Commissioner of Central Excise and Service Tax, Haldia vs Lumino Industries Ltd.

The appeal is directed against a judgment and order dated 1st August, 2012 passed by the Customs, Excise and Service Tax, Appellate Tribunal reversing the order of the Commissioner by which the demand of service tax credit including education cess aggregating to a sum of Rs. 10,39,061 for the period during January, 2005 to December, 2007 was confirmed and a penalty of Rs. 10,000 was imposed. The learned Tribunal set aside the order following the decision in the case of Commissioner of Central Excise and Service Tax, LTU. Vs. ABB Ltd., Aggrieved by the order of the Tribunal, the Revenue has come up in appeal.

Mr. Roy Chowdhury, learned Senior Advocate, appearing in support of the appeal, submitted that the judgment of the Karnataka High Court did not decide the issue correctly, and therefore, the learned Tribunal should not have followed the same. He drew our attention to the definition of ''input service'' prior to its amendment in the year 2008. He submitted that the services taken into consideration in the aforesaid definition are all directed towards manufacture of the goods. They do not contemplate any service with respect to delivery of the finished products at the doorstep of the buyer. He contended that the expenditure incurred by the assessee for the transportation of the finished goods for delivery at the destination and the consequent service tax paid cannot logically be construed to be a service in the manufacture of the goods. He added that the circular issued by the Board has, in fact, made some concession only in the cases 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 u/s 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.

He drew our attention to the reply to the show cause given by the respondent-assessee. Nowhere did the assessee in its reply disclose the facts and circumstances to bring its case within the four corners of the relaxation made by the circular. He, therefore, contended that the judgment under challenge cannot be supported and should, therefore, be set aside.

Views taken by the Karnataka High Court do not appear acceptable for the following reasons:

(a) Be that as it may, we are of the opinion that the outward transport service used by the manufacturers for transportation of finished goods from the place of removal upto the premises of the purchaser is covered within the definition of "input service" provided in rule 2(1) of the Cenvat Credit Rules, 2004.

The Hon''ble Division Bench expressed their aforesaid opinion, but no reasons or appropriate reasons are ascertainable by us for the purpose of aforesaid proposition.

(b) There are more reasons. In paragraph 30, the Hon''ble Division Bench of the Karnataka High Court opined that. 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 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 removal till it reaches its destination falls within the definition of ''input service.''

We are, with respect to the Hon''ble Division Bench, unable to see how can it be said from the restrictive part of the definition that "the services received or rendered by the manufacturer from the place of removal till it reaches its destination falls within the definition of input service".

(c) Yet another reasoning given by the Hon''ble Division Bench is as follows:

Therefore, it is clear that till such amendment made effective from 1-4-2008 notwithstanding the clarification issued by the Central Government by way of their circular, transportation charges incurred by the manufacturer for ''clearance of final products from the place of removal'' was included in the definition of input service.

By the amendment made with effect from 1st April, 2008 substituting the word "from" by the word "upto" all that has been done is to clarify the issue. Neither the services rendered to the customer for the purpose of delivering the goods at the destination was covered by the definition of input service prior to 1st April, 2008, nor is the same covered after 1st April, 2008. If the definition provided in section 2(1)(ii) is read as a whole, it would appear that outward transportation charges or taxes paid in regard thereto is claimable only with regard to those transports which were made from one place of removal to another place of removal.

Considering that the Tribunal has merely disposed of the matter following the judgment in the case of ABB Ltd. (supra), the order under challenge is set aside. The matter is remanded to the Tribunal for re-hearing on merits.