2016 (9) TMI 1380 - AT - Service Tax

CENVAT credit - input services - freight charges incurred for transportation of goods exported - denial on account of nexus - whether the service tax paid on freight charges incurred for transportation of goods up to the port of export is covered under the definition of input services in terms of Rule 2(l) of CCR 2004? - Held that - In the case of export transaction where FOB price is the consideration the goods have to be delivered on board the vessel which means the place of delivery is the port of shipment. Therefore the place of removal automatically extends up to the port of shipment when the goods are to be delivered on board the vessel. If that is so the cost of transportation from the factory to the port of shipment will automatically become part of the value of the goods and whatever services have been availed up to that point would become input services - the appellants are legally entitled for the Cenvat credit of service tax paid on GTA services utilized for transportation of the export goods from the factory to the port of shipment - appeal allowed - decided in favor of appellant.

Summary

Issues involved:
- Rejection of Cenvat credit on transportation services, port services, and CHA services
- Interpretation of Rule 2(l) of Cenvat Credit Rules, 2004 regarding service tax on freight charges for transportation of goods up to the port of export

Analysis:
- The appeal challenged the order rejecting Cenvat credit on transportation, port, and CHA services, upheld by the Commissioner (Appeals). The appellant, a manufacturer of battery-operated electric cars, availed Cenvat credit on freight charges for goods exported. The dispute arose when departmental officers objected to this credit, leading to show cause notices and subsequent rejection of the appeal by the Commissioner (Appeals).

- The central issue revolved around whether service tax paid on freight charges for transporting goods to the port of export falls under the definition of input services as per Rule 2(l) of the Cenvat Credit Rules, 2004. The appellant argued that this issue had been settled in favor of the assessee by various tribunal decisions and cited specific cases and a relevant circular in support of their claim.

- The judgment emphasized that in export transactions with the FOB price as consideration, goods must be delivered on board the vessel at the port of shipment. Consequently, the place of removal extends to the port of shipment when goods are to be delivered on board the vessel. Therefore, the cost of transportation to the port of shipment forms part of the goods' value, making services availed up to that point eligible as input services. Relying on precedents, the judgment concluded that the appellant is entitled to Cenvat credit on service tax paid for GTA services used in transporting export goods to the port of shipment, allowing the appeal with consequential relief.

- The decision was pronounced on 23-9-2016 by Shri S.S. Garg, Member (J), Appellate Tribunal CESTAT Bangalore. The judgment provided a significant clarification on the interpretation of Rule 2(l) in the context of service tax on freight charges for transportation of goods up to the port of export, aligning with established tribunal decisions and legal principles.