1. The appellant/Revenue challenges the order of the Commissioner (Appeals) setting aside the order-in-original by which the Cenvat credit of Service Tax of Rs. 27,126/- taken by the respondent on outward transportation was disallowed and recovery ordered while imposing penalty of Rs. 10,000/- as well as order-in-original disallowing Cenvat credit of Service Tax of Rs. 1,00,503/- taken on outward transportation and imposition of penalty of Rs. 15,000/-.
2. There were two orders-in-original because two show cause notices were issued on the same assessee in respect of two periods.
3. The respondent Company was engaged in the manufacture of Stablizer Bar falling under Chapter 87 of the Schedule to the Excise Tariff Act and was availing the Cenvat credit even on input services. It was noticed by the Revenue that, the assessee had availed Cenvat credit of Service Tax paid on outward freight. Two show cause notices were, therefore, issued on 6-3-2006 and 21/24-4-2006 to deny the respondent Cenvat credit availed by it on outward transportation.
4. It appears from the record that, it was alleged against the respondent that, the goods were sold by it at its factory gate and hence the place of removal was the factory and, therefore, the outward transportation from its factory was not an 'input service' as defined in Rule 2(1) of the Cenvat Credit Rules, 2004.
4.1 The respondent contested the matter by asserting that, on the correct interpretation of Rule 2(1)(ii) of the Cenvat Credit Rules, 2004, clearance of final products from the place of removal included transportation to their destination and such input service of outward transport was eligible for taking of the credit by the manufacturer.
5. The adjudicating authority on the basis of the material on record and on interpretation of Rule 3(1) read with Rules 2(1) of the Cenvat Credit Rules, 2004, held that, 'input service', as defined, covers outward transportation only upto the place of removal from the factory.
It was held that, the place of removal in case of manufacturer of excisable goods, was the factory from where such goods were removed as contemplated by Section 4 of the Central Excise Act, 1944. The adjudicating authority held : "Since in this case the notice is a manufacturer of excisable goods and the goods were sold at factory gate is not in dispute, therefore, the amount of outward transportation from the factory does not appear to be an 'input service' admissible for credit under Rule 2(1) of the Cenvat Credit Rules, 2004. In this regard, provisions of Cenvat Credit Rules, 2004 are crystal clear and leave no ambiguity. The arguments advanced by the notice on this issue in their favour are not well founded and hence not acceptable. The credit taken on outward transportation by the notice is not admissible to them." The Commissioner (Appeals), however, was of the view that, the definition of 'Input Service' under Rule 2(1) included the outward transportation of finished goods and, therefore, credit availed by the respondent cannot be denied. It was observed that, if the intention was to deny credit in respect of outward transportation of finished goods, then the same could have been specifically excluded in the definition itself, and there was no need to include the words "and clearance of the final products from the place of removal". It was held that, Service Tax paid on transportation of finished goods from the factory to the premises of the customer can be taken as Cenvat Credit by the respondent and, therefore, denial thereof by the adjudicating authority was not proper.
6. The learned authorised representative for the Department submitted that, as mentioned in the order-in-original and noted in the order of the Commissioner (Appeals), the goods were sold by the respondent at the factory gate and the place of removal was the factory of the respondent, and that there was no dispute about this fact. The fact that the goods were sold at the factory gate, is not disputed even in the Memorandum of Appeal, which was filed before the Commissioner (Appeals). The learned authorised representative for the Department, therefore, argued that, 'input service' in respect of outward transportation of finished products, cannot be said to have been received by the manufacturer in their factory, which was located in the industrial area Malanpur in District Bhind (MP). He relied upon the decision of the Division Bench of this Tribunal rendered on 14th March, 2007 in Gujarat Ambuja Cements Ltd. v. CCE, Ludhiana Excise Appeal No.66/2007 : 2007 (6) S.T.R. 249 (Tribunal) : 2007 (212) E.L.T. 410 (Tribunal) in which, considering an identical issue, the Tribunal, on interpretation of definition of 'input service', held as under: 14. The interpretation canvassed by the appellant is also contrary to the rule on the subject contained in the judgment of Hon'ble Supreme Court in the Reserve Bank case. A statute is to be read as a whole and words used interpreted taking into account the context in which they are used. Definitions are to be looked at as a whole.
Clauses of a definition are not to be read disjunctively. In the present case, the statute deals with a tax on manufacture. The definition is in the context of relief in regard to duty/tax paid on input services. Post sale transport of manufactured goods is not an input in manufacture. The two clauses in the definition 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, one dealing with general provision and another dealing with a specific item, are not to be read disjunctively as to bring about conflict to defeat the laws scheme. The purpose of interpretation is to find harmony and reconciliation among the various provisions.
He, therefore, submitted that, since the matter was squarely covered by the aforesaid ratio of the decision of the Division Bench, the order-in-original should be restored.
7. The learned Counsel, appearing for the respondent, on the other hand, submitted that, outward transportation was eligible for Cenvat Credit on a proper interpretation of the definition of 'Input Service'.
He argued that, the expression "clearance of final products from the place of removal" occurring in Sub-clause (ii) of Clause (I) of Rule 2 of the said Rules, did not contain any restriction, which occurred in the inclusive part of the definition, following thereafter, by which outward transportation was restricted upto the place of removal. He further submitted that, since divergent views were being taken, penalties were not justified. Moreover, Rule 15(3), which related to penalty prescribed for 'Input Service', did not warrant imposition of penalty beyond Rs. 10,000/-. He submitted that, in a case of similar nature in Universal Cables Ltd. v. Commissioner of Central Excise, Bhopal, [Service Tax Appeal No. 470 of 2006-NB(SM)], the learned Single Member had taken a decision on 30th March, 2007 that, since there could have been two possible interpretations, the appellant, in that case, could have been visited with a penalty as there was no mala fide intention to avail ineligible Cenvat credit. It will be noticed that, the learned Single Member had followed the ratio of the decision of the Division Bench in Gujarat Ambuja Cements Ltd. v. CCE, Ludhiana (supra).
The learned Counsel also relied upon the decision of the Hon'ble Supreme Court in Black Diamond Beverages and Anr. v. Commercial Tax Officer, Central Section, Assessment Wing, Calcutta and Ors. reported in (1998) 1 SCC 458, rendered in the context of West Bengal Sales Tax Act, 1954, in para 7 of which it was held that, the first part of the definition of 'sale price' of Section 2(d) of that Act used the words 'means' and 'includes'. The first part of the definition defined the meaning of the word 'sale price'. It was held that, the interpretation thereof was in no way controlled or affected by the second part, which would include certain other things in the definition.
7.1 The learned Counsel then tried to argue a case, totally different, tried to be placed on record in the so-called synopsis, and contended that, the manufacturer had other units at Gurgaon and Chennai, and since a manufacturer was entitled to take credit of 'input service', even in respect of such outward transport, he could not be denied the credit for his units at Gurgaon and Chennai, which was in the nature of inward transportation. The practice of bringing about totally a new case on different factual parameters, by inserting it in a synopsis, is deprecated. Nowhere, till the appeal memo was filed, before the Commissioner (Appeals) was it ever the case of the respondent that, the manufacturer had other factories at Gurgaon and Chennai, and that he could have taken credit of outward transport from the Malanpur unit in those factories. As noted above, both the authorities below have recorded that, the goods were sold at the factory gate and that the place of removal was the factory gate in the Malanpur unit. The adjudicating authority had in terms held that, the fact that the goods were sold at the factory gate, was not in dispute. This finding was never questioned before the Commissioner (Appeals) and it was never argued that the said goods were not sold at the factory gate, and that they were merely removed to the other units of the said manufacturer in Gurgaon and Chennai. Moreover, when a manufacturer has more than one manufacturing units, there are special provisions under the said Rules defining 'input service distributor' under Rule 2(m) and the manner of distribution of credit by 'input service distributor' under Rule 7.
Admittedly, the respondent had never claimed to be the 'input service distributor' and no question of distributing Cenvat credit in the Gurgaon and Chennai units of the respondents, as contemplated by Rule 7, has ever arisen. Therefore, the respondent cannot be allowed to take up such a contention injected in the so called "synopsis" for the first time.
8. The expression 'input service' is defined in Rule 2(1) of the Cenvat Credit Rules, 2004, which reads as under: (i) 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.In Gujarat Ambuja Cements Ltd. v. CCE, Ludhiana (supra), the Division Bench of this Tribunal, while considering the two clauses in the definition of 'input service' has held that, they 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 service upto the place of removal.
8.1 The expression 'clearance of final product from the place of removal' has to be understood in the context of the preceding words, which refer to service used by the manufacturer in relation to the manufacture and clearance of final products, from the place of removal, which itself may require input service. Outward transport of final products would start after the clearance of the final product from the place of removal. The clearance of final product, is an activity contemplated for the purpose of removing the final products from the place of removal. Till the point they are removed, 'input service' for clearance can properly be called input for the purpose of clearance.
The expression 'outward transportation upto the place of removal', delineates the extent to which 'input service' in respect of transportation, could be claimed. The definition of 'place of removal' has expanded by virtue of Section 4 of Central Excise Act, 1944, beyond the factory premises to other place or premises wherein the goods are permitted to be deposited without payment of duty, from where the goods are removed, and also 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. In view of the expanded meaning of the expression 'place of removal', outward transportation upto the place of removal has been recognized as 'input service'. It is not the intention of the Legislature to bring about a dichotomy in respect of credit of 'input service' of inward and outward transportations. Even the services referred to in the inclusive part of the definition, would necessarily have to be used by the manufacturer in relation to the manufacture of final products and their clearance, to qualify as 'input service'. It cannot be the intention of the Legislature, for all services, not specified in the inclusive part of the definition, used by the manufacturer, for manufacture and clearance of final products that outward transport service from the place of removal, be considered as 'input service' and in respect of services specified in the inclusive part of the definition, that outward transportation only upto the extended place of removal, should be considered as 'input service'.
The word 'clearance' occurring in Sub-clause (ii) of Clause (1) of Rule 2 would only mean, removal of the goods and clearing the factory premises of such goods, and would not include any outward transport, which would occur after the clearance from the factory premises or the extended 'place of removal' of such goods, is effected. The removal of the final products from the factory premises, so as to clear the factory premises of such goods, would be clearance, and outward transport beyond the place of removal, cannot be read in the word 'clearance', having regard to the context in which it has been used.
Therefore, applying the ratio of the decision of the Division Bench in Gujarat Ambuja Cements Ltd. v. CCE, Ludhiana (supra), the impugned order of the Commissioner (Appeals), holding that the Service Tax paid on transportation of finished goods from the factory to the premises of the customer, can be taken as Cenvat credit by the respondent, cannot be sustained.
9. On the issue of penalty imposed under Rule 15(3), it is pointed out by the learned Counsel that, in the background of facts, similar to the facts in the present case, while following the ratio of the decision in Gujarat Ambuja Cements Ltd. v. CCE, Ludhiana (supra), and upholding the order confirming the denial of Cenvat credit, the Division Bench in J.K. Cement Works v. CCE, Jaipur, decided on 16-4-2007, set aside the penalty. It was also pointed out that, the learned Single Member, while deciding the Service Tax Appeal No. 470 of 2006-NB(SM), had taken a similar view on 30th March, 2007, while confirming the denial of Cenvat credit by following the decision in Gujarat Ambuja Cements Ltd. v. CCE, Ludhiana (supra), set aside the penalty, which was imposed under Rule 15(3). Since, in similar cases, penalty has been set aside by the Division Bench and the Single Member Bench, while holding that Cenvat credit cannot be taken for outward transport, in view of the facts and circumstances of the case, the penalties imposed on the respondent by the adjudicating authority cannot be upheld, the impugned order of the Commissioner (Appeals) is, therefore, hereby set aside to the extent that the denial of Cenvat credit by the adjudicating authority was set aside, and the order-in-original denying the Cenvat credit of Service Tax and ordering its recovery, as passed by the adjudicating authority, is restored in both these matters along with the order requiring payment of interest. Both the appeals are accordingly partly allowed.