2007 (4) TMI 470 - AT - Service Tax

Cenvat credit of Service tax - Input service - Outward freight - Appeal to Appellate Tribunal - Fresh plea - Penalty

Summary

Issues Involved:
1. Eligibility of Cenvat credit on Service Tax paid on outward transportation.
2. Interpretation of 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004.
3. Imposition of penalties under Rule 15(3) of the Cenvat Credit Rules, 2004.

Detailed Analysis:

1. Eligibility of Cenvat credit on Service Tax paid on outward transportation:
The appellant/Revenue challenged the order of the Commissioner (Appeals) which set aside the order-in-original disallowing Cenvat credit of Service Tax on outward transportation and imposing penalties. The respondent had availed Cenvat credit on Service Tax paid on outward freight, which was disallowed by the adjudicating authority on the ground that the goods were sold at the factory gate, and hence, the place of removal was the factory. Therefore, outward transportation from the factory was not considered an 'input service' as per Rule 2(l) of the Cenvat Credit Rules, 2004. The Commissioner (Appeals) held that the definition of 'input service' included outward transportation of finished goods, allowing the respondent to take Cenvat credit. However, the Tribunal, following the decision in M/s. Gujarat Ambuja Cements Ltd. v. CCE, Ludhiana, held that 'input service' covers outward transportation only up to the place of removal. Thus, the Tribunal restored the order-in-original, denying the Cenvat credit on outward transportation.

2. Interpretation of 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004:
The definition of 'input service' under Rule 2(l) includes services used by the manufacturer in relation to the manufacture and clearance of final products from the place of removal. The Tribunal emphasized that the term 'clearance of final product from the place of removal' should be understood in the context of services used by the manufacturer up to the point of removal. The outward transportation of final products starts after the clearance from the place of removal. The Tribunal concluded that the expression 'outward transportation up to the place of removal' delineates the extent to which 'input service' in respect of transportation could be claimed. The Tribunal applied the ratio from the Gujarat Ambuja case, which restricted transport service credit up to the place of removal, and held that outward transportation beyond the place of removal could not be considered 'input service'.

3. Imposition of penalties under Rule 15(3) of the Cenvat Credit Rules, 2004:
The Tribunal noted that in similar cases, penalties were set aside while confirming the denial of Cenvat credit. The learned Counsel for the respondent argued that divergent views on the interpretation of 'input service' justified the absence of penalties. The Tribunal referred to previous decisions, including J.K. Cement Works v. CCE, Jaipur, where penalties were set aside due to the absence of mala fide intention. Consequently, the Tribunal set aside the penalties imposed by the adjudicating authority, while restoring the denial of Cenvat credit and ordering its recovery along with interest.

Conclusion:
The Tribunal concluded by setting aside the order of the Commissioner (Appeals) to the extent that it allowed Cenvat credit on outward transportation and restored the order-in-original denying the Cenvat credit. However, the penalties imposed were set aside in light of similar precedents. Both appeals were partly allowed, upholding the denial of Cenvat credit and ordering recovery with interest, but without penalties.