2015 (11) TMI 167 - HC - Service Tax

Wrongful availment of CENVAT Credit - outward transportation service - Held that - Court, in Borg Warner s case (2015 (4) TMI 254 - MADRAS HIGH COURT), on the issue of outward freight charges, had occasion to consider the decision of the Karnataka High Court in the case of CCE - Vs - ABB Ltd., Bangalore - 2011 (3) TMI 248 - KARNATAKA HIGH COURT on an identical issue, and answered the issue in favour of the assessee. - Following the above cited decisions - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the Goods Transport Agency (GTA) service received by a manufacturer can be deemed as an 'output service' under the Cenvat Credit Rules, 2004.
2. Whether the credit taken by a manufacturer on input service can be utilized for discharging service tax liability on GTA service.

Detailed Analysis:

Issue 1: Goods Transport Agency (GTA) Service as 'Output Service'

The primary issue is whether the GTA service received by a manufacturer of final products can be deemed an 'output service' under the Explanation to Rule 2(p) of the Cenvat Credit Rules, 2004. The court considered whether a manufacturer liable for paying service tax on GTA services can categorize these services as 'output services,' especially when the said Explanation excludes manufacturers of final products from this scope.

Analysis:
The court referred to the decision in Commissioner of Central Excise, Chennai vs. M/s. Borg Warner Morse TEC Murugappa Pvt. Ltd., which had considered a similar issue. The Karnataka High Court in CCE vs. ABB Ltd., Bangalore, clarified that the definition of 'input service' includes services used by the manufacturer directly or indirectly in relation to the manufacture of final products. This definition also encompasses the clearance of final products from the place of removal, including transportation charges. The court emphasized that the phrase 'activities relating to business' in the inclusive portion of the definition should be interpreted liberally.

The court concluded that transportation from the place of removal to the customer's location falls within the definition of 'input service,' thus supporting the assessee's claim. The court held that the substantial question of law is answered in favor of the assessee, confirming that GTA services can be deemed 'output services' for the purpose of availing Cenvat credit.

Issue 2: Utilization of Credit on Input Service for Discharging Service Tax Liability on GTA Service

The second issue is whether the credit taken on input services used in the final products can be utilized for discharging the service tax liability on GTA services received by the manufacturer.

Analysis:
The court reaffirmed the decision in ABB Ltd., which allowed manufacturers to take credit for service tax on outward transportation of final products from the place of removal. The court noted that the definition of 'input service' includes outward transportation charges up to the place of removal. The court further clarified that the amendment effective from 01.04.2008, which substituted 'from' with 'up to' in the phrase 'clearance of final products from the place of removal,' did not alter the interpretation that transportation charges incurred by the manufacturer for clearance of final products were included in the definition of input service.

The court concluded that the credit taken on input services could be utilized for discharging the service tax liability on GTA services, thus answering the substantial question of law in favor of the assessee.

Conclusion:
The court dismissed the appeal filed by the Revenue, confirming the order passed by the Tribunal. The substantial questions of law were answered in favor of the assessee, allowing the utilization of credit on input services for discharging service tax liability on GTA services. The decision in ABB Ltd. was deemed applicable, supporting the assessee's position on both issues. Consequently, the appeal was dismissed, and the connected miscellaneous petition was closed with no order as to costs.