Holding

Under the pre‑amendment Rule 2(1), "from the place of removal" is to be read as covering transportation of the final product from the place of removal up to the first point of delivery, whether a depot or the customer's premises, and thus CENVAT credit is available for such tax.

Summary

The Central Excise Department appealed a CESTAT order that allowed M/s. Vasavadatta Cements Ltd. to claim CENVAT credit for transportation tax paid on moving finished goods from the place of removal to depots or buyers. The dispute centered on the interpretation of "input service" under Rule 2(1) of the CENVAT Credit Rules, 2004, specifically the phrase "from the place of removal". The Court examined whether the credit should cover transport up to the first point of delivery (depot or customer) or only up to the place of removal, as later amended. It held that, under the pre‑amendment rule, "from the place of removal" means from that place up to the first point of delivery, thereby permitting the claimed credit. The amendment effective 1 April 2008 changed the wording to "upto the place of removal", limiting credit thereafter, but this did not affect the present cases. Consequently, the revenue appeals were dismissed and the assessees' claims were upheld.

Issues considered

What is the scope of "input service" under Rule 2(1) of the CENVAT Credit Rules, 2004?
Does the phrase "from the place of removal" include transportation of final products up to the depot or buyer?
How does the 2008 amendment substituting "from" with "upto" affect the entitlement to CENVAT credit for transportation services?

Legislation cited

Subjects

CENVAT creditinput servicetransportation taxplace of removalexcise lawrule interpretationamendmenttax credit entitlement

Judgment

814 [2018]REPORTS
SUPREME COURT 1 S.C.R. 814 [2018] 1 S.C.R.

A COMMISSIONER OF CENTRAL EXCISE BELGAUM
v.
M/S. VASAVADATTA CEMENTS LTD.
(Civil Appeal No. 11710 of 2016)
JANUARY 17, 2018
B
[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]
CENVAT Credit Rules, 2004:
r. 2(1) – CENVAT credit – Entitlement to – On input service.
i.e. tax paid on transportation of final products from the place of
C removal to depots or the buyers premises – Held: Assessee is entitled
to CENAT credit on the tax paid on the transportation of the final
product from the place of removal upto the first point whether it is
depot or the customer.
Dismissing the appeal of the Revenue and allowing those
of the assessees, the Court
D
HELD: The expression used in r. 2(1) of CENVAT Credit
Rules, 2004 is “from the place of removal”. It has to be from the
place of removal upto a certain point. Therefore, tax paid on the
transportation of the final product from the place of removal upto
the first point, whether it is depot or the customer, has to be
E allowed. This view gets support from the amendment which has
been carried out w.e.f. 01.04.2008 whereby the aforesaid
expression “from the place of removal” is substituted by “upto
the place of removal”. Thus from 01.04.2008, with the aforesaid
amendment, the CENVAT credit is available only upto the place
F of removal whereas as per the amended Rule from the place of
removal which has to be upto either the place of depot or the
place of customer, as the case may be. Appeals are bereft of any
merit and are accordingly dismissed. [Paras 7, 8 and 9] [819-E-
G; 820-B]
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 11710
G of 2016
From the Judgment and Order dated 24.09.2010 of the High Court
of Karnataka Circuit Bench at Gulbarga in C.E.A. No. 301 of 2010.
WITH
C.A. No. 10300 OF 2011
H
814
COMMISSIONER OF CENTRAL EXCISE BELGAUM v. M/S. 815
VASAVADATTA CEMENTS LTD.

C.A. No. 11923, 11914, 11898, 11899, 11919, 11904, 11925, 11870, A
11924, 11900-11901, 11402, 11909, 11403, 11947, 11946, 11920, 11874,
11913, 11399, 11401, 11902, 11877-11884, 11876, 11922, 11921, 11400,
11875 OF 2016
K. Radha Krishnan, Y. P. Adhyaru, Sr. Advs., Arijit Prasad, Rupesh
Kumar, Ms. Sadhana Sandhu, H.R. Rao, Ms. Gargi Khanna, Mansih B
Pushkaran, Ms Nisha Bagchi, Ms. Shirin Khajuria, Zohib, Ms. Ooja
Sharma, Ms. Sanskriti Bhardwaj, Ms. Ayushi Gaur, B. Krishna Prasad,
Ms. Anil Katiyar, Arup Banerjee, Sarbendra Kumar, Prakash Sharma,
Chava Badrinath Babu, V.V. Rayudu, Rameshwar Prasad Goyal, Kartik
K., Praveen Kumar, S. B. Sharma, Ms. Babita S., Advs. for the
Appellants. C
S. Bagaria, Sr. Adv., V. Lakshmi Kumaran, Aditya Bhattacharya,
Ajit Kumar, Victor Das, Ms. Apeksha Mehta, M. P. Devanath,
R. Parthasarthy, S. J. Amith, Purushottham Sharma Tripathi, Mukesh
Kumar Singh, R.C. Prakash, Dr. (Mrs.) Vipin Gupta, Sumit Goel, Abhiram
Naik, Ms. Tanuj Agarwal, M/S. Parekh & Co., Ms. Vanita Bhargava, D
Abhisaar Bairagi, M/S. Khaitan & Co., Ranjit B. Raut, Mrs. Bina Gupta,
Ms. Surbhi Kapoor, Nikhil Swami, Ms. Divya Swami, Mrs. Prabha
Swami, B. Krishna Prasad, Anand Sukumar, S. Sukumaran, Bhupesh
Kumar Pathak, Ms. Meera Mathur, L. Badri Narayanan, Aditya
Bhattacharjee, Victor Das, Yogendra Aldak, Karan Sachdev, Balaji E
Srinivasan, Garvesh Kabra, Somnath Shukla, Udit Jain, Vivek Sharma,
Ms. Ashwini Chandrasekaran, Praveen Kumar, Abhishek Anand, Harish
Pandey, Advs. for the Respondent.
The Judgment of the Court was delivered by
A. K. SIKRI, J. F
C.A Nos. 11710/2016,C.A. No. 11923/2016, C.A. No. 11914/2016,
C.A. No. 11898/2016, C.A. No. 11899/2016, C.A. No. 11919/2016,
C.A. No. 11904/2016, C.A. No. 11925/2016, C.A. No. 11870/2016,
C.A. No. 11924/2016, C.A. No. 11900-11901/2016, C.A. No.
11909/2016, C.A. No. 11402/2016, C.A. No. 11403/2016, C.A. G
No. 11947/2016, C.A. No. 11946/2016, C.A. No. 11920/2016, C.A.
No. 11874/2016, C.A. No. 11903/2016, C.A. No. 10300/2011, C.A.
No. 11913/2016, C.A. No. 11399/2016, C.A. No. 11401/2016, C.A.
No. 11902/2016, C.A. No. 11877-11884/2016, C.A. No. 11876/
2016, C.A. No. 11922/2016 & C.A. No. 11921/2016.
H
816 SUPREME COURT REPORTS [2018] 1 S.C.R.

A 1. These appeals are preferred by the Central Excise Department
against the judgment and order passed by the Customs, Excise & Service
Tax Appellate Tribunal (herein after referred to as “CESTAT”) whereby
the CESTAT has allowed to the respondents (hereinafter referred to as
“assessees”) CENVAT credit on goods transport agency service availed
for transport of goods from the place of removal to depots or the buyers
B
premises. The lead judgment was given by the CESTAT in the case of
Commissioner of Central Excise & S.T Unit Bangalore vs. M/s. ABB
Limited. The aforesaid judgment dated 18.05.2009 has been upheld by
the Karnataka High Court vide judgment dated 23.03.2011. This judgment
has been followed in all other cases.
C 2. The entire issue hinges upon the interpretation that has to be
given to input service which is defined in Rule 2(l) of the CENVAT
Credit Rules, 2004. It may be stated at this stage itself that all these
appeals relate to a period prior to 01.04.2008. The aforesaid Rule was
amended w.e.f. 01.04.2008 as would be noticed hereafter. However,
D since we are concerned with the unamended Rule, we reproduce the
same hereunder:
“(I) “input service” means any service,-
(i) used by a provider of taxable service for providing an output
service; or
E (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
F 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
G goods and outward transportation upto the place of removal;”
3. The Full Bench of CESTAT in M/s. ABB Limited case, which
has been upheld by the Karnataka High Court as mentioned above, has
interpreted the aforesaid Rule observing that it is in two parts. In the
first part, input service is defined with the expression “means” and in
H that context input service is defined as any service used by a provider of
COMMISSIONER OF CENTRAL EXCISE BELGAUM v. M/S. 817
VASAVADATTA CEMENTS LTD. [A. K. SIKRI, J.]

a taxable service or providing an output service or used by the A
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”. It is further held that second part of the definition
starts from “includes” where some of the services are mentioned, which
are included as “input services”.
B
4. We may make it clear that in the instant appeals, we are
concerned with the first part of the definition. Insofar as second part is
concerned, certain contentions, which have been raised by some of the
assessees, have been rejected and that aspect is decided in favour of
the Department. Since these appeals are filed by the Department
questioning the interpretation that is given by the CESTAT as well as the C
High Court in respect of first part, we are not making any comments
insofar as judgment of the CESTAT pertaining to second part is
concerned.
5. Coming back to the first part of the definition as to what input
service means, the Full Bench of the CESTAT held that all input services D
which are used by the manufacturer, whether directly or indirectly, in or
in relation to manufacture of final products and clearance of final products
from the place of removal are concerned, they are treated as input
services and CENVAT credit in respect of expenditure incurred in relation
to such services would be admissible. The expression with which the E
CESTAT was concerned, and which was the subject matter of discussion,
was as to what would be the meaning of “from the place of removal”.
Obviously, any input service given for clearance of the final products
“from the place of removal” and tax paid thereon the CENVAT credit
has to be given. The question is from the place of removal up to what
place. The assessees had claimed the tax paid on the transportation of F
final products from the place of removal (i.e. the place of manufacture)
to either the place to their respective depots or transport upto the place
of the customers, if from the place of removal the goods were directly
delivered at customers place. It is made clear that only first set of
transportation from the place of removal was claimed. To put it otherwise, G
in those cases where the tax paid on transportation on the goods from
the place of removal upto the place of depot only that was claimed and
if there was any such tax again paid from the place of depot to the place
of customers, the CENVAT credit thereof was not claimed and there is
no dispute about it.
H
818 SUPREME COURT REPORTS [2018] 1 S.C.R.

A 6. The aforesaid approach of the Full Bench of the CESTAT, as
affirmed by the High Court, appears to be perfectly correct and we do
not find any error therein. For the sake of convenience, we would like
to reproduce the following discussion contained in the judgment of the
High Court.
B “30. The definition of ‘input service’ contains both the word
‘means’ and ‘includes’, but not ‘means and includes’. The portion
of the definition to which the word means applies has to be
construed restrictively as it is exhaustive. However, the portion
of the definition to which the word includes applies has to be
construed liberally as it is extensive. The exhaustive portion of
C the definition of ‘input service’ deals with service used by the
manufacturer, whether directly or indirectly, in or in relation to
the manufacture of final products. It also includes clearance of
final products from the place of removal. Therefore, services
received or rendered by the manufacturer from the place of
D removal till it reaches its destination falls within the definition of
input service. What are the services that normally a manufacturer
would render to a customer from the place of removal? They
may be packing, loading, unloading, transportation, delivery, etc.
Though the word transportation is not specifically used in the
said section in the context in which the phrase ‘clearance of
E final products from the place of removal’ is used, it includes the
transportation charges. Because, after the final products has
reached the place of removal, to clear the final products nothing
more needs to be done, except transporting the said final products
to the ultimate destination i.e. the customer’s/buyer of the said
F product, apart from attending to certain ancillary services as
mentioned above which ensures proper delivery of the finished
product upto the customer. Therefore, all such services rendered
by the manufacturer are included in the definition of ‘input
service’. However, as the legislature has chosen to use the word
‘means’ in this portion of the definition, it has to be construed
G strictly and in a restrictive manner. After defining the ‘input
service’ used by the manufacturer in a restrictive manner, in the
later portion of the definition, the legislature has used the word
‘includes’. Therefore, the later portion of the definition has to be
construed liberally. Specifically what are the services which fall
H within the definition of ‘input service’ has been clearly set out in
COMMISSIONER OF CENTRAL EXCISE BELGAUM v. M/S. 819
VASAVADATTA CEMENTS LTD. [A. K. SIKRI, J.]

that portion of the definition. Thereafter, the words ‘activities A
relating to business’ - an omni-bus phrase is used to expand the
meaning of the word ‘input service’. However, after using the
omni-bus phrase, examples are given. It also includes
transportation. The words used are (a) inward transportation of
inputs or capital goods (b) outward transportation upto the place
B
of removal. While dealing with inward transportation, they have
specifically used the words ‘inputs’ or ‘capital goods’. But, while
dealing with outward transportation those two words are
conspicuously missing. The reason being, after inward
transportation of inputs or capital goods into the factory premises,
if a final product emerges, that final product has to be transported C
from the factory premises till the godown before it is removed
for being delivered to the customer. Therefore, ‘input service’
includes not only the inward transportation of inputs or capital
goods but also includes outward transportation of the final product
upto the place of removal. Therefore, in the later portion of the
D
definition, an outer limit is prescribed for outward transportation,
i.e., up to the place of removal.
7. As mentioned above, the expression used in the aforesaid Rule
is “from the place of removal”. It has to be from the place of removal
upto a certain point. Therefore, tax paid on the transportation of the final
product from the place of removal upto the first point, whether it is depot E
or the customer, has to be allowed.
8. Our view gets support from the amendment which has been
carried out by the rule making authority w.e.f. 01.04.2008 vide Notification
No. 10/2008CE(NT) dated 01.03.2008 whereby the aforesaid expression
“from the place of removal” is substituted by “upto the place of removal”. F
Thus from 01.04.2008, with the aforesaid amendment, the CENVAT
credit is available only upto the place of removal whereas as per the
amended Rule from the place of removal which has to be upto either the
place of depot or the place of customer, as the case may be. This
aspect has also been noted by the High Court in the impugned judgment G
in the following manner:
“However, the interpretation placed by us on the words ‘clearance
of final products from the place of removal’ and the subsequent
amendment by Notification 10/2008 CE(NT) dated 1.03.2008
substituting the word ‘from’ in the said phrase in place of ‘upto’ H
820 SUPREME COURT REPORTS [2018] 1 S.C.R.

A makes it clear that transportation charges were included in the
phrase ‘clearance from the place of removal’ upto the date of
the said substitution and it cannot be included within the phrase
‘activities relating to business.”
9. In view of the aforesaid discussion we hold that the appeals
B are bereft of any merit and are accordingly dismissed.
Civil Appeal No. 11400 of 2016
We find that the CESTAT had rejected the appeal of the appellant
on the ground that there is a delay of 85 days and this order has been
upheld by the High Court as well. Otherwise, we find that the legal issue
C raised in this appeal has been decided by the same Bench of the Karnataka
High Court in favour of the assessee and that order has been upheld by
by this Bench in the above matters i.e. Commissioner of Central
Excise Belgaum Versus M/S. Vasavadatta Cements Ltd.(Civil Appeal
No(S). 11710/2016 & other connected matters) preferred by the
D Department. For these reasons, we condone the delay in filing the appeal
before the CESTAT. We find that the appellant is also entitled to the
benefit of the judgment of this Court.
10. This appeal is accordingly allowed in terms of the above order
passed in Commissioner of Central Excise Belgaum Versus M/s.
E Vasavadatta Cements Ltd.(Civil Appeal No(S). 11710/2016 & other
connected matters.)
Civil Appeal No. 18897 of 2017.
11. This appeal preferred by the assessee(s) is allowed in terms
of the order passed in Commissioner of Central Excise Belgaum
F Versus M/S. Vasavadatta Cements Ltd.(Civil Appeal No(S). 11710/
2016 & other connected matters.)

Kalpana K. Tripathy Appeals disposed of.

G

H