2018 (3) TMI 238 - AT - Central Excise

CENVAT credit - place of removal - contention of the tax authorities is that the professional fees on which service tax liability has been discharged in 2012-13 pertains to activities beyond the place of removal and hence ineligible to be availed a CENVAT credit - Held that - Place of removal is an expression that is found in means in Central Excise Act, 1944 independently owing to assessment becoming liable to be determined upon clearance of goods from the factory of production. However, that expression cannot be considered as relevant for goods intended for export which are precluded from duty liability. In the context of certain services such as outward transportation, judicial interpretation shifted the place of removal from factory to the port of export. The eligibility for incentives on completion of export formalities is consistent with the place of removal being the port of export. Exports are the culmination of production activity and are the motive force for production. Accordingly, the denial of entitlement for CENVAT credit on the ground that there is no nexus with manufacturing activity will not sustain. Credit allowed - appeal allowed - decided in favor of appellant.

Summary

Issues:
Denial of CENVAT credit for professional fees related to export incentives.

Analysis:
The appellant, a pharmaceutical exporter, challenged the denial of CENVAT credit amounting to ?4,06,155 by the lower authorities. The dispute revolved around whether the professional fees paid to M/s JAK Traders Pvt Ltd for compliance with prescriptions leading to obtaining export incentives could be considered as input services under the CENVAT Credit Rules, 2004. The tax authorities contended that these services were beyond the place of removal and hence ineligible for CENVAT credit. However, the appellant argued that these services fell within the definition of input services as per rule 2(l) of the CENVAT Credit Rules, 2004.

The first appellate authority highlighted that the definition of "input service" under rule 2(l) necessitates a nexus with manufacturing activity up to the clearance of the final product. It was emphasized that the inclusive portion of the definition cannot be separated from the main leg, indicating that services related to manufacturing and clearance of final products are eligible for CENVAT credit.

The Tribunal analyzed the provisions of rule 2(l) in detail to determine the eligibility of the professional fees as input services. It was observed that the contention of the Revenue, suggesting that post-manufacturing or post-clearance activities were not entitled to CENVAT credit, was not reasonable when considering the specific services listed in the inclusive portion of the definition. The Tribunal also clarified that the concept of "place of removal" in the Central Excise Act, 1944, was not directly applicable to goods intended for export, as they are exempt from duty liability.

Moreover, the Tribunal emphasized that export incentives are granted upon fulfilling export formalities, and the delay between exports and the release of incentives should not affect the eligibility of exported goods for incentives. It was noted that exports are the culmination of production activity and are essential for production, justifying the entitlement to CENVAT credit for services related to export activities.

Conclusively, the Tribunal held that the denial of CENVAT credit for the professional fees related to export incentives was not legally justified. The impugned order disallowing the credit was set aside, providing consequential relief to the appellant.