Cenvat credit eligibility of service tax paid on outward freight.

PJ/CASE LAW/2015-16/2841

Case:- COMMISSIONER OF C. EX., ROHTAK VERSUS HARYANA SHEET GLASS LTD.

Citation:- 2015 (39) S.T.R. 392 (P & H)

Brief facts:- Present appeal under Section 35G of the Central Excise Act, 1944 (for short the ‘Act’) arises out of an order passed by the Central, Excise and Service Tax Appellate Tribunal, New Delhi (for short the ‘Tribunal’) dated 15-2-2012 (Annexure A-3). The Revenue has claimed the following substantial question of law :-
Whether the Service Tax paid on outward transportation of goods cleared from the factory (place of removal) would be an input service within the meaning of Rule 2(l) of Cenvat Credit Rules, 2004?
The assessee is registered in the category of ‘Goods Transport Agency’ and is availing the facility of Cenvat credit under the Cenvat Credit Rules, 2004 (for short the ‘Rules’). During the visit of the officers of the Central Excise, it was noticed that the assessee paid Service Tax @ 10.2%, inclusive of Education Cess, on the outward freight charges and taken the Cenvat credit. The stand of the Revenue is that the assessee is not entitled to Cenvat credit on Service Tax towards outgoing freight. A show cause notice was issued to the assessee. The stand of the assessee was that the transportation of goods from the place, i.e., factory to the premises of the petitioner are to be treated as input service. The said stand of the assessee was not accepted and for the Cenvat credit an amount of Rs. 26,53,863/- paid as the Service Tax on outward transport service was declined. The adjudicating authority also raised the demand of interest and penalty of the equivalent amount of the duty imposed. The Commissioner of Central Excise (Appeals) affirmed the order passed by the adjudicating authority but the Tribunal allowed the appeal relying upon the judgment of the Karnataka High Court rendered in CCE, Bangalore and Ors. v. ABB Ltd. and Ors. - 2011 (23) S.T.R. 97 (Kar.).

Respondent’s contention:-In the case of Ambuja Cements Ltd. v. Union of India, 2009 (236) E.L.T. 431 (P&H) = 2009 (14) S.T.R. 3 (P & H), this Court relied upon a circular issued by the Central Excise Board and Customs on 23-8-2007 opining that the “Place of Removal” has to be determined by taking into account the facts of each case. Considering the definition of expression “input service” in Rule 2(l) of the Rules that for the transportation purpose, 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 doorsteps, therefore, the benefit of input service, the transportation charges has been granted for availing the input service credit.
Rule 2(l) defining the “input service” reads as under :
“input service” means any service :-
(i) used by a provider of taxable service for providing an output service; or
(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, and includes services used in relation to 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, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal; but excludes services.

Reasoning of judgment:-A reading of the above extract would show that outward transportation upto place of removal falls within the expression “input service”. The place of removal, in terms of the circular of the Board is a question of fact. If a manufacturer is to deliver the goods to the purchaser, the place of removal would not be a factory gate of the manufacturer but that of the purchaser.
The decision of this Court in Ambuja Cement’s case (supra) furnishes justified cause to the Tribunal to allow the appeal of the
manufacturer. There is no evidence that the property in goods stood transferred to the purchaser at the factory door of the assessee.
In view of the said fact, they do not find any substantial question of law arises for consideration. Accordingly, the appeal filed by the revenue is dismissed.

Decision:- Appeal dismissed.

Comment:- The analogy of the case is that as in the present case, 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 doorsteps, therefore, the place of removal is to be considered as customer’s premises and the cenvat credit of service tax paid on transportation charges is available.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2841

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