Disallowance of Cenvat Credit of Service Tax paid on outward transportation of goods from the premises of the manufacturer to the premises of buyer.

Case Title: Mahle Engine Components India Pvt. Ltd. v. Union of India

Court: High Court of Madhya Pradesh

Petition Number: C.E.A Nos. 18 and 19 of 2019

Date of Judgement: December 4, 2019

Relevant Section: Section 35-G of the Central Excise Act, 1944

Category of Dispute: Input Tax Credit (CENVAT Credit on GTA services)

Relevant Rules: Rule 2(l) of the CENVAT Credit Rules, 2004

Facts of the Case

1. The appellant, M/s Mahle Engine Components India Pvt. Ltd., operates a manufacturing unit at Pithampur, Madhya Pradesh, engaged in producing CI castings and engine parts. It avails CENVAT credit under CCR, 2004
2. During audit for FY 2006–07 to 2010–11, the Department noticed that the appellant had availed CENVAT credit on service tax paid for outward transportation of goods from the factory to buyer’s premises, which was alleged to be ineligible
3. A show cause notice was issued; after adjudication, the authority disallowed the credit, citing that services beyond the “place of removal” are not input services under Rule 2(l)
4. Appeals before Commissioner (Appeals) and CESTAT were dismissed. The appellant then filed a statutory appeal under Section 35-G before the High Court

Question(s) in Consideration

• Whether CENVAT credit is admissible on service tax paid on outward transportation from the factory to the buyer’s premises, under Rule 2(l) of the CENVAT Credit Rules, 2004 post-amendment effective from March 1, 2008?

Observations of the Court

1. The High Court relied heavily on the Apex Court’s ruling in CCE & ST v. UltraTech Cement Ltd., wherein it was categorically held that CENVAT credit on Goods Transport Agency (GTA) services is available only up to the place of removal. Any transportation beyond the factory gate does not qualify as an input service.
2. The Court emphasized that the amendment to Rule 2(l) in 2008 changed the scope of admissible credit, replacing “from the place of removal” with “up to the place of removal”, thereby restricting credit to services availed up to the point of removal.
3. The Court clarified that reliance on CBEC Circular dated 23.08.2007, which pertained to the unamended Rule, was misplaced in post-2008 context.

Judgement of the Court

• The High Court held that the issue is squarely covered by the Supreme Court decision in UltraTech Cement Ltd. and dismissed the appeals. It confirmed that no question of law arises since the matter is settled. The orders of the adjudicating and appellate authorities were upheld

Between Fine Lines (Summary in Simple Terms)

• The case confirms that credit on transport services is available only up to the factory gate or “place of removal”.
• Any post-removal transportation (to the customer’s premises) is not eligible for CENVAT credit.
• The amendment to Rule 2(l) in 2008 fundamentally changed the scope of “input services”.
• CBEC Circulars issued prior to the amendment cannot override the legal position post-amendment.
• The Court reaffirmed the principle that statutory provisions prevail over administrative clarifications when the law is clear.

Summary of Referred Cases