2017 (1) TMI 160 - AT - Central Excise

Cenvat credit on freight outward - Held that - Transportation within a factory would be covered by the inclusive clause. However, where depot is a place of removal, freight from depot to customer s premises would be covered by the means clause by the expression service used directly or indirectly or in relation to clearance of final products from place of removal . Similarly, where the factory is the place of removal freight from factory to customer s premises would be covered by the term service used directly or indirectly, in relation to clearance from place of removal - Appeal dismissed.

Summary

Issues:
Department appealing against allowance of CENVAT credit for service tax on outward freight. Eligibility of input service credit for outward transportation of goods. Inclusion of freight charges in assessable value. Interpretation of definition of input services pre-01.03.2008. Applicability of judgments in ABB Ltd. case and jurisdictional High Court case.

Analysis:
The Department filed an appeal against the Commissioner (Appeals) decision allowing CENVAT credit for service tax on outward freight. The case involved manufacturers of Tyres operating on job work basis with raw materials supplied by CEAT Ltd., Mumbai. The issue was the eligibility of input service credit for service tax paid on outward transportation of goods. The Department contended that since the freight charges were not included in the assessable value, the credit should not have been allowed. The Department argued that the factory gate constituted the place of removal, making the credit inadmissible due to provisional assessments and non-inclusion of freight charges.

On behalf of the Respondent, it was argued that the period in question was before 01.03.2008 when the definition of input services referred to the clearance of final products from the place of removal. The Respondent relied on judgments in the ABB Ltd. case, CCE Vs. Grey Gold Cements Ltd., and AGI Glaspac case decided by the jurisdictional High Court. The Tribunal noted that the issue was covered by the Larger Bench judgment in the ABB Ltd. case and the jurisdictional High Court's decision. The Tribunal highlighted that for admissibility of credit for outward transportation, the cost of freight need not be part of the transaction value of manufactured goods.

The Tribunal referred to the inclusive clause of the definition of input services to clarify that transportation up to the place of removal was not available as credit, but transportation within a factory would be covered. The Tribunal emphasized that the cost of outward transportation need not be included in the transaction value of goods to allow service tax credit. The Tribunal dismissed the Department's appeal, citing the VAT nature of service tax as a destination-based consumption tax on commercial activities, not a charge on businesses. The decision was based on the principles established in the All India Federation of Tax Practitioners case regarding the concept of Value Added Tax and the nature of service tax as a value-added tax.