M.M KUMAR, J.
The assessee has approached this Court by filing the instant appeal under Section 35-G of the Central Excise Act, 1944 (for brevity, ‘the 1944 Act’) by challenging order dated 14.3.2007 passed by the Custom, Excise and Service Tax Appellate Tribunal, Principal Bench, New Delhi (for brevity, ‘the Tribunal’). The appeal was admitted on the following substantive questions of law:
“1. Whether the service of transportation up to the customer's doorstep, in the case of “FOR destination” sales where the entire cost of freight is paid and borne by the manufacturer, would be “input service” within the meaning of Rule 2(l) of the CC Rules?
2. Whether interest ought to have been demanded in the present case?”
2. Brief facts of the case necessary for deciding the questions of law raised before us are that the assessee M/s Ambuja Cements Ltd. is a private limited company incorporated under the Companies Act, 1956. It is engaged in the business of manufacturing and selling of cement which is a excisable commodity classified in Chapter 25 of the Ist Schedule appended to the Central Excise Tariff Act, 1985. One of its factory is located in District Ropar within the jurisdiction of this Court. The appellant has claimed that it has been paying central excise duty at the appropriate rate in respect of cement produced by it and there is no dispute in that regard. The assessee also claimed that when it supplies cement to its customers “FOR destination” it bears the freight in respect thereof up to the door steps of the customer that is the destination point. On the afore-mentioned freight the assessee also bears the service tax which has remained undisputed. On that basis the assessee has asserted that once service tax is paid by it then it becomes entitled to take Cenvat credit of such service tax in accordance with the Cenvat Credit Rules, 2004 (for brevity, ‘the CC Rules’). The assessee had taken the Cenvat credit on such service tax paid by it. On 30.3.2006 the Commissioner, Central Excise, Ludhiana, issued a show cause notice to the assessee asking it to show cause as to why the Cenvat credit taken by it from March, 2005 to January, 2006 on payment of service tax be not recovered. The show cause notice also proposed to recover interest and penalty (“B”). The appellant filed reply and written statement (“C”). In his order-in-original dated 21.11.2006 (“D”), the demand raised in the show cause notice was confirmed by raising duty demanded along with interest. The assesssee filed an appeal before the Tribunal which was dismissed on 14.3.2006 (“F”). The Tribunal was persuaded to accept the argument of the revenue that the payment of service tax on the freight incurred by the assessee was not input service as per Rule 2(l) of the CC Rules. The view of the Tribunal is discernible from paras 12 and 13 of the order which reads thus:
“12. Having considered the submissions made by both sides, we find in favour of the revenue. We may now state our reasons. Crucial point to be noted in regard to Cenvat Credit is that credit availability is in-regard to ‘inputs’. The credit covers duly paid on input materials as well as tax paid on services, used in or in relation to the manufacture of the ‘final product’. Therefore, extending the credit beyond the point of duty paid removal of the final product would be contrary to the Scheme of Cenvat Credit Rules.
13. The interpretation sought to be placed by the appellant does not flow from the definition of input service (reproduced in para 5). The main clause in the definition states that the 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 learned SDR has brought to our notice the decisions of this Tribunal to the effect that transport does not come, the scope of clearance or forwarding. Further, that transportation (freight) is an entirely different activity from manufacture remains settled by the judgements of Hon'ble Supreme Court in the cases of Bombay Tyre International (1983 (14) ELT), Indian Oxygen Ltd. 1988 (36) ELT 723 Supreme Court and Baroda Electric meters 1997(94) ELT 13 SC.”
3. Mr. Ravinder Narain, learned counsel for the assessee has drawn our attention to Rule 2(l)(ii) of the CC Rules which defines input service. Learned counsel has emphaissed that the inclusive definition of ‘input service’ given in Rule 2(l)(ii) of the CC Rules shows that it would include inward transportation of goods or capital goods for onward transportation up to the place of removal.
4. He has further argued that the words and expression used in CC Rules and not defined but are defined in the 1944 Act or the Finance Act, 1994 (for brevity, ‘the 1994 Act’) are to have the meaning respectively assigned to them in those enactments. In that regard reliance has been placed on Rule 2(t) of the CC Rules. On that basis it has been submitted that the expression “place of removal” used in Rule 2(l)(ii) of the CC Rules has to be assigned the meaning given to that expression by Section 4(3)(c) of the 1944 Act. Learned counsel has emphasised that ‘place of removal’ means as per the provisions of Section 4(3)(c)(iii) a depot, a premises of consignment agent or any other place or premises from where excisable goods are to be sold after their clearance from the factory.
5. He has then argued that Board's Circular No. 97/6/2007-ST, dated 23.8.2007, which has been issued in pursuance to the order passed by the Tribunal has clarified the issue as to up to which stage a manufacturer or consigner take benefit of tax on goods sent by transport (“A”). He has drawn our attention to para 8.2 of the Board's circular which lay down the requirement of fulfilling three conditions, namely, (a) the ownership of goods and the property of the goods remained with the seller of the goods till the delivery of goods in acceptable condition to the purchaser at his door step; (b) the seller bore the risk of loss of or damage to the goods during transit to the destination; and (c) the freight charges were an integral part of the price of goods. According to the learned counsel the property in the goods was never transferred to the purchaser and remained with the seller i.e assessee till the delivery of goods to the purchaser at his door steps. He has also emphasized that the assessee had taken an insurance cover bearing the risk of loss or damage to the goods during transit to the destination and that the freight charges were an integral part of the price of the goods. Learned counsel has maintained that once all these conditions are fulfilled then it is well settled that the revenue is bound by the circular issued by it. He has placed reliance on a judgment of Hon'ble the Supreme Court rendered in the case of Paper Products Ltd. v. Commissioner Of Central Excise, (1999) 7 SCC 84. While concluding his submissions learned counsel has prayed that both the questions which have emerged from the order of the Tribunal deserved to be answered in favour of the assessee and against the revenue.
6. Mr. Rajiv Malhotra, learned counsel for the revenue, however, has argued that the third condition of merging freight with the price of the goods is not complied with. He has also submitted that merely because the assessee has paid the service tax on the freight charges would not constitute a basis for allowing Cenvat credit to the extent of tax paid by them.
7. Having heard learned counsel at a considerable length and perusing the paper book and statutes with their able assistance, we are of the view that the questions of law deserve to be answered in favour of the assessee-appellant and against the revenue. It is undisputed that the appellant being a manufacturer and consigner has paid service tax on the value of goods transported by it by road. The Central Board of Excise and Customs (CBEC) has issued a circular dated 23.8.2007 dealing with the issue concerning ‘up to what stage manufacturer/consigner could take credit on the service tax paid on goods transported by it by road’. The issue, in fact, has emerged out of the order of the Tribunal passed in the case of the appellant itself. The Board has opined that the phrase ‘place of removal’ has to be determined by taking into account the facts of each case. According to the circular, the expression ‘place of removal’ has been defined by Section 4 of the 1944 Act and according to sub-rule (t) of Rule 2 of the CC Rules, if any words or expression used in those rules are not defined but are defined in the 1944 Act or the 1994 Act then they are to be given the same meaning for the CC Rules as assigned to them in those Acts. Accordingly, reliance on Section 4 of the 1944 Act has been made where place of removal has been defined as under:-
“place of removal” means-
(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;
• 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.”
8. It is clear from the definition 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, 1944 as also in terms of the provisions under the Sale of Goods Act, 1930) occurred at the said place.”
9. It is well settled that the circulars issued by the Board are binding and aims at adoption of uniform products. In that regard reliance has been rightly placed on the judgment of Hon'ble the Supreme Court in the case of Paper Products Ltd. (supra) and such circulars are binding on the department. Placing reliance on earlier judgments of the Supreme Court in the cases of Collector Of Central Excise, Patna v. Usha Martin Industries, (1997) 7 SCC 47; Ranadey Micronutrients v. CCE, (1996) 10 SCC 387; Collector Of Central Excise, Bombay v. Jayant Dalal Private Ltd., (1997) 10 SCC 402; and Collector Of Central Excise, Bombay v. Kores (India) Limited, Thane, (1997) 10 SCC 338, Hon'ble the Supreme Court concluded in para 5 as under:-
“5. It is clear from the abovesaid pronouncements of this Court that, apart from the fact that the Circulars issued by the Board are binding on the Department, the Department is precluded from challenging the correctness of the said Circulars even on the ground of the same being inconsistent with the statutory provision. The ratio of the judgment of this Court further precludes the right of the Department to file an appeal against the correctness of the binding nature of the Circulars. Therefore, it is clear that so far as the Department is concerned, whatever action it has to take, the same will have to be consistent with the Circular which is in force at the relevant point of time.”
10. It is, thus, evident that the revenue is precluded from challenging the correctness of the circular even on the ground of the same being inconsistent with statutory provisions. It goes further to limit the right of the revenue to file an appeal against the correctness of the binding nature of the circular. Therefore, there is no escape from the conclusion that the circular is binding on the revenue.
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(l) of the CC Rules, which reads thus:-
“2(l) “input service” means any service, -
(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 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 relation 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.
(M.M KUMAR)
JUDGE
(H.S BHALLA)
February 10, 2009 JUDGE okg/Pkapoor