2009 (2) TMI 727 - Commissioner - Service Tax

Summary

Issues Involved:
1. Eligibility of service tax paid on transportation as 'input service credit'.
2. Determination of 'place of removal'.
3. Inclusion of freight in the assessable value.
4. Imposition of penalty and interest.

Detailed Analysis:

1. Eligibility of Service Tax Paid on Transportation as 'Input Service Credit':
The core issue in all six appeals revolves around the eligibility of service tax paid on the transportation of final products from the factory to the customers' premises or port of export as 'input service credit'. The adjudicating authorities disallowed the credits on the grounds that the service tax paid on transportation post-clearance of goods is not eligible as 'input service credit'. The appellants argued that the prices of the final products sold included freight, and the goods were delivered at the customers' doorsteps, maintaining ownership until delivery, as per the CBEC Circular No. 97/8/2007 dated 23-8-2007.

2. Determination of 'Place of Removal':
The adjudicating authorities considered the factory as the 'place of removal', thus disallowing the transportation service as 'input service'. However, the appellants contended that the 'place of removal' should be the customers' premises or port of export, where the goods were delivered. The CBEC Circular No. 97/8/2007 clarifies that if the price is inclusive of freight and the goods are delivered in acceptable condition with ownership remaining with the seller until delivery, the 'place of removal' is the delivery location.

3. Inclusion of Freight in the Assessable Value:
The Assistant Commissioner concluded that the prices were not inclusive of freight, and the appellants failed to prove that the property vested with them until delivery. However, the examination of purchase orders, invoices, and insurance documents indicated that the goods were moved on 'FOR' (Free on Rail) destination terms, making the freight part of the assessable value. This implies that the transfer of property occurred at the customers' end, thus supporting the appellants' claim that the 'place of removal' is the customers' premises.

4. Imposition of Penalty and Interest:
The appellants argued against the imposition of penalties, citing that the issue involved interpretation and conflicting decisions. They relied on various judgments, including India Japan Lighting Pvt. Ltd. v. CCE, Chennai, and others, to support their claim that penalties should not be imposed in cases of interpretative issues. Since the appellants succeeded on merits, the question of interest and penalty does not survive.

Conclusion:
The judgment concluded that the service tax paid on outward transportation is eligible as 'input service credit' if the freight is included in the assessable value and the goods are delivered at the customers' end. The CBEC Circular No. 97/8/2007 and the decision in Vardhaman Special Steels v. CCE support this conclusion. Consequently, the appeals were allowed, and the Orders-in-original passed by the Assistant Commissioner were set aside. The imposition of interest and penalties was also annulled.