If freight is an Integral part of Assessable value of the final products then can the Department deny CENVAT Credit of Outward transportation service availed.

PJ/Case Law/2014-15/2367

Case:-COMMR. OF CUS. & C.EX., HYDERABAD-III Versus GREY GOLD CEMENTS LTD.

Citation:- 2014 (34) S.T.R. 809 (A.P.)

Brief fact:-The appeals are preferred under the Section No. 35G of the Central Excise Act,1944 against common order of the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Bangalore. By impugned orders, the Tribunal answered the question referred, holding that services availed by the manufacturer for outward transportation of final products from the place of removal should be treated as “Input Service” in terms of Rule 2(l)(ii) of the CENVAT Credit Rules,2004 and the manufacturer is entitled to take credit of the service tax paid on the value of such service.

Appellant’s contention:- As appeal by the manufacturer in the primary authority- the Assistant Commissioner of Customs and Central Excise disallowed the manufacturer’s claim for the input tax credit, on the transportation of goods to customers premises to the extent of the component of service tax paid on such transportation of goods beyond the place of removal i.e. on clearance of their final products effected to Government Institutions and individual customers at factory gate during the period in question.
As against the order of commissioner (Appeals), the Revenue appeals to the Tribunal to the Larger Bench on the question;
Whether the services availed by a manufacturer for outward transportation of final products from the place of removal would be treated as an “Input Service” in terms of Rule 2(l)(ii) of the CENVAT Credit Rules,2004 and thereby enabling the manufacturer to take credit of the service tax paid on the value of such services? OR
Whether the “Input service” should be limited only to outward transportation up to the place of removal in terms of the inclusive definition as held in the Gujarat Ambuja case cited supra?

Respondent’s contention:- In appeals preferred by the respondent, the Commissioner (Appeals) relying on the Board Circular allowed the appeal. The appellate authority held that in case of depot sales of goods, credit of service tax paid on transportation of goods up to such depot would be eligible for Cenvat Credit concluded that as per Rule 2(l)(ii) of CENVAT Credit Rules,2004 a manufacturer is eligible for Cenvat Credit of service tax paid on outward transportation of cement and it was only clarified by the Board that in case goods are first transported to Depot, the Service Tax incidence on freight from factory to depot would also be available as Cenvat credit to the manufacturer.

Reasoning of judgment:- After studying the matters referred by the Tribunal, the Hon’ble judge of the High Court stated that the Tribunal concurred with the appellate authority [i.e. Commiissioner (Appeals)] relying on the judgment of the High Court of Punjab and Haryana reported in Gujarat Ambuja Cements Ltd. v. Commissioner of Central Excise, Ludhiana – 2009 (14) S.T.R. 3 (P&H). The Tribunal also referred to the Board Circular dated 02-02-2006, as did the appellate authority; and also referred OECD guidelines. The Tribunal also relied on observations of the Supreme Court in All India Federation of Tax Practitioners v. Union of India - 2007 (7) S.T.R. 625 (S.C.). Further it is also explained that the Supreme Court observed that Service Tax and Excise duty are consumption tax to be born by the consumer and therefore if credit is denied on transportation service the levy of service tax on transportation will become a tax on business rather than being a consumption tax. The Tribunal observed that the submission of the Revenue that the CENVAT Credit cannot be allowed for service tax if the value therefore does not form part of the value subjected to excise duty runs counter to the fundamental concept of Service Tax laid down in All India Federation of Tax Practitioners’ case (supra). Here where the Hon’ble High Court did neither find any question of law nor find any question of fact. Hence the appeals were accordingly dismissed at the stage of its admission.

Decision:- Appeal dismissed.

Comment:-The tribunal held that the service tax is a consumption based tax and it cant be treated like it’s a tax on business. Cenvat has to be allowed of the service tax paid upto the place of removal in the instant case the place of removal was the depot. The revenue’s contention that the value has to be subject to excise duty also does not hold good in the instant case.

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PJ/Case Law/2014-15/2367

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