2012 (6) TMI 492 - AT - Service Tax

Denial of cenvat credit of service tax paid on outward freight - Held that - The definition of input service contains both the word means and includes , the portion of the definition to which the word means applies has to be construed restrictively as it is exhaustive and includes has to be construed liberally as it is extensive - the exhaustive portion of the definition of input service deals with service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products, it also includes clearance of final products from the place of removal till it reaches its destination falls within the definition of input, service - the word transportation is included in the phrase clearance of final products from the place of removal after the final products has reached the place of removal - in the later portion of the definition the words activities relating to business is used to expand the meaning of the word input service - while dealing with outward transportation two words inputs or capital goods are conspicuously missing as after inward transportation of inputs or capital goods into the factory premises, if a final product emerges, that final product has to be transported from the factory premises till the godown before it is removed for being delivered to the customer, therefore, input service includes not only the inward transportation of inputs or capital goods but also outward transportation in favour of assessee.

Summary

Issues:
Admissibility of cenvat credit on service tax paid for outward freight.

Analysis:
The appeal was filed by the Revenue against the order of the Commissioner (Appeals) regarding the admissibility of cenvat credit on service tax paid for outward freight by the respondent, a manufacturer of excisable goods. The Revenue contended that outward freight is not an input or input service for the assessee, making the cenvat credit incorrect and inadmissible. However, the Commissioner (Appeals) set aside the impugned order and allowed the appeal filed by the assessee.

The Revenue argued that the Commissioner (Appeals) erred in dropping the demand, emphasizing the admissibility of cenvat credit on service tax paid for outward transportation from the factory gate, which is considered the place of removal for the assessee. Referring to a Board circular, it was highlighted that if the sale contract/agreement meets specific criteria, including ownership retention by the seller until delivery, risk-bearing during transit, and freight charges being part of the price, then the credit of service tax on transportation would be admissible.

The issue was further analyzed in light of legal pronouncements, particularly a judgment by the Hon'ble High Court of Karnataka in a similar case. The judgment clarified that if service tax is paid on transportation charges up to the place of sale, falling under the definition of clearance of final products from the place of removal, the assessee is entitled to cenvat credit. The definition of 'input service' was examined, emphasizing that services from the place of removal to the destination, including transportation, fall within the ambit of input service.

The Tribunal concluded that the Revenue's contention lacked merit based on the legal interpretations and precedents cited. The appeal filed by the Revenue was rejected, affirming the admissibility of cenvat credit on service tax paid for outward freight by the assessee.