2016 (12) TMI 904 - AT - Central Excise

CENVAT credit - Outward transportation - tax discharged in connection with activity beyond the place of removal - Held that - The quantum of credit available is linked to the ingredients that constitute the value for tax liability. This is amply clear from the special treatment accorded to output goods and services that are exempt and goods or services that are exported. Appellant has admitted that freight on outward transportation was not included in the assessable value of goods on which the duty liability is discharged by recourse to CENVAT credit. If the contention of appellant that the value of the service claimed to be an input service is not to be included in the assessable value of output goods is accepted, the appellant would end up availing undue privilege of credit balance by paying tax lower than that envisaged by the sovereign legislature. It would also constitute retention of the tax recovered from customer which is not the intent of the CENVAT Credit Rules. Relying on the decision of the Tribunal in Maharashtra Scooters Ltd v. Commissioner of Central Excise, Pune -II 2015 (9) TMI 1161 - CESTAT MUMBAI , that tax paid on outward freight is not available for offset of the duty liability on output goods, the appeal is rejected - decided against appellant.

Summary

Issues:
1. Eligibility for availment of CENVAT credit of tax paid on outward transportation.

Analysis:
The appeal by M/s Man Industries India Ltd challenges the disallowance of CENVAT credit amounting to ?15,13,584 taken between August 2005 and June 2006 for being discharged in connection with activity beyond the place of removal. The original authority and the impugned order upheld this finding, leading to the present appeal.

The appellant relies on various decisions by different High Courts and the Tribunal to support their claim. However, the Tribunal notes that these decisions do not directly address the issue at hand, which revolves around the conformity of the claimed tax credit with the CENVAT credit scheme. The crux of the matter lies in whether the freight on outward transportation should be considered an 'input service' eligible for CENVAT credit.

The Tribunal emphasizes that the CENVAT Credit Rules, 2004 do not function as an exemption mechanism but regulate the acknowledgment of a fund as a means of discharging tax obligations. The relationship with tax liability is crucial, and the value for tax liability is determined by the ingredients constituting it. The appellant's contention that the value of the service claimed as an 'input service' should not be included in the assessable value of output goods is deemed untenable, as it could lead to an undue privilege of credit balance and lower tax payments than intended by the legislature.

Referring to the decision in Maharashtra Scooters Ltd v. Commissioner of Central Excise, Pune -II, the Tribunal maintains that tax paid on outward freight is not available for offsetting duty liability on output goods. Therefore, the appeal is rejected based on this precedent and the lack of alignment with the CENVAT credit scheme.