2017 (5) TMI 1647 - AT - Service Tax

CENVAT Credit - outward freight for the purpose of transportation of their finished goods from their factory to customers as well as from depots to customers - Held that - There were divergent views of different High Courts on the eligibility of cenvat credit on outward transport of goods from the place of removal upto the customer s premises or the depots as the case may be - The present issue has been finally settled by the judgement of the Hon ble Supreme Court in the case of Vasavadatta Cements Ltd. 2018 (3) TMI 993 - SUPREME COURT , where it was held that from 01.04.2008, with the aforesaid amendment, the CENVAT credit is available only upto the place of removal whereas as per the amended Rule from the place of removal which has to be upto either the place of depot or the place of customer. Extended period of limitation - Held that - As the Tribunal, the Hon ble High Courts and the Hon ble Supreme Court expressed different views at different stages on this issue, which was critical to decide the issue involved therein, the Apex Court decided that the extended period of limitation could not be invoked. Penalties - Held that - There was scope for the assessee to entertain the bonafide belief that the cenvat credit on the service tax paid on outward transportation up to the place of removal was available to them - the penalties imposed under Rule 15(3) of the Cenvat Credit Rules, 2004, are not warranted. Appeal allowed in part.

Summary

Issues:
Appeal against Orders-in-Appeal confirming demand for irregular credit of service tax on outward freight.

Analysis:
The appellants filed appeals against Orders-in-Appeal confirming demand for irregular credit of service tax on outward freight for transporting finished goods. The Adjudicating Authority upheld the demand, interest, and penalties under Rule 15(3) of the Cenvat Credit Rules, 2004. The Commissioner (Appeals) also upheld the adjudication order, leading to the present appeals before the Tribunal.

The issue revolved around the interpretation of "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004, for the period before 1-4-2008. The Full Bench of CESTAT in a previous case had interpreted the rule, emphasizing that input services used by the manufacturer in relation to the manufacture and clearance of final products from the place of removal are eligible for Cenvat credit. The definition of input service includes services related to transportation up to the place of removal.

The Hon'ble Supreme Court's decision in a related case clarified that the transportation charges up to the place of removal are included in the definition of input service. The Court noted divergent views of different High Courts on the eligibility of Cenvat credit on outward transport of goods. As there was a bona fide belief regarding the availability of Cenvat credit on service tax paid on outward transportation, the extended period of limitation was not applicable. Consequently, the penalties under Rule 15(3) of the Cenvat Credit Rules, 2004, were set aside.

In conclusion, the penalties imposed on the appellants were set aside, and the appeals were partly allowed based on the interpretation of the definition of input service and the bona fide belief held by the appellants regarding the availability of Cenvat credit on outward transportation up to the place of removal.