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Commissioner of Customs Central Excise and Service Tax, Guntur v. M/s. The Andhra Sugars Ltd.

Civil Appeal · 2018 INSC 96Decided 5 Feb 2018
Civil Appeal No. 11711 of 2016
Justice A.K. Sikri · Justice Ashok Bhushan

Background

Andhra Sugars Ltd., a manufacturer of sugar, molasses and chemicals, had claimed Cenvat Credit on service tax paid for transporting goods from its factory to its customers' premises. The Revenue issued a show-cause notice disallowing this credit, contending that transportation beyond the factory ("place of removal") could not be treated as an "input service" eligible for credit. The Commissioner (Appeals) and later the CESTAT ruled in the manufacturer's favour, and the Andhra Pradesh High Court dismissed the Revenue's further appeal, leading the Revenue to approach the Supreme Court in this and three connected appeals.

Decision Breakdown

The Supreme Court examined the definition of "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004 as it stood before 1 April 2008, which covered services used "in relation to... clearance of final products from the place of removal," and read this alongside a CBEC circular clarifying when a sale (and hence the "place of removal") could be treated as having occurred at the customer's premises, namely where ownership and risk remained with the seller until delivery and freight was built into the price. Relying on its own recent decision in Commissioner of Central Excise, Belgaum v. Vasavadatta Cements Ltd., the Court held that accepting the Revenue's narrow reading would improperly nullify the word "from" in the statutory definition, and that outward transportation from the actual place of removal, which could include transportation all the way to the customer where the sale conditions were met, qualifies as an input service. Finding no infirmity in the High Court's judgment, the Court dismissed all the Revenue's appeals as devoid of merit.

Lesson Learnt

Under the pre-2008 Cenvat Credit Rules, a manufacturer could claim credit for service tax paid on transporting goods even up to the customer's premises, provided the sale terms show the seller retained ownership and risk of the goods, and freight was part of the price, until delivery.

Official source (sci.gov.in)View Judgment (PDF)

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