COMMISSIONER OF CENTRAL EXCISE SERVICE TAX versus ULTRA TECH CEMENT LTD.
[2018] 6 S.C.R. 651, Supreme Court of India, 2018
Outcome: Appeal(s) allowed (Granted)
Segment: Ratio
A
B
C
D
E
F
G
H
651
COMMISSIONER OF CENTRAL EXCISE SERVICE TAX
v.
ULTRA TECH CEMENT LTD.
(Civil Appeal No. 11261 of 2016)
FEBRUARY 01, 2018
[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]
Cenvat Credit Rules, 2004 – r.2(I) – Cenvat Credit facility
availed by assessee during the period from January, 2010 to June,
2010 on outward transportation of goods through a transport
agency from their premises to the customer’s premises – Admissibility
of – Held: Not admissible – It is clear from the bare reading of the
r.2(I), as amended in the year 2008, 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 r.2(I) “input
service” of the Rules – It is only ‘upto the place of removal’ that
service is treated as input service – Thus, once the final products
are cleared from the factory premises, extending the credit beyond
the point of clearance of final product is not permissible under
Cenvat Credit Rules and post clearance use of services in transport
of manufactured goods cannot be input service for the manufacture
of final product.
Cenvat Credit Rules, 2004 – r.2(I), as amended in 2008 –
Effect of amendment – Held: The original definition of ‘input service’
contained in r.2(I) of the Rules,2004 used the expression ‘from the
place of removal’ – However, vide amendment in the year 2008, the
word ‘from’ is replaced by the word ‘upto’ –
Now as per the  original
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 after the
amendment, 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 –
The word ‘from’ is the indicator of starting point, whereas the
expression ‘upto’ signifies the terminating point, putting an end to
the transport journey.
   [2018] 6 S.C.R. 651
651
A
B
C
D
E
F
G
H
652
SUPREME COURT REPORTS
[2018] 6 S.C.R.
Allowing the appeal, the Court
HELD:  1. The assessee is involved in packing and clearing
of cement.  It is supposed to pay the service tax on the aforesaid
services.  At the same time, it is entitled to avail the benefit of
Cenvat Credit in respect of any input service tax paid.  Input
service tax was also paid on the outward transportation of the
goods from factory to the customer’s premises of which the
assessee claimed the credit.  The question is as to whether it can
be treated as ‘input service’. ‘Input service’ is defined in Rule
2(I) of the Rules, 2004. It is an admitted position that the instant
case does not fall in sub-clause (i) to r.2(I) and the issue is to be
decided on the application of sub-clause (ii) to r.2(I).  Reading of
the clause (ii) provision makes it clear that those services are
included which are used by the manufacturer, whether directly or
indirectly, in or in relation to the manufacture of final products
and clearance of final products ‘upto the place of removal’.
[Paras 4, 5 and 6] [656-A-C, F-G]
2.  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, 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.  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. The word ‘from’ is the
indicator of starting point, whereas the expression ‘upto’ signifies
the terminating point, putting an end to the transport journey.
[Para 7] [656-G-H; 657-A-D]
A
B
C
D
E
F
G
H
653
3. The 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. 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.
Furthermore, 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.
[Paras 10, 11 and 12] [659-B-C; 661-E-F]
Commissioner of Central Excise Belgaum v.
M/s. Vasavadatta Cements Ltd. (Civil Appeal No. 11710
of 2016) decided by Supreme Court of India vide
Judgment dated 17.01.2018 – referred to.
CIVIL APPELLATE JURISDICTION:  Civil Appeal No.11261
of 2016.
From the Judgment and Order dated 29.06.2016 of the High Court
of Karnataka at Bengaluru in Central Excise Appeal No.52/2015.
K. Radhakrishnan, Sr. Adv., Ms. Nisha Bagchi, Arijit Prasad,
Shirin Khajuria, Rajat Nair, Abhay Kumar, B. Krishna Prasad, Advs. for
the Appellant.
V. Lakshmi Kumaran, L. Badri Narayanan, Aditya Bhattacharya,
Victor Das, Ms.Apeksha Mehta, M.P. Devanath, Advs. for the
Respondents.
The Judgment of
the Court was delivered by
A.K. SIKRI, J. The core issue involved in the present case is
with regard to the admissibility or otherwise of the Cenvat Credit on
Goods Transport Agency service availed for transport of goods from the
place of removal to buyer’s premises.  This issue has arisen in the
following factual background:
The respondent M/s. Ultratech Cement Ltd. (hereinafter referred
to as the ‘assessee’) is involved in packing and clearing/forwarding of
COMMISSIONER OF CENTRAL EXCISE SERVICE TAX v.
ULTRA TECH CEMENT LTD.
A
B
C
D
E
F
G
H
654
SUPREME COURT REPORTS
[2018] 6 S.C.R.
cement classifiable under Chapter sub heading 25232910 of Central
Excise Tariff Act, 1985, with Central Excise Registration No.
AAACL6442LEM014.  The assessee is also availing the benefit of
Cenvat Credit facility under the Cenvat Credit Rules, 2004 (‘Rules, 2004’
for short).  The assesseeherein gets finished goods (cement) from its
parent unit on stock transfer basis and sells the same in bulk form and
packed bags.  The assessee during the period from January, 2010 to
June, 2010 availed Cenvat Credit of service tax paid on outward
transportation of goods through a transport agency from their premises
to the customer’s premises.  According to the appellant/Revenue, the
transport agency service used by the assessee for transportation of their
final product from their premises to customers premises cannot be
considered to have been used directly or indirectly in relation to clearance
of goods from the factory viz., place of removal in terms of Rule 2(l) of
the Rules and as such cannot be considered as input service to avail
Cenvat credit.
Accordingly, the Office of the Commissioner of Central Excise:
Bangalore II Commissionerate issued show cause notice dated
February 3, 2011 to the assessee inter alia stating that on scrutiny of
ER-1 return submitted by the assessee for the period January, 2010 to
June, 2010, it was noticed that the assessee have wrongly availed the
Cenvat Credit of Service Tax paid on outward
transportation of goods
from the factory to the Customer’s premises, inasmuch as the Goods
Transport Agency Service  used for the purpose of outward transportation
of the goods from factory to customer’s premises is not input service
within the ambit of Rule 2(l)(ii) of the Rules, 2004.  It was further
mentioned that the total Cenvat Credit claimed was in the sum of Rs.
25,66,131/- and the assessee was called upon to show cause as to why
the said amount be not recovered and penalty be not imposed.  The
assessee submitted its reply to the show cause notice contesting the
position contained therein.
2. After hearing, the Adjudicating Authority passed Order-in-
Original dated August 22, 2011 holding that once the final products are
cleared from the factory premises, extending the credit beyond the point
of clearance of final product is not permissible under Cenvat Credit
Rules and post clearance use of services in transport of manufactured
goods cannot be input service for the manufacture of final product.
A
B
C
D
E
F
G
H
655
Further, the Adjudicating Authority held that CBEC vide its Circular
No. 97/8/2007-ST dated August 23, 2007 has clarified the definition of
place of removal.  With respect to fulfillment of requirement of Circular
dated August 23, 2007, it was held that the assessee has not produced
any documentary evidence to prove that conditions laid down vide Circular
dated August 23, 2007 has been fulfilled.  Accordingly, the Adjudicating
Authority passed the order as under:
“(i)  Demanding the irregular Cenvat credit availed on outward
transportation of goods amounting to Rs.25,66,131/- under Rule
14 of Cenvat Credit Rules, 2004 read with Section 11A of Central
Excise Act, 1944;
(ii)  Demanding interest under Rule 14 of Cenvat Credit Rules,
2004 read with Section 11AB of Central Excise Act, 1944 read
with Section 75 of the Finance Act, 1994;
(iii)  Did not order for initiation of action under Rule 15(1) of
Cenvat Credit Rules, 2004 read with Rule 25 of Central Excise
Rules, 2002;
(iv)  Imposed penalty of Rs.25,66,131/- under Rule 15(3) of Cenvat
Credit Rules, 2004;
(v)  Imposed penalty of Rs.1,00,000/- under Rule 25 of Central
Excise Rules, 2002.”
3. Aggrieved by the Order-in-Original No. 24/2011 dated August
22, 2011, respondent/assessee preferred an appeal before Commissioner
(Appeals).  The Commissioner (Appeals) vide Order-in-Appeal No.
57/2012-CE dated March 15, 2012 allowed the appeal and set aside the
Order-in-Original holding that assessee is eligible for
availment of service
tax paid on GTA service on the outward freight from the factory to the
customers’ premises as per the Board’s Circular 97/8/2007-Service Tax
dated August 23, 2007.  It was now the turn of the Revenue to feel
aggrieved by the order.  Accordingly, appeal was filed before the Customs,
Excise and Service Tax Appellate Tribunal (CESTAT) by the Revenue
which was rejected vide judgment dated May 1, 2015.  Further appeal to
the High Court preferred by the assessee has met the same fate as the
said appeal has been dismissed by the High Court of Karnataka vide its
judgment dated June 29, 2016, which is the subject matter of the present
appeal.
COMMISSIONER OF CENTRAL EXCISE SERVICE TAX v.
ULTRA TECH CEMENT LTD. [A.K. SIKRI, J.]
A
B
C
D
E
F
G
H
656
SUPREME COURT REPORTS
[2018] 6 S.C.R.
4.  As mentioned above, the assessee is involved in packing and
clearing of cement.  It is supposed to pay the service tax on the aforesaid
services.  At the same time, it is entitled to avail the benefit of Cenvat
Credit in respect of any input service tax paid.  In the instant case, input
service tax was also paid on the outward transportation of the goods
from factory to the customer’s premises of which the assessee claimed
the credit.  The question is as to whether it can be treated as ‘input
service’.
5. ‘Input service’ is defined in Rule 2(l) of the Rules, 2004 which
reads as under:
“2(l) “input service” means any service:-
(i)  Used by a provider of taxable service for providing an output
services; 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 upto 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;”
 6. It is an admitted position that the instant case does not fall in
sub-clause (i) and the issue is to be decided on the application of sub-
clause (ii).  Reading of the aforesaid provision makes it clear that those
services are included which are used by the manufacturer, whether
directly or indirectly, in or in relation to the manufacture of final products
and clearance of final products ‘upto the place of removal’.
7. 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
A
B
C
D
E
F
G
H
657
of removal’ to the warehouse or customer’s place etc., was exigible for
Cenvat Credit.  This stands finally decided in Civil Appeal No. 11710 of
2016 (Commissioner of Central  Excise Belgaum v. M/s. Vasavadatta
Cements Ltd.) vide judgment dated January 17, 2018. 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.  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) in
the following manner:
“… The input service has been defined to mean any service used
by the manufacturer whether directly or
indirectly and also
includes, interalia, services used in relation to inward transportation
of inputs or export goods and outward transportation upto the
place of removal.  The two clauses in the definition of ‘input
services’ take care to circumscribe input credit by stating that
service used in relation to the clearance from the place of removal
and service used for outward transportation upto the place of
removal are to be treated as input service.  The first clause does
not mention transport service in particular.  The second clause
restricts transport service credit upto the place of removal.  When
these two clauses are read together, it becomes clear that transport
services credit cannot go beyond transport upto the place of
removal.  The two clauses, the one dealing with general provision
and other dealing with a specific item, are not to be read
disjunctively so as to bring about conflict to defeat the laws’ scheme.
The purpose of interpretation is to find harmony and reconciliation
among the various provisions.
COMMISSIONER OF CENTRAL EXCISE SERVICE TAX v.
ULTRA TECH CEMENT LTD. [A.K. SIKRI, J.]
A
B
C
D
E
F
G
H
658
SUPREME COURT REPORTS
[2018] 6 S.C.R.
15.  Credit availability is in regard to ‘inputs’.  The credit covers
duty paid on input materials as well as tax paid on services, used
in or in relation to the manufacture of the ‘final product’.  The
final products, manufactured by the assessee in their factory
premises and once the final products are fully manufactured and
cleared from the factory premises, the question of utilization of
service does not arise as such services cannot be considered as
used in relation to the manufacture of the final product.  Therefore,
extending the credit beyond the point of removal of the final product
on payment of duty would be contrary to the scheme of Cenvat
Credit Rules.  The main clause in the definition states that the
service in regard to which credit of tax is sought, should be used
in or in relation to clearance of the final products from the place
of removal.  The definition of input services should be read as a
whole and should not be fragmented in order to avail ineligible
credit.  Once the clearances have taken place, the question of
granting input service stage credit does not arise.  Transportation
is an entirely different activity from manufacture and this position
remains settled by the judgment of Honorable Supreme Court in
the cases of Bombay Tyre International 1983 (14) ELT, Indian
Oxygen Ltd. 1988 (36) ELT 723 SC and Baroda Electric Meters
1997 (94) ELT 13 SC.  The post removal transport of manufactured
goods is not an input for the manufacturer.  Similarly, in the case
of M/s. Ultratech Cements Ltd. v. CCE, Bhatnagar 2007 (6) STR
364 (Tri), it was held that after the final products are cleared from
the place of removal, there will be no scope of subsequent use of
service to be treated as input.  The above observations and views
explain the scope of relevant provisions clearly, correctly and in
accordance with the legal provisions.”
8. 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
A
B
C
D
E
F
G
H
659
(Appeals) has been approved by the CESTAT as well as by the High
Court.  This was the main argument advanced by the learned counsel
for the respondent supporting the judgment of the High Court.
9. We are afraid that the aforesaid approach of the Courts below
is clearly untenable for the following reasons:
10. 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.  Relevant portion of the said circular is as under:
“ISSUE: Up to what stage a manufacturer/consignor can take
credit on the service tax paid on goods transport by road?
COMMENTS: This issue has been examined in great detail by
the CESTAT in the case of M/s Gujarat Ambuja Cements Ltd.
vs CCE, Ludhiana [2007 (6) STR 249 Tri-D]. In this case,
CESTAT has made the following observations:-
“the post sale transport of manufactured goods is not an input
for the manufacturer/consignor. The two clauses in the definition
of ‘input services’ take care to circumscribe input credit by stating
that service used in relation to the clearance from the place of
removal and service used for outward transportation upto the place
of removal are to be treated as input service. The first clause
does not mention transport service in particular. The second clause
restricts transport service credit upto the place of removal. When
these two clauses are
read together, it becomes clear that transport
service credit cannot go beyond transport upto the place of
removal. The two clauses, the one dealing with general provision
and other dealing with a specific item, are not to be read
disjunctively so as to bring about conflict to defeat the laws’ scheme.
The purpose of interpretation is to find harmony and reconciliation
among the various provisions”.
Similarly, in the case of M/s Ultratech Cements Ltd vs CCE
Bhavnagar 2007-TOIL-429-CESTAT-AHM, it was held that after
the final products are cleared from the place of removal, there
will be no scope of subsequent use of service to be treated as
input. The above observations and views explain the scope of the
relevant provisions clearly, correctly and in accordance with the
COMMISSIONER OF CENTRAL EXCISE SERVICE TAX v.
ULTRA TECH CEMENT LTD. [A.K. SIKRI, J.]
A
B
C
D
E
F
G
H
660
SUPREME COURT REPORTS
[2018] 6 S.C.R.
legal provisions.  In conclusion, a manufacturer / consignor can
take credit on the service tax paid on outward transport of goods
up to the place of removal and not beyond that.
8.2  In this connection, the phrase ‘place of removal’ needs
determination taking into account the facts of an individual case
and the applicable provisions. The phrase ‘place of removal’ has
not been defined in CENVAT Credit Rules. In terms of sub-rule
(t) of rule 2 of the said rules, if any words or expressions are used
in the CENVAT Credit Rules, 2004 and are not defined therein
but are defined in the Central Excise Act, 1944 or the Finance
Act, 1994, they shall have the same meaning for the CENVAT
Credit Rules as assigned to them in those Acts. The phrase ‘place
of removal’ is defined under section 4 of the Central Excise Act,
1944. It states that,-
“place of removal” means-
(i)   a factory or any other place or premises of production or
manufacture of the excisable goods ;
(ii)  a warehouse or any other place or premises wherein the
excisable goods have been permitted to be stored without payment
of duty ;
(iii)    a depot, premises of a consignment agent or any other place
or premises from where the excisable goods are to be sold after
their clearance from the factory;
from where such goods are removed.”
It is, therefore, clear   that for a   manufacturer /consignor, the
eligibility to avail   credit of the service tax paid on the
transportation
during removal of excisable goods would depend upon the place
of removal as per the definition.  In case of a factory gate sale,
sale from a non-duty paid warehouse, or from a duty paid depot
(from where the excisable goods are   sold, after their clearance
from the factory), the determination of the ‘place of removal’
does not pose much problem. However, there may be situations
where the manufacturer /consignor may claim that the sale has
taken  place at  the destination point because in terms of the sale
contract /agreement (i) the ownership of goods and the property
in the goods remained with the seller of the goods till the delivery
A
B
C
D
E
F
G
H
661
of the goods in acceptable condition to the purchaser at his door
step; (ii) the seller bore the risk of loss of or damage to the goods
during transit to the destination; and (iii) the freight charges were
an integral part of the price of goods. In such cases, the credit of
the service tax paid on the transportation up to such place of sale
would be admissible if it can be established by the claimant of
such credit that the sale and the transfer of property in goods (in
terms of the definition as under section 2 of the Central Excise
Act, 1944 as also in terms of the provisions under the Sale of
Goods Act, 1930) occurred at the said place.”
11. As can be seen from the reading of the aforesaid 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.
12. 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.
13. The upshot of the aforesaid discussion would be to hold 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.  Accordingly, this appeal is allowed, judgment of the
High Court is set aside and the Order-in-Original dated August 22, 2011
of the Assessing Officer is restored.
Ankit Gyan
                                Appeal allowed.
COMMISSIONER OF CENTRAL EXCISE SERVICE TAX v.
ULTRA TECH CEMENT LTD. [A.K. SIKRI, J.]