2010 (5) TMI 699 - Commissioner - Service Tax

Summary

Issues:
- Whether CENVAT credit on service tax paid on outward freight up to the port of export is admissible under the Cenvat Credit Rules, 2004.
- Whether the port of export can be considered as the place of removal in the context of availing CENVAT credit on service tax paid on GTA services for transportation of export goods.

Analysis:

Issue 1: CENVAT Credit on Outward Freight:
The appellant, engaged in manufacturing Polyester Staple Fibre (PSF) and Tow, availed CENVAT credit on service tax paid on outward freight up to the port of export. The Assistant Commissioner disallowed this credit, citing Rule 2 of the Cenvat Credit Rules, 2004, which states that transport of goods to the port of export is not part of the manufacturing process and thus not an input service eligible for credit. Additionally, a CEBE Circular specified that credit on outward transport of goods is only allowed up to the place of removal, which does not include the port. The Department alleged intentional suppression of facts by the appellant, invoking Section 11A(1) of the Central Excise Act, 1944 for recovery of dues.

Issue 2: Port of Export as Place of Removal:
The appellant argued that in the case of exports, the actual sale occurs at the port of export, where goods leave the country only upon loading onto ships. They relied on legal interpretations and judgments, including Kuntal Granites Ltd., to support their claim that the port of export should be considered the place of removal for export goods. The appellant contended that since they disclosed the credit availed in their returns, the longer period of limitation under Section 11A(1) should not apply. They emphasized that they believed in good faith that the credit was admissible based on judicial precedents.

Judgment:
The Commissioner analyzed the contentions and legal principles involved. Referring to relevant judgments and legal provisions, the Commissioner concluded that in the context of export goods, the port of export can be recognized as the place of removal. The Commissioner found support in various tribunal decisions and the CBEC Circular, which acknowledged situations where the place of removal differs from the standard definition. As per Section 4(3)(c)(iii) of the Central Excise Act, 1944, the place of removal includes locations where goods are sold post-factory clearance. In the case of export, the sale is only realized upon goods leaving Indian shores, making the port of export the place of removal. Consequently, the Commissioner allowed the appeal, affirming the admissibility of CENVAT credit on GTA services up to the port of export and negating the demand for interest or penalty.

This comprehensive analysis of the issues and the legal reasoning behind the judgment highlights the considerations made by the Commissioner in arriving at the decision to allow the appeal filed by the Appellant.