable the goods manufactured to reach the customer's premises. That the appellant are liable to deliver the goods to the customers premises as per the terms of their contract and hence the sale of impugned goods occurred only at the buyers premises; that since the goods have been sold by them at the customers premises, the place of removal would be the customers premises and thus the freight charges incurred on outward transportation can be considered as an activity indirectly relating to the manufacture of final products; that the physical removal of goods from the place of manufacture to the customers premises would fall within the inclusive part of the definition of input services; that there is no restriction imposed on the rule to the effect that the place of removal is restricted within India and it cannot be made applicable for the finished goods delivered outside India; that the CBEC has issued a Master Circular bearing No. 97/8/2007 dated 23.08.2007, clarifying the technical issues involved in the service tax and in the instant case it is not in dispute that the freight charges paid on the impugned clearances from the factory gate to the customers premises is borne by them; that in other words, the entire freight charges for the outward transportation are incurred and paid by the appellants; that it is also not in dispute that such freight charges paid by the appellants are not collected from the customer but are included in the assessable value upon which excise duty has been paid by them; that in other words, the appellants have not collected the freight charges from their customers but collected excise duty while clearing their final products to their customer; thus it can be seen that the Board has clearly clarified that in a situation where a manufacturer effects sale at the destination point (customers premises) in terms of the sale contract / agreement whereby the ownership of the goods remain with the seller / manufacturer of the goods till the delivery of goods in acceptable condition to the purchaser at his doorstep, the seller / manufacturer bears the risk of loss or damage to the goods during transit to the destination; that freight charges were an integral part of the price of the goods, the cenvat credit of the service tax paid on the transportation up to such place of sale would be admissible; that in the instant case, all the conditions stipulated in the Master Circular No. 97/6/2007 dated 23.08.2007 issued by CBEC have been duly complied.
7. The Learned A.R reiterated the findings in the impugned Order-in-Appeal with particular reference to para 6 of the said judgement reading as under:
Consequent to amendment to the definition of input service, with effect from 01.04.2008, cenvat credit on outward transportation of goods was allowable only when it involved transportation of goods upto the place of removal. Prior to 01.04.2008, the definition of input service allowed credit in respect of transportation from the place of removal. In this case, it is not in dispute that the outward transportation of goods was from the place of removal i.e from the Appellants factory. Thus, it is evident that the impugned service fell outside the ambit of input service as defined under Rule 2(1) of the Rules with effect from 01.04.2008.
8. In this case, the issue is with regard to eligibility of input service credit on outward transportation of the appellants final products which are cleared for exports from the place of manufacture to the customers premises. On a perusal of the various aspects of the matter, it is not in doubt that the appellants are liable to deliver the goods to their overseas customers. The freight charges incurred on outward transportation is therefore an activity relating to the manufacture of final products. I find that the ruling of this Tribunal in the case of M/s. Hyundai Motor India Ltd Vs Commissioner of Central Excise, Chennai reported in 2016-TIOL-767-CESTAT-MAD supports their contention. The relevant portion of the said judgment is extracted below:-
. the following rulings hold that in the case of export of goods, the place of removal is the port from where the goods are exported ---
- CCE, Madurai vs Tata Coffee Lex - 2013-TIOL-209-CESTAT, Madras.
- Amalgamations Repco Ltd vs CCE, Chennai and others 2012-TIOL-369, CESTAT-Mad
- Dynamic Industries vs CCE, Daman 2012-TIOL-1514-CESTAT-AHM The crux of the above and other allied case laws is that it is the undisputed policy of the Government not to burden the export goods with domestic taxes as has been noted in various decisions of the Tribunal. The reasons are obvious. Generally it is not intended to make domestically produced goods, when exported to the foreign market, to become uncompetitive, by means of increase in cost. No country wants to export the domestic taxes meant to be levied on domestic consumption of goods and services. Countries either exempt such taxes in respect of goods to be exported including taxes relating to inputs used in the export goods, or there are alternative schemes for providing rebate, drawback of duties suffered by export goods. India is no exception as we also have similar schemes. There are also schemes making available duty-free goods and services for export production. In the event of the benefit of cenvat credit being denied, it would contribute to inescapable rise in costs, making exports uncompetitive in the global market.
9. The Learned A.R stressed on the findings of the Adjudicating Authority. It is observed that in para 5 of the said order, the Deputy Commissioner has observed that the case laws cited by the assessee are not relevant to the case in hand, as this is a credit of service tax paid for transportation of goods for an export transaction. The value taken by any export benefit / calculations, the FOB value is the criteria. Accordingly, the place of removal for an export benefit / calculations, the FOB value is the criteria. Accordingly, the place of removal for an export transaction is deemed to be the factory gate of the manufacturer. This finding by the adjudicating authority is erroneous and contrary to the ruling of this Tribunal in the case of Hyundai Motors referred to supra.
10. The period of dispute in the instant case is from April 2008 to December 2011. The appellant has contended that the following conditions stand satisfied in the instant case.
1. The ownership of the goods and the property in the goods remain with us till the delivery of the goods;
2. We bear the risk of loss or damage to the goods in transit till the Customers premises;
3. Freight / Insurance charges are integral part of the price of the goods
4. The sale and transfer of property in goods (in terms of Section 2 of the Central Excise Act, 1944 and in terms of Sale of Goods Act, 1930 occurred at the customers premises; that in the instant case, the ownership and the property in goods remained with the appellants till the delivery of the goods at the customers premises, the risk of loss or damage of the goods during transit is borne by the appellants and the freight charges are integral part of the price of the goods upon which central excise duty has been paid.
It is not the case of the revenue that the above conditions are not satisfied in the appellants case. By following the ruling of this Tribunal in the case of Hyundai Motors referred to supra, I hold that the appellants are eligible for credit. The revenue has placed reliance on the judgment of this Tribunal in the case of CCE, Chennai-II Vs Lucas TVS Limited. and others vide its Final Order No. 40353 to 40379/2016 dated 2.2.2016. This judgment, in my view, only supports the contentions of the appellant and relevant portion of para 14 of the said judgment reproduced below bears testimony for the same:
So far as the export of goods are concerned, following the aforesaid rationale, the service tax paid availing transportation service shall be admissible to the Cenvat Credit or refundable where that is not possible to be set off against future liability. By also following the ruling of this Tribunal in the case pertaining to M/s Lucas TVS Limited cited supra, the credit availed by the appellant on outward transportation of export of goods is eligible. In view of the settled legal position and in view of the above case laws and the Circular, I am of the view that Port is to be construed as the place of removal' for the purpose of exports. As regards customs house agent service and wharfage charges, I am of the view that the same are eligible for cenvat credit in view of the nexus in existence between the goods manufactured and the services under dispute which are essential for export, the same is qualified for credit. Having decided that the place of removal is the Port, I hold that the appellants are eligible for cenvat credit on GTA, CHA and wharfage charges. Since credit is held to be eligible for the appellants, levy of penalty is also set aside. Appeal is therefore allowed in the above terms.
(Order pronounced in open court on 03-05-2016) (P.K.CHOUDHARY) JUDICIAL MEMBER gs 9