Admissibility of credit of service tax on freight outward.

PJ/Case Law/2014-15/2381

Cases:- WELSPUN MAXSTEEL LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, RAIGAD

Citation:- 2013 (30) S.T.R. 614 (Tri. – Mumbai)

Brief facts:- The appeals and stay applications are directed against Order-in-Appeal No. US/81/RGD/2012, dated 10-2-2012 and US/285/RGD/2012, dated 30-4-2012 passed by the Commissioner of Central Excise & Customs (Appeals), Mumbai-II.

As the issues involved in both the appeals are common, they are taken up together for consideration and disposal. The issue in the case relates to eligibility for the CENVAT credit of service tax paid on transport charges by the appellant M/s. Welspun Maxsteel Ltd., in respect of outward transportation of the finished products from the factory. The period involved is on or after 1-4-2008, in both the cases. The department was of the view that since the place of removal of the goods is the factory, CENVAT credit of the service tax paid on outward transportation would not be available after 1-4-2008 as the rule has been amended so as to provide that in respect of “input services” only the services which are availed up to the place of removal are eligible for the benefit of CENVAT credit. Accordingly, notices were issued to the appellant proposing to deny the credit taken on the charges and the same were confirmed against the appellant along with interest thereon. The appellant was also imposed with equivalent amount of penalties. The appellant preferred appeals before the lower appellate authority who dismissed their appeals and hence, the appellant is before Tribunal.

Appellant’s contention:- The learned Counsel for the appellant submitted that the expenditure has been incurred in respect of outward transportation of the goods after their removal from the factory. The learned Advocate also submitted that the cost of transportation also does not form part of the assessable value of the goods cleared. However, he fairly concedes that after the decision of the Hon’ble Karnataka High Court in the case of Commissioner of Central Excise v. ABB Ltd. as reported in 2011 (23)S.T.R.97 (Kar.)for the period on or after 1-4-2008, they were not eligible for the credit.

Respondent’s contention:- The learned AR appearing for the Revenue submits that the assessee is not eligible for the credit in view of the decision of Hon’ble Karnataka High Court in the case of ABB Ltd. cited (supra) for the period on or after 1-4-2008.

Reasoning of judgment:- As the issue was already settled, the commissioner was of the view that the appeals can be disposed of at this stage. Therefore, after dispensing with the requirement of pre-deposit of the dues adjudged, the appeals were taken up for consideration and disposal.

The CENVAT Credit Rules, 2004, was amended so as to replace the words “from the place of removal” with the words “up to the place of removal” and this amendment came into effect from 1-4-2008 onwards. As a result of this amendment, the CENVAT credit in respect of outward transportation beyond the place of removal was excluded from the scope of ‘input service’. Therefore, for the period on or after 1-4-2008 CENVAT credit on outward transportation is not available. Therefore, the department is right in denying the benefit of CENVAT credit on the outward transportation incurred beyond the place of removal. Accordingly, the appellant-assessee is liable to reverse the credit of CENVAT credit taken, if any, along with interest thereon during the impugned period.

As regards the penalty, the period involved is from April, 2010 to March, 2011. The judgment of the Karnataka High Court in the case of ABB Ltd. (supra) came out only in January, 2011. Therefore, during the material period, as per the decision of the Larger Bench in the case of ABB Ltd. case (supra), the appellant was held to be eligible for the credit which decision was reversed by the Hon’ble Karnataka High Court for the period after 1-4-2008 vide the judgment cited (supra). Therefore, the assessee cannot be alleged to have committed either suppression or fraud in the matter and therefore, imposition of equivalent of penalty on the assessee is totally unwarranted. Accordingly, the penalty imposed on the appellant is set aside. However the assessee is directed to reverse the CENVAT credit taken along with interest thereon, forthwith.

Decision:- Appeal dismissed.

Comment:- In The CENVAT Credit Rules, 2004, the words “from the place of removal” were replaced with the words “up to the place of removal” from 1-4-2008 onwards. As a result of this amendment, the CENVAT credit in respect of outward transportation beyond the place of removal was excluded from the scope of ‘input service’. Therefore, for the period on or after 1-4-2008 CENVAT credit on outward transportation is not available. However, as the issue was one relating to interpretation of the provisions of law, penalty was set aside.

Prepared by: Prayushi Jain

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PJ/Case Law/2014-15/2381

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