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• Igta. CcLI : File No : V2(84) 44 /Ahd-I/2014-15

Stay Appl.No. 28/2014-15

• 3TLITF 311tT ti€0-11 Order-In-Appeal Nos. AHM-EX US-001-APP-62-2014-15

it-4T Date : 03.11.2014 71t cm4 Thbf 111-(51. Date of Issue 11 \ 1,

4ft 3.1fd-R _al-rzr4yr (artirF-I) gkr zrrita

Passed by Shri. Anil Kumar, Commissioner (Appeal-I)

Tr Deputy,Commissioner, *-4rzr iq A'bad-I 7rtr tqr arrat

MP/21/Dem/DC/2013 fiCa: 31/3/2014

Arising out of Order-in-Original No.MP/21/Dem/DC/2013 Dated : 31/3/2014 issued by Deputy Commr., Cen. Excise„Division-III, Ahmedabad-I.

• 3711—d-T-di 9Tli \rq: 1“ Name & Address of the Appellant / Respondent

Chamunda Pharma Machinery Pvt. Ltd.

AHMEDABAD

arrgYr •(-r al-4F arre-vr ar-49:-dr ar-T1-4 t 45 *tr arr-a-zr Trft zr2irRerft q-dic Trc veiTr arferm-rt artliF zrr 3-9--trarur arrkq-ff wct-d- •414K11 t I

Any person a aggrieved by this Order-In-Appeal may file an appeal or revision application, as the one may be against such order, to the appropriate authority in the following way :

lircd ito7K iffftefur arr*-4-9 Revision application to Government of India :

sr-d 31141=4711'T 1994 chr) zINT 31—d-d. WaT7 TT7 TTIPTai 4 rkt--0. ZTRT TIT

\3 ■-r—trm 7.11:1 3frdliff TitiaTuf 3frt-C aTzir9. twok, fam four, t2ir 41-4# 414 ti•riq ft-M't : il000i col met 7-rt we'o71 co A revision application lies to the Under Secretary, to the Govt. of India, Revision Application Unit Ministry of Finance, Department of Revenue, 4th Floor, Jeevan Deep Building, Parliament Street, New Delhi - 110 001 under Section 35EE of the CEA 1944 in respect of the following case, governed by first proviso to sub-section (1) of Section-35 ibid :

(ii) .41'4 met s-r1 #-Fr 4 v14 tfir cr)Ndi,) 9-u-sr#17 zrr 31-71 crtui-r zrr Ircr-Frr7 Tri7 li-cr-Frk- 1-11c4 zrr zrr 11TT3H tit c16

coNdi zrr 9-17--FrR- 4 thof mei critzrr tr# tri (ii) In case of any loss of goods where the loss occur in transit from a factory to a warehouse or to another factory or from one warehouse to another during the course of processing of the goods in a warehouse or in storage whether in a factory or in a warehouse.

wz-z zrr -srks-r fltilracr HI ci zir ther ur -ci-zh-Tr ctYr,

1-11c4 zr7 \ictriq-r -1'4z TI-F0 9-rzff *.kr-e f'-zir zrr crtzr ti

(b) In case of rebate of duty of excise on goods exported to any country or territory outside India of on excisable material used in the manufacture of the goods which are exported to any country or territory outside India.

irft 71- yr-ffrq fs7 girTd- wrn (Agra- s'r) itzir Jim Jim tri (70

(c) In case of goods exported outside India export to Nepal or Bhutan, without payment of duty.

affti ■icillgri Thal t ISEFUF ftc Sfre 4-11-4 MD1 4I“ 3tt tRk 3litZT

URI frEFf TdTftT 31.111-dff, 311:ita. 7-ql- tin 3filf 1:17 TIT Ei I thTh' 31tfrzi9 (-4.2) 1998

WM- 109 gkr ftzIOTr

(d) Credit of any duty allowed to be utilized towards payment of excise duty on final products under the provisions of this Act or the Rules made there under and such order is passed by the Commissioner (Appeals) on or after, the date appointed under Sec.109 of the Finance (No.2) Act, 1998.

(1) t-41-7 Q0414-1 (3-T4ta.) t11-11c1 , 2001 ffiTPI 9 * atd-Tfu ffird1=4-Ez VIM tICctl Tc-8 AftTllt

trltd arre-vr arrtsr 1-dcf ft-4rs" dl•-r 4-11ti * Atd7 Icf-3T1tT 31417 arrtzr tr—i

trifid-41- TiNT 3TeC(9 u11-11 Writc I \.itIc TINT RIOT Th-T @Ca77114 tIRT

1.1107 rrn ISTM-F tIckcf TITQT aarR—s Taidirr St yea trt

The above application shall be made in duplicate in Form No. EA-8 as specified under Rule, 9 of Central Excise (Appeals) Rules, 2001 within 3 months from the date on which the order sought to be appealed against is communicated and shall be accompanied by two copies each of the 010 and Order-In-Appeal. It should also be accompanied by a copy of TR-6 Challan evidencing payment of prescribed fee as prescribed under Section 35-EE of CEA, 1944, under Major Head of Account.

(2) 13-1t- 31*(9- Rirai c14-f (PJ-1 1;c1, af€1 WcIR!E TIT 4)14 tf -T1-4 200 / — Ebti

Th‘DI sft7 ticriJ•i ,L1141 l000/— mar Stu yr-d-ri Alci

The revision application shall be accompanied by a fee of Rs.200/- where the amount involved is Rupees One Lac or less and Rs.1,000/- where the amount involved is more than Rupees One Lac.

#171 t4P4 ■icV141 74. ,t)cilctrf 3TM-Azi ITEITftTh7171 V cr WI@

Appeal to Custom, Excise, & Service Tax Appellate Tribunal.

(1) *--4RT 304N9- 31tre4EFf, 1944 Met WU 35-4i/ 35—

Under Section 35B/ 35E of CEA, 1944 an appeal lies to :-

(s)

u4liciror teflicb-r 1-4-4fka Tirr0- Atm *-411:1 'crq clictr1 31n4

St Wrcr tit-sr 3. 3117. *. 13-11, -14 cl") .crq

(a) the special bench of Custom, Excise & Service Tax Appellate Tribunal of West Block No.2, R.K. Puram, New Delhi-1 in all matters relating to classification valuation and.

3

(f) \AI el ef q 2 (1) -44 W017 3171.7 3T7TUT Thci 314M, 3T4s(A. Ttirr a4-11 Tht4Rf

‘30-114-1 crd 4014),Z 31n4 .1T41-10M-73T (Itite) The) 41/44 8WRE tirdTh-T, 31-61Warq 4 34-20,

604-Idef 4,44-thiu5, *flu4 -PH, 374-414M-380016.

(b) To the west regional bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) at 0-20, New Metal Hospital Compound, Meghani Nagar, Ahmedabad : 380 016. in case of appeals other than as mentioned in para-2(i) (a) above.

(2) *4171 ■30-114-1" (31-Eltd-) .RL11-114cn, 2001 Thipt ZITZ 3tifltd. 1449. tg-3 14-dftt rth-K 31717

31.1tA'RI RTRIT14WRI4 Thx) arcird- f=m-q Trq arrtsr qed-er a 1/4,161 \3cLiic

err 144 347 (1411q1 411 Tti4T \1/2)1-N 5 T-qR TIT ‘3,e14. t 1000 /- 14.4 '474l

tit I e161 mai R:117 Thet 4i4 31‘R e1 ■ 11q1 4Iqf Tlf4T \1/4)1N 5 TIT 50 .1-€1 elq, u'r

-1:17 5000 /- 1:6DM tilt I ‘3161 \30-114 "23W Met Thnf litIT 347 c1411qI 41q1 TIcf9T W:17 50

zrr 1/4,LINT t <46i wrg l0000/— thti tilt t16Iqq? •11•eCk 414

.i11-4;e1 .40 TI71 ‘1,0-1 ,t4eltU 'et uii4 I ‘3i1 7-244 Wit) 4445 ilIcielict) M aco

WIFKT Th-T elef 3-4Tf -LIR1114-eur Thal lit t I ta M 3421- T47 500 /- INT

1)-741 ?nit I

The appeal to the Appellate Tribunal shall be filed in quadruplicate in form EA-3 as prescribed under Rule 6 of Central Excise(Appeal) Rules, 2001 and shall be accompanied against (one which at least should be accompanied by a fee of Rs.1,000/-, Rs.5,000/- and Rs.10,000/- where amount of duty / penalty / demand / refund is upto 5 Lac, 5 Lac to 50 Lac and above 50 Lac respectively in the form of crossed bank draft in favour of Assn. Registar of a branch of any nominate public sector bank of the place where the bench of any nominate public sector bank of the place where the bench of the Tribunal is situated. Application made for grant of stay shall be accompanied by a fee of Rs.500/-.

tik arrts-t cni ante m-r Tfm-br 6 or t ffi Ijsr atr-cu M Itq mere- yr-drq wcrtovr

4 A itzrt A-rffq .221 er0. AI fkGT TiSr mrd a4 M IturItA-14 ar41-41-a -4<r, 3T4(a' zir th-414 111,i ct>1 3ITt44. fth-41 ellen I

In case of the order covers a number of order-in-Original, fee for each 0.1.0. should be paid in the aforesaid manner not withstanding the fact that the one appeal to the Appellant Tribunal or the one application to the Central Govt. As the case may be, is filled to avoid scriptoria work if excising Rs. 1 lacs fee of Rs.100/- for each.

(4) aTffilkali 1970 T12T1 ifterRiff met 3TTP-1 3iff4a f4tliftfl. it7 3171R 30T1 31*44 41

10 arit7T TRITR-Q-ilt 1=4449 lAchl`a 3Tit2T AMT Thl 1;41 WM- TR T.6.50 It M-1

ftW-e c181 61dr -rft-R

One copy of application or 0.1.0. as the case may be, and the order of the adjournment authority shall a court fee stamp of Rs.6.50 paise as prescribed under scheduled-I item of the court fee Act, 1975 as amended.

* -1 TrFra't -1-4Hut (pt)- cue) Th-trtft met N'tq Ill arm arrm-Ra t 3ftTrr *4Rf \30-04-1. kr4 i)clictr1 (cnitilia) friFf, 1982 ThitA

Attention in invited to the rules covering these and other related matter contended in the Customs, Excise & Service Tax Appellate Tribunal (Procedure) Rules, 1982.

(3)

(5)

V2(84)/44/AHD-I/2014-15

4

ORDER-IN-APPEAL

The present appeal has been filed by M/s Chamunda Pharma Machinery Pvt.

Ltd., situated at 7602, Phase-IV, GIDC,Vatva, Ahmedabad, Gujarat -382445 (hereinafter

referred to as "the appellant"), along with Stay Application against Order-In-Original No.

MP/21/DEM/DC/2013, dated 31.03.2014 (hereinafter referred to as the "impugned

order") passed by the Deputy Commissioner, Central Excise, Division-III, Ahmedabad-I

(hereinafter referred to as the "adjudicating authority").

2. The brief facts of the case is that the appellant had wrongly taken the

Cenvat Credit of Service Tax amounting to Rs.1,06,866/- paid on Outward

Transportation of finished goods cleared to their customers. Out of the total amount of

Rs. 1,06,866/-, the appellant has availed Rs.50,874/- during the period from 01.04.2008

to 07.04.2011 and Rs. 55,992/- during the period from 08.04.2011 to 31.03.2013.A Show

Cause Notice was issued to the appellant for contravention of Rule 2 (I) read with Rule 3

of the Cenvat Credit Rules, 2004, as they had taken credit of Service Tax paid on above

mentioned services which did not qualify as "input services" as per Rule 2(1) of Cenvat

Credit Rules, 2004,; and Rule 9(6) of the Cenvat Credit Rules, 2004. Penalty was

proposed to be imposed under Rule 15 of the Cenvat Credit Rules and interest also

proposed to be charged under Rule 14 of the CCR, 2004 read with Section 11A of the

Central Excise Act, 1944.

3. The Show Cause Notice was adjudicated vide the impugned Order,

wherein the adjudicating authority has disallowed the Cenvat Credit of Service Tax of

Rs. 50,874/- availed during the period from 01.04.2008 to 07.04.2008 and Rs.39,603/-

availed during the period from 2011-12 to 2012-13. He has allowed the Cenvat Credit of

Service Tax of Rs. 4386/-( for the period from 30.04.2011 to 30.03.2012) and Rs.12003

(for the period from 08.04.2012 to 30.03.2013) He has imposed a Penalty of Rs.52,937/-

on the appellant under Rule 15 of the Cenvat Credit Rules, 2004 and ordered the

recovery of interest under Section 11 AB & Section 11AA of the Central Excise Act,

1944.

4. Being aggrieved by the said order, the appellant has filed an appeal

against the impugned order on the following grounds:

(i) The adjudicating authority has allowed the credit on some transactions and

disallowed the same on other transactions without giving any reason.

(ii) Once the sales have taken place on F.O.R. destination basis, then it is the

premises of the customer which is the place of removal.

(iii) The credit on exports have been disallowed without considering the evidences

produced and case law relied.ln case of exports, where goods are sold on FOB/

basis, place of removal is any port from where goods are exported out of India. ,,

(iv) Value of outward freight after the place of removal is not required to be includett:..

in the valuation of goods. Once the department accepts the assessment of goodht,

V2(84)/44/AHD-1/2014-15

5

for the purposes of excise to include freight it would mean that the department is

accepting the fact that the outward freight is for transportation of goods to the

place of removal.

(v) All the facts are stated in the statutory records, therefore there can be no

question of even averring that there is suppression justifying the larger period.

(vi) Penalty is wrongly imposed on them, as there were many orders of the higher

authorities and Departmental circular in their favour.

5. Personal hearing was held on 12.09.2014 wherein Shri Niray Shah,

Advocate and Shri Jimit Nikhar, Excise Incharge, appeared before me on behalf of the

appellant and reiterated the submissions made in their grounds of appeal and requested

that their appeal be allowed.

6. I have gone through the facts of the case and find that the main issue to

be decided is whether the Cenvat Credit of Service Tax paid by the appellant on

Outward transportation service used for removal of goods, is admissible to the appellant

or otherwise. I find that the adjudicating authority has disallowed the Cenvat Credit of

Service Tax of Rs. 50,874/- availed during the period from 01.04.2008 to 07.04.2008 and

Rs.39,603/- availed during the period from 2011-12 to 2012-13. He has allowed the

Cenvat Credit of Service Tax of Rs. 4386/-( for the period from 30.04.2011 to

30.03.2012) and Rs.12003 (for the period from 08.04.2012 to 30.03.2013) He has

imposed a Penalty of Rs.52,937/- on the appellant under Rule 15 of the Cenvat Credit

Rules, 2004 and ordered the recovery of interest under Section 11 AB & Section 11AA

of the Central Excise Act, 1944.

7. On going through the facts of the case, I find that the appellant has

availed Cenvat Credit of service tax paid on outward transportation in two cases i.e.

(I) In cases where they have exported the goods, wherein the place of removal is

Port;

(II) In cases where they have cleared goods in DTA, which the appellants have

claimed that they haye been supplied on FOR basis and that the ownership of the

goods lied with the appellant till the goods were delivered to the buyers.

8. The definition of the term "input services" as defined in Rule 2(1) of

Cenvat Credit Rules, 2004 at the relevant period, is re-produced below:

"Input service" means any service

used by a provider of taxable service for providing an output service; or used by the manufacturer, whether directly or indirectly, in or in relation to the

manufacture of final products and clearance of final products unto the place of removal.;

and includes services used in relation to setting up, modemization, 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

There are only two questions to be decided. The first is what would be the place cfri-

removal in such cases. I find that the clarification issued by the CBEC in the circular cited

V2(84)/44/AHD-I/2014-15

6

networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation up to place of removal."

(emphasis supplied)

[*Note: The words "clearance of final products upto the place of removal" as mentioned in the

above definition, have been substituted for the words "clearance of final products from the place of

removal" by Notification No. 10/2008-CE(NT) dated 1.3.2008 w.e.f. 1.4.2008]

9. I find that definition of the term "input services" was amended by

Notification No.10/2008-CE(NT) dated 1.3.2008 w.e.f. 1.4.2008, as such the

amended provisions are applicable to the present appeal as the period involved is from

May'2012 to Feb'2013.

10. I, now take up the issue of admissibility of Cenvat Credit of

service tax paid on outward transportation in cases where they have exported

the goods, wherein the place of removal is the port;

11. Circular No. 97/ 8 /2007 ST, 23rd August, 2007, has clarified many

issues related to service tax. Para 8 of the circular deals with Cenvat Credit of

service tax and concept of "Place of removal". Therefore, it is required to

understand as to what the circular has to say. The Para No.8.1 & 8.2 of the

Boards' Circular has clarified as under:

"8.1 (c) 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 11,7/s Gujarat Ambuja Cements Ltd. v. CCE, Ludhiana [2007 (6) S.T.R. 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 v. CCE., Bhavnagar - 2007 (6) S.T.R. 364 (Tn.) = 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 iri

accordance with the 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.

V2(84)/44/AHD-I/2014-15

7

above is very relevant and therefore para 8.2 of the circular is reproduced below:

"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 (i)

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- 0) a factory or any other place or premises of production or manufacture of the excisable goods; (10 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 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."

12. From the above circular, it is quite clear that in case where the sale is on

FOB/CIF basis, the place of removal has to be the load port only. Further the definition

of input services also has been defined to mean any service rendered in relation to

outward transportation up to the place of removal. Since, input service includes services

rendered for outward transportation up to the place of removal, all the service tax paid to

facilitate goods to reach the place of removal has to be eligible for the benefit of

CENVAT credit.

13. Hon'ble Punjab & Haryana High Court in case of Ambuja Cement Ltd.

v. Union of India reported at 2009 (236) ELT 431 (P&H), relying upon the above circular

of the Board has held that Cenvat credit of service tax paid on GTA services availed for

outward transportation of the finished goods up to the buyer's premises would be

admissible if the sales are on FOR destination basis, in term of the criteria prescribed for

this, in the Board's Circular dated 23-8-2007.

14. CESTAT, New Delhi, in the case of M/s. Aarti Steel Ltd., in its decision

reported at 2013 (29) STR 494 (Tr.Del.), has held that :

"Cenvat credit of Service Tax - GTA service - Cenvat credit of GTA service used in the outward

transport of finished goods sold on FOR basis - Customer's/buyer's premises can be treated as the "place of

removal" for the purpose of Rule 20) of Cenvat Credit Rules, 2004, for availing Cenvat credit of GTA service

V2(84)/44/AHD-1/2014-15

8

used in the outward transport of finished goods sold on FOR basis only when sales are on FOR destination

basis in terms of the critefia prescribed in the Board's Circular No. 97/6/2007-S.T, dated 23-8-2007 and

goods attract duty at ad valorem rate on value determined under Section 4 of Central Excise Act, 1944 - Rule 2M ibid. Mara 6]"

15. Hon'ble High Court of Karnataka, in the case of M/s. Triveni Engineering & Indus. Ltd. reported at 2012 (26) STR 406 (Kar.) has held as under:

Cenvat - Goods transportation agency - Service tax paid beyond place of removal - If Service tax is

paid on transportation charges it fell within the phrase "clearance of final products from the place of removal"

and assessee was entitled to Cenvat credit - Issue squarely covered by decision of Division Bench of High Court dated 23-3-2011. [pars 3]

16. CESTAT, Mumbai, in the case of M/s. Oriental Containers Ltd., reported at 2012 (28) STR 397, has held as under:

Cenvat credit - Input - GTA services - Transport of goods from factory to port of export of goods on

FOB/GIF basis - HELD : Goods were delivered on board the vessel - In that view, place of delivery/removal

was port of shipment on board the vessel - Cost of transportation from factory to port of shipment became

part of value of goods, and whatever service have been availed upto that point became input service on

which exporter could take credit of Service Tax paid - It was more so as Section 4 of Central Excise Act,

1944, contemplates place other than factory also as a place of removal where sales are effected after

clearance from factory - Rules 2(1) and 3 of Cenvat Credit Rules, 2004. (pare 6]

17. CESTAT, Ahmedabad, in the case of Meghmani Dyes and Intermediates

Ltd., reported at 2010 (261) ELT 507 (Tri.Ahmd.), has held that :

Cenvat credit of Service Tax - Service tax on outward transportation charges - In view of Larger

Bench decision in ABB Ltd., Cenvat credit on Service tax paid on outward transportation of final products

available - Rule 2(1) of Cenvat Credit Rules, 2004. [para 4]

18. In light of the above mentioned judgements of various Tribunals and Hon'ble High Courts, I hold that the CENVAT credit of the service tax paid by them

towards Outward Transportation Service for export of goods, is admissible to the appellants.

19. I, now take up the issue of admissibility of Cenvat Credit of service tax

paid on outward transportation in cases wherein the goods have been cleared in DTA,

which the appellants have claimed that they have been supplied on FOR basis and that

the ownership of the goods lied with the appellant till the goods were delivered to the buyers.

20. A plain reading of the Rule 2(1) and Rule 3(1) of Cenvat Credit Rules

makes it clear that the manufacturer can avail credit of input services which must 1',

be directly or indirectly used in or in relation to the manufacture of final product or r

for providing output service. In this case the user test is not satisfied. It is his

V2(84)/44/AHD-I/2014-15

9

submission that the user test is a guiding factor and requires to be determined for

allowing any Cenvat credit of the input services. It is also his submission that the

important requirement which is inherent in the definition of input service is that

there must be nexus in the input services and final product or input output

services, which in this case is absent.

21. From the facts of the case, I construe that the appellant has also

availed Cenvat Credit of outward transportation paid for clearance of goods in

Domestic market. In such cases, if the factory gate is the place of removal, the

manufacturer is eligible for the cenvat credit of input services availed till the

factory gate. If the appellant's claim that the transportation services have been

availed after the removal from the factory and that the buyer's end is the place of

removal, then in such case, it is pertinent to establish that the sale occurred at the

buyer's end. A plain reading of the Rule 2(1) and Rule 3(1) of Cenvat Credit Rules

makes it clear that the manufacturer can avail credit of input services which

must be directly or indirectly used in or in relation to the manufacture of

final product or for providing output service.

22. RULE 5 of The Central Excise Valuation (Determination of Price of

Excisable goods) Rules, 2000, stipulates as under:

Where any excisable goods are sold in the circumstances specified in clause (a)

of sub-section (1) of section 4 of the Act except the circumstances in which the excisable

goods are sold for delivery at a place other than the place of removal, then the value of

such excisable goods shall be deemed to be the transaction value, excluding, the cost of

transportation from the place of removal up to the place of delivery of such excisable

goods.

Explanation 1. - "Cost of transportation" includes —

(i)the actual cost of transportation; and (ii) in case where freight is averaged, the cost

of transportation calculated in accordance with generally accepted principles of costing.

Explanation 2. - For removal of doubts, it is clarified that the cost of transportation

from the factory to the place of removal, where the factory is not the place of

removal, shall not be excluded for the purposes of determining the value of the

excisable goods.

22.1. Explanation 2 of the above Rule clearly mentions that when the factory

gate is not the place of removal, then the cost of transportation from the factory to the

place of removal should be included in the assessable value of the excisable goods. If

contract is F.O.R. basis and sale takes place only when goods are delivered to buyer

(i.e. property in goods passes to buyer at destination only), transport charges are

includible in assessable value.

23. In ordinary circumstances the cost incurred for inward transportation or

receipt of inputs for the manufacturers is undoubtedly considered as expenses incurred

V2(84)/44/AHD-I/2014-15

10

towards an input service. However, in circumstances when the cost of transportation has

been incurred for clearing or transportation of final goods, in order to check whether the

same is an input service, the primary fact essentially to be checked is whether this cost

of transportation has been included in the value of the excisable goods; i.e. whether the

cost of transportation has been added in the value of the goods. To include the cost of

transportation in the assessable value it is mandatory that the same should be a part of

the assessable value on which Central Excise duty has been paid. This means that the

transportation cost should invariably be included in the value of the excise invoice. It is

also important to ascertain as to who i.e. whether the manufacturer or the buyer, is

paying the Service Tax on transportation charges and as to who will take the Cenvat

credit of the same. However, when the cost of transportation has not at all been included

in the assessable value of the manufacturer, which is a mandatory requirement, this

itself is proof enough to determine that the cost of transportation is not to be considered

as an input service for him and as such the Cenvat Credit of Service Tax paid on such

charges, is not admissible to the manufacturer.

24. When the manufacturer is bearing the cost of transportation of goods till

the buyer's end, it should inevitably form a part of his assessable value and Excise duty

ought to be paid on the same. If the manufacturer bears the cost of transportation and

does not pay excise duty on the same, it would amount to undervaluation under

Valuation Rules implying that the manufacturer has evaded payment of Central Excise

duty.

25. The Hon'ble Supreme Court in the case of M/s. Bombay Tyres

International Ltd. has drawn the line at the factory gate up to which all the cost incurred

to make the goods complete and marketable has to be included in the price. The Costs

incurred beyond the factory gate are not includible. In this case, it has been held that the

value of the article for the purpose of levy of excise duty shall include all costs and

expenses which have given the article its marketability.

26. Section 4 of the Central Excise Act, 1944, reads as :

4 (1) : where under this Act, the duty of excise is chargeable on any excisable goods

with reference to their value, then, on each removal of the goods, such value shall -

(a) In a case where the goods are sold by the assesses, for delivery at the time and

place of the removal, the assessee and the buyer of the goods are not related and the

price is the sole consideration for the sale, be the transaction value.

(b) In any other case, including the case where the goods are not sold, be the value

determined in such manner as may be prescribed.

27. As per Rule 5 of the above rules, "where any excisable goods are sold in

the circumstance specified in Clause (a) of Sub-section (1) of Section 4 of the Act except

the circumstance in which the excisable goods are sold for delivery at a place other than. '

the place of removal, then the value of such excisable goods shall be deemed to be- (1))77/

I

V2(84)/44/AHD-1/2014-15

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transaction value, excluding the actual cost of transportation from the place of removal

up to the place of delivery of such excisable goods provided, the cost of transportation is

charged to the buyer in addition to the price for the goods and shown separately in the

invoice for such excisable goods.

28. In the case of M/s. Escorts JCB Ltd. reported at 2002 (146) ELT 31

(S.C.), the Hon'ble Supreme Court has held as under:

Valuation (Central Excise) - Place of Removal - Freight and insurance during transit of goods

arranged by the assessee - Goods sold at Ex-factory price for delivery at Ex-works - Transit risk and

insurance on buyer of the goods from the time goods are handed over to buyer's representative or from the

time goods leave assessee's premises - Buyers name not shown in the Transit Insurance Policy - Freight

and transit insurance charged from the customer - HELD: Sales are Ex-factory and "place of removal" is the

factory premises - Section 4 of the Central Excises Act, 1944 - Sections 23 and 39 of Sale of Goods Act,

1930. Maras 7, 8, 12, 131

29. The Hon'ble High Court of Punjab and Haryana, in its judgment reported

at 2009 (14) STR 3 (P&H), in the case of M/s. Ambuja Cements Ltd. has held as under:

"Cenvat credit of Service tax - Input service - Goods Transport Agency service - Outward freight whether an

input service when freight paid by manufacturer up to customer's doorstep - CB.E. & C. Circular No.

97/6/2007-S.T., dated 23-8-2007 clarifying impugned issue, binding on Department - Credit admissible if

ownership of goods remain with seller till defivery at customers doorstep - Transit insurance bome by

appellant and property in goods not transferred to buyer till delivery - Freight charges forming part of value

of excisable goods and borne by appellant as sale on FOR destination basis - Outward transportation upto

place of removal defined as input service during material period - All three conditions in circular satisfied -

Credit admissible.

29.1. In para 8, Para 11 to 15, it has been observed as under:

"8. It is clear from the definition (of place of removal) 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. The circular further contemplates compliance of certain conditions where the

sale has taken place at the destination point. The aforementioned part of the circular reads as under :-

" 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 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,

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1944 as also in terms of the provisions under the Sale of Goods Act, 1930) occurred at the said

place."

11. The only question then is whether the appellant fulfills the requirement of circular. The first requirement is that the ownership of the goods and the property therein is to remain with the seller of the goods till the delivery of the goods in acceptable condition to the purchaser at his door step. The aforesaid condition has to be considered to be fulfilled because the supply of cement by the appellant to its customer is 'FOR destination'. The appellant also bears the freight in respect thereof up to the door step of the customer. The freight charges incurred by it for such sale and supply at the door, step of the customer are subjected to service tax which is also duly paid by the appellant. Moreover, the definition of expression 'input service' is available in Rule 2(1) of the CC Rules, which reads thus :-

"2(1) "input service" means any service, -

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;"

12. The 'input service' has been defined to mean any service used by the manufacturer whether directly or indirectly and also includes, inter alia, services used in relafion to inward transportation of inputs or export goods and outward transportation up to the place of removal. It has also remain un-controverted that for transportation purposes insurance cover has also been taken by the appellant which further shows that the ownership of the goods and the property in the goods has not been transferred to the seller till the delivery of the goods in acceptable condition to the purchaser at his door step. Accordingly, even the second condition that the seller has to bear the risk of loss or damage to the goods during transit to the destination stand fulfilled.

13. The third condition that the freight charges were integral part of the excisable goods also stand fulfilled as the delivery of the goods is "FOR destination' price. This aspect has been specifically pointed out in para 2.2 of the reply dated 12-4-2006 given to the show cause notice. Therefore, we are of the view that the first question is liable to be answered in favour of the assessee and against the revenue.

14. Once the first question has been answered in favour of the assessee and against the revenue then it is evident that there is no contravention and violation of any of the provisions of law and the credit has been lawfully availed. Therefore the allegation concerning not availing the service within the meaning of 'input service' and irregular availment of credit could not be sustained. Then the question of payment of interest does not arise and the answer to the second question consequently would be against the revenue and in favour of the assessee.

15. As a sequel to the above, both the questions of law are answered against the revenue and in favour of the assessee.

30. The Principal Bench of CESTAT, New Delhi in the case of M/s. Swastik

Industries, reported at 2010 (19) STR 220 (Tri. New Delhi) has held as under:

Cenvat credit of Service tax - Input service - Credit on GTA service for outward transportation of finished

goods from factory to customer's premises - C.B.E. & C. Circular dated 23-8-2007 clarifying that credit of

Service tax paid on GTA service for outward transportation admissible only if sales made on FOR basis and

ownership of goods in transit remained with supplier - Sales claimed as made on FOR basis without

producing any evidence - Cenvat credit not admissible - Rules 2(1) and 14 of Cenvat Credit Rules, 2004.

[paras 1, 4]

°Lev'

.4 I • ■ -■•••mll

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30.1. In Para 4, the Tribunal has observed as under:

4. / have carefully considered the submissions of teamed D.R. and perused the record. In terms of

Board's Circular No. 97/6/2007-S.T, dated 23-8-2007, Cenvat credit of service tax paid on GTA service

availed on outward transportation of finished goods from the factory gate to Customer's premises would be

available only if the sales are on F.O.R. destination basis, that for this purpose three conditions must be

satisfied, namely that ownership of the goods during transit remain with the manufacturer/supplier, the risk of damage to the goods or loss of goods during transit is of manufacturer supplier and the freight charges

for the transportation up to the customer's premises is an integral part of the price charged by the

manufacturer from the customer or in other words the price is inclusive of freight charges up to the

customer's premises is assessable value on which duly is paid. It is on the basis of this circular only that the

Hon'ble Punjab & Haryana High Court in the case of M/s. Ambuja Cements Ltd. (supra) held that Cenvat

credit of service tax paid on GTA service availed for outward transportation of the goods would be available

in the cases where sales are on F.O.R. destination basis, In this case there is only claim of the appellants

that their sales are on F.O.R. destination basis without any cogent evidence produced by them. In the

absence of any evidence, the appellant's claim that their sales were on F.O.R. basis cannot be accepted. In

view of this, Cenvat credit of service tax paid on outward transpodation would not be admissible. Therefore,

I do not find any infirmity in the impugned order. Appeal is dismissed.

31. CESTAT, New Delhi, in its judgment in the case of M/s. Hero Honda

Motors Ltd., reported at 2011 (274) ELT 89 (Tri. Del.), has held as under:

"Stay/Dispensation of pre-deposit - Cenvat/ Modvat - Input service - Courier service availed for dispatch of

final product from factory to customers during period prior to 1-3-2008 - Admissibility of credit of Service tax

paid on Courier service - Appellant not produced any evidence to show that assessable value of goods

included courier charges - Department having good arguable case - Subject to deposit of Rs. 75 lakhs within

stipulated period, waiver granted in respect of pre-deposit of balance amount of demand, interest and

penalty, and recovery thereof stayed - Rule 2(1) of Cenvat Credit Rules, 2004 - Section 35F of Central Excise Act, 1944. —

If the value of a sen4ce availed by assessee does not form part of assessable value on which Central

Excise duly is payable, that service cannot be treated as an Input service' for the purpose of Cenvat credit,

as permitting the Cenvat credit in respect of such a service will destroy the VAT character of the tax.

Therefore, prima facie, correct interpretation of the term 'input service' as defined in Rule 2(0 of Cenvat

Credit Rules, 2004 is the one which is compatible with the concept of Value Added Tax. Thus,

notwithstanding judgment of Larger Bench in case of ABB Ltd. v. Commissioner, on the issue as to whether

during period prior to 1-3-2008, Cenvat credit of Service tax paid on outward freight was available, when the

sales were not on FOR destination basis and freight was not part of the assessable value, the Department still has a good arguable case. [paras 6, 7, 8]

31.1. In para 6, the Tribunal has observed as under.,

".......the judgment of Hon'ble Punjab & Haryana High Court links the availability of Cenvat credit in

respect of GTA service for outward transport of the finished goods to the customes premises, to the

Transaction being on FOR destination basis or in other words the customer's premises being the '

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removal ' and the assessable value of the goods on which excise duty is paid includes the element of freight

upto the Customer's premises. Hon'ble Bombay High Court in case of Coca Cola India Pvt. Ltd. v. CCE, Pune-III reported in 2009 (242) E.L.T. 168 (Bom.) = 2009 (15) S.T.R. 657 (Bom.) holding that advertising

services availed by the Appellant - a manufacture of soft drink concentrates, for marketing of the aerated

waters manufactured by the bottlers, is an input service for them, has, in para 32A and 33 of the judgment

observed that rechristening of the "Central excise duty" as "Cenvat" w.e.f. 12-5-2000 by amendment to

Section 3 of the Central Excise Act, 1944, would show that manifest object of the legislature is to levy and

collect excise duty as a value added tax and in para 38 of the judgment has observed that -

"In other words, credit of input service must be allowed on expenditure incurred

by the assessee which form a part of the assessable value of the final product. If the

above is not done, as sought to be done by the department in the present cases, it will

defeat the very basis and genesis of the Cenvat i.e. value added tax".

A corollary to the above principle would be that if the value of a service availed by an assessee does

not form part of the assessable value on which central excise duty is payable, that service cannot be treated

as an "input service" for the purpose of Cenvat credit, as permitting the Cenvat credit in respect of such a

service will destroy the VAT character of the tax. We are, therefore, of prima facie view that correct

interpretation of the term 'input service' as defined in Rule 2(1) of CCR, 2004 is the one which is compatible

with the concept of Value Added Tax."

31.2. Para 7 of the said order reads as under:

" ...... Cenvat credit of Service tax paid on outward freight was available, when the sales were not on FOR

destination basis and the freight was not part of the assessable value the Department, still has a good

arguable case. In this case, the appellant have not produced any evidence to show that the

assessable value of the goods included the courier charges for despatching the same to the

customers."

32. I find that it is essential to study the present case vis-a-vis the

above cited judgments, circular and Rules. On perusal of the documents produced

by the appellants, I observe as under:

32.1. The first requirement for establishing that the outward transportation was

input service for the appellant is that the ownership of the goods and the property therein

should remain with them till the delivery of the goods in acceptable condition to the

purchaser at his door step. The aforesaid condition cannot be considered to be fulfilled

because the supply of goods to its customer is not on 'FOR destination'. The appellant

also bears the freight in respect thereof up to the door step of the customer. The freight

charges incurred by it for such sale and supply at the door step of the customer are

subjected to service tax which is also duly paid by the appellant.

32.2. The second condition is that the appellant has to bear the risk of loss or

Obvi.y/

damage to the goods during transit to the destination i.e the buyer's end. The appellant - ''

V2(84)/44/AHD-I/201 4 - 15

15

in this case has not produced any evidence to prove their case.

32.3 The third condition that the freight charges were integral part of the

excisable goods also stand unfulfilled as freight is not included in any of the Excise

invoices produced by the appellant. This is evidence enough to prove that the delivery of

the goods is not based on "FOR destination' and that the sale did not take place at the

buyer's end, but it took place at the factory premises.

33. When none of the above questions have been answered in favour of the

appellant, then it is clearly evident that there has been violation of the above provisions

of law and the credit has been unlawfully availed. The invoices and the purchase orders

produced by the appellant do not indicate that freight charges or the outward

transportation has not been paid by them and that the same has not been included in the

assessable value of the excisable goods. It is customary in normal trade parlance that

the buyer pays for the outward freight and hence neither the freight charge paid after the

removal of goods from the factory gate nor the Excise duty paid on it, is not indicated in

the sales invoices. If the place of removal is any place beyond the factory gate, then the

outward freight charges are includible in the assessable value for calculation of Excise

duty paid on the goods cleared. However, in such cases, it is again customary to

specifically show the outward freight amount either in the invoice or in a sales agreement

or any other valid record. Here in this case, even though the appellant has stated that

the outward freight charges have been included in the assessable value and Excise duty

has been paid on such charges, he has failed to produce any evidence in support of his

claim. In absence of the appellant not coming up with any sort of evidence in support of

his claim, I am left with no alternative but to deny the Cenvat Credit of Service Tax paid

on outward transportation for clearance of goods in domestic market.

34. I find that the documents produced by the appellant only show the

payment of Service Tax towards Goods Transport Service, which is not even a point of

contention in the present case. Further, even merely mentioning "Door Delivery" in the

LRs is not enough to prove that the same is part of their input services in view of the

glaring fact that freight is not a part of their assessable value and Excise duty has not

been paid on the same. I also find that the appellants have not produced any documents

to prove that the place of removal would be the premises of the buyers. They have also

not produced any evidence to show that their buyers are not availing the Cenvat Credit

of the Service Tax paid on outward transportation, which is undeniably input service for

them. In view of the appellant's failure to produce any documentary proof in their favour,

allowing the Cenvat Credit of Service Tax paid on outward transportation would even

amount to extending dual loss to the revenue, by way of allowing Cenvat credit on the

outward transportation to the appellants as well as the same is also likely to be utilized

towards input services by the buyers of the appellants. I feel that safeguarding against

loss to revenue cannot be compromised at any cost. I conclude that sale took place at

the factory gate and beyond that, sale has not been established by the appellant.

Under these circumstances and in view of the above discussion and the judgments

ATT ST

yas) Superintendent (Appeals-v) Central Excise, Ahmedabad.

V2(84)/44/AHD-1/2014-15

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passed by the Hon'ble Courts and CESTAT, I disallow the Cenvat Credit of the service

tax paid by them towards outward transportation service for clearance of goods in

domestic market.

35. As regards the penalty imposed, I find adjudicating authority has

imposed penalty on the appellant under Rule 15 of the Cenvat Credit Rules, 2004. I

find that during the relevant period, there were decisions which indicated that

service tax paid on the outward transportation is eligible for availment of Cenvat

credit and accordingly the appellant availed the Cenvat credit. I find that the action

of the appellant in taking the Cenvat credit of the service tax paid on the commission

paid to the Commission agents was because of their bonafide belief that they were

eligible for availing the Cenvat credit, as the same was directly or indirectly related

to manufacture. I find that there was no malafide intention on behalf of the appellant

to wrongly avail the Cenvat Credit. Accordingly, I set aside that penalty imposed on

the appellant under the provisions of Rule 15 of the Cenvat Credit Rules, 2004.

36. Therefore I pass the following order:

ORDER

37. In view of the above, I partially uphold the im ugned order and

partially allow the appeal filed by the appellants 27 11 \

(ANIL KUMAR) - COMMISSIONER (APPEALS-V),

CENTRAL EXCISE, AHMEDABAD.

Date: /W2014

To M/s.Chamunda Pharma Machinery Pvt ltd.,

Situated at 7602,Phase-IV.

GIDC,Vatva

Ahmedabad.

Copy to:

1. The Chief Commissioner, Central Excise, Ahmedabad Zone, Ahmedabad 2. The Commissioner of Central Excise, Ahmedabad-I, 3. The Deputy/Assistant Commissioner, Central Excise, Division-III, Ahmedabad-I.

vit. The Superintendent (System), Central Excise, H.Q., Ahmedabad-I for uploading the order on web site,

5. PA to Commissioner (Appeals-V) 6. Guard File.