2025 (7) TMI 1258 - AT - Central Excise

CENVAT Credit - service tax paid on outward freight remitted to Goods Transport Agency - levy of interest and penalty - extended period of limitation - HELD THAT - The period involved in both the show cause notices April 2010 to December 2010 and January 2011 to March 2011 are subsequent to the amendment to Rule 2(l) of Cenvat Credit Rules 2004 vide Notification No. 10/2008-CE (NT) dated 01.03.2008 whereby with effect from 01.04.2008 in Rule 2 in clause (4) the words clearance of final products from the place of removal were substituted to clearance of final products upto the place of removal . In the present case the place of removal for the goods was the factory gate of the appellant. The services of outward freight and outward transit insurance are received in respect of transportation of goods outside of the factory gate of the appellant upto the place of the buyers/ customers. Therefore these services do not qualify as input service in respect of goods manufactured and cleared by the appellant as stipulated in the definition of input services under Rule 2(l) of the Cenvat Credit Rules 2004 as amended with effect from 01.04.2008. Therefore they have rendered themselves liable to penalty under Rule 15(2) of Cenvat Credit Rules 2004 read with Section 11AC of the Central Excise Act 1944. Extended period of limitation - HELD THAT - This contention of the appellant cannot be accepted because the said contravention by way of availment of ineligible Cenvat credit were intentionally committed by the appellant with a clear intent to evade payment of duty in utter disregard of Rule 2(l) of Cenvat Credit Rules 2004 as amended with effect from 01.04.2008. The appellant knew this fact that after the amendment vide Notification No. 10/2008-CE (NT) dated 01.03.2008 which came into effect from 01.04.2008 there was no scope to avail Cenvat credit on outward freight and outward transit insurance. In the present case the final product was cleared by the appellant from the factory gate therefore he was not entitled to claim Cenvat credit on Goods Transport Agency Service used by them for transportation of their final product from the factory gate to the place of buyers/ customers. In these circumstances the department has rightly invoked the extended period of one year. The impugned order passed by the learned Commissioner is liable to be confirmed whereas the appeals of the appellant are liable to be rejected - Appeal dismissed.

Summary

ISSUES:

Whether Cenvat credit of service tax paid on outward transportation and transit insurance of finished goods is admissible under Rule 2(l) of the Cenvat Credit Rules, 2004 as amended effective 01.04.2008.Whether the place of removal being the factory gate affects the eligibility of Cenvat credit on outward freight and transit insurance services.Whether penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944 can be imposed for wrongful availment of Cenvat credit on outward transportation services.Whether the demand for recovery of Cenvat credit and imposition of interest and penalty for the period January 2011 to March 2011 is barred by limitation under Section 11A of the Central Excise Act, 1944.

RULINGS / HOLDINGS:

The Court held that after the amendment to Rule 2(l) of the Cenvat Credit Rules, 2004 effective 01.04.2008, the definition of 'input service' includes "clearance of final products upto the place of removal," and since the place of removal was the factory gate, services of outward transportation and transit insurance beyond that point do not qualify as input services; hence, Cenvat credit on such services is not admissible.The Court confirmed that the place of removal being the factory gate is decisive, and as the outward freight and transit insurance services were rendered beyond the place of removal, these services fall outside the scope of input services eligible for Cenvat credit.The Court upheld the imposition of penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944, on the ground that the wrongful availment of Cenvat credit was with "clear intent to evade payment of duty" and constituted a contravention of Rule 2(l) as amended.The Court rejected the contention that the demand for recovery and penalty for the period January 2011 to March 2011 was time-barred, holding that the extended period under Section 11A of the Central Excise Act, 1944 was rightly invoked due to intentional evasion of duty by wrongful availment of Cenvat credit.

RATIONALE:

The Court applied the amended definition of "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004, which substituted the phrase "clearance of final products from the place of removal" with "clearance of final products upto the place of removal" effective 01.04.2008, thereby limiting admissibility of Cenvat credit to services rendered up to the place of removal only.The Court relied on authoritative precedents, including the decision that the Goods Transport Agency Service used for transportation of goods from the place of removal to buyer's premises is not eligible for credit post-amendment, and the principle that the place of removal determines the boundary for input service eligibility.The Court noted that the appellant's clearances were on an ex-factory basis, with outward freight and transit insurance charges borne by customers, confirming that these services were rendered beyond the place of removal and thus outside the scope of input services.The Court recognized that the wrongful availment was deliberate, justifying invocation of the extended limitation period under Section 11A and imposition of penalty under Rule 15(2) read with Section 11AC.No dissenting or concurring opinions were recorded; the decision reflects a reaffirmation of the settled legal position post-amendment to Rule 2(l) of the Cenvat Credit Rules, 2004.