COMMISSIONER OF CENTRAL EXCISE SERVICE TAXversusULTRA TECH CEMENT LTD.

                          [2018] 6 S.C.R. 651                              651


    COMMISSIONER OF CENTRAL EXCISE SERVICE TAX                             A
                                   v.
                   ULTRA TECH CEMENT LTD.
                   (Civil Appeal No. 11261 of 2016)
                        FEBRUARY 01, 2018                                  B
          [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
                                                                           C
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   D
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
                                                                           E
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
                                                                           F
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          G
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.
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                                  651
652            SUPREME COURT REPORTS                      [2018] 6 S.C.R.


A           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
B     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
C     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’.
D     [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
E     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
F     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
G     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]
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   COMMISSIONER OF CENTRAL EXCISE SERVICE TAX v.                          653
             ULTRA TECH CEMENT LTD.

      3. The Board’s Circular dated August 23, 2007 was issued            A
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
                                                                          B
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.                  C
[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.                            D
      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.
                                                                          E
       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                F
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    G
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
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654             SUPREME COURT REPORTS                           [2018] 6 S.C.R.


A     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
B
      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
C     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.
D            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
E     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.
F     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-
G     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.

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   COMMISSIONER OF CENTRAL EXCISE SERVICE TAX v.                               655
      ULTRA TECH CEMENT LTD. [A.K. SIKRI, J.]

Further, the Adjudicating Authority held that CBEC vide its Circular           A
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
                                                                               B
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;
                                                                               C
      (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            D
      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.”                                                     E
       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   F
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
                                                                               G
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.
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656             SUPREME COURT REPORTS                            [2018] 6 S.C.R.


A            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
B
      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:
C            “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
D            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,
E            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;”

F             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’.
G
             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

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   COMMISSIONER OF CENTRAL EXCISE SERVICE TAX v.                                657
      ULTRA TECH CEMENT LTD. [A.K. SIKRI, J.]

of removal’ to the warehouse or customer’s place etc., was exigible for         A
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
                                                                                B
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         C
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
                                                                                D
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   E
      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             F
      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          G
      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.
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658            SUPREME COURT REPORTS                           [2018] 6 S.C.R.


A           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
B
            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
C           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
D
            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
E           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
F
            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
G     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
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   COMMISSIONER OF CENTRAL EXCISE SERVICE TAX v.                                659
      ULTRA TECH CEMENT LTD. [A.K. SIKRI, J.]

(Appeals) has been approved by the CESTAT as well as by the High                A
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      B
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?                C

      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:-
                                                                                D
      “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           E
      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          F
      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
                                                                                G
      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
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660      SUPREME COURT REPORTS                              [2018] 6 S.C.R.


A     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
B     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
C     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-
D     (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 ;
E     (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
F
      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
G     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
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   COMMISSIONER OF CENTRAL EXCISE SERVICE TAX v.                               661
      ULTRA TECH CEMENT LTD. [A.K. SIKRI, J.]

      of the goods in acceptable condition to the purchaser at his door        A
      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
                                                                               B
      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        C
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        D
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           E
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.                              F

       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        G
of the Assessing Officer is restored.


Ankit Gyan                                                   Appeal allowed.

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