2009 (11) TMI 89 - AT - Service Tax

GTA service - Credit of service tax paid on outward transport submission that service tax paid on outward transport is not claimed from the customers. However, this submission requires verification by the field officials and, in many cases, the amounts collected from the customers being a consolidated amount, it may not be possible to verify how much towards freight and service tax on freight is being collected from the customers as a part of the consolidated price Facts of case or submission of appellants not recorded by the decision of the Larger Bench of the Tribunal in the case of ABB Ltd. v. Commissioner of Central Excise & Service Tax, Bangalore 2009 - TMI - 34139 - CESTAT, BANGALORE - we find that the referral Bench did not, in any way, mention outward transportation to be a business activity nor was that a subject-matter of reference. The Larger Bench decision, on the other hand, without recording any submissions made on behalf of the appellants holds outward transportation to be a business activity by allowing credit of service tax paid on such transportation. - This would result in accrual of no tax to the Government and undue benefit to the manufactures as he will take credit of the service tax paid from the Government and simultaneously also take an equal amount from the ultimate consumer. A tax legislation, in our view, cannot be interpreted in a way to deprive the Government of tax revenue while unjustly enriching the manufacturer. We find no direction in the cited LB decision to verify the facts of each case before allowing the credit in each case. - we adjourn the matter awaiting Hon ble Karnataka High Court s decision on department s stay petition filed against said Larger Bench decision

Summary

Issues:
1. Interpretation of the decision in ABB Ltd. case by the Appellate Tribunal CESTAT, CHENNAI.
2. Claiming credit for service tax paid on outward transportation.
3. Impact of the amendment in the relevant rule from 1-4-2008.
4. Legal restrictions on credit for outward transportation.
5. Classification of transportation of finished goods as an "input service."
6. Applicability of the decision in ABB Ltd. case on all cases.

Analysis:
1. The appeals were listed together due to a common issue, with the appellants seeking a favorable decision based on the Larger Bench decision in the ABB Ltd. case. The total amount involved in these appeals was approximately Rs. 27 crores, including penalties. However, the Tribunal noted that the ABB Ltd. decision did not provide details of the case or submissions made by the appellants. The advocates and representatives presented various factual aspects, including issues with invoices and excise duty calculations for different appellants, particularly cement manufacturers.

2. Some appellants argued for credit/refund of service tax on transport charges for exported goods, while others sought benefits even after the amendment in the relevant rule from 1-4-2008. The Tribunal considered these arguments in light of the ABB Ltd. decision, which was being challenged in the Karnataka High Court by the department. The department highlighted specific rules restricting credit on outward transportation and contended that transportation of finished goods is not an "input service" for excise duty purposes, citing relevant legal provisions and court decisions.

3. Despite the factual variations in different cases, the Tribunal found that the ABB Ltd. decision authorized credit for outward transportation from the place of removal, even post the 1-4-2008 rule amendment. The decision was seen as granting credit uniformly, potentially leading to undue benefits for manufacturers if not properly regulated. The Tribunal emphasized the need to prevent unjust enrichment of manufacturers at the expense of tax revenue.

4. The Tribunal analyzed the interpretation of Rule 2(l)(ii) of the CENVAT Credit Rules, distinguishing between defining "Input Service" for credit and granting exemptions. It referred to the Supreme Court's principles on specific provisions overriding general ones in the context of tax legislation. Additionally, the Tribunal noted that the Larger Bench decision did not specifically address outward transportation as a business activity, raising questions about the broad application of the credit for such services.

5. Considering the arguments from both sides and pending the decision from the Karnataka High Court on the stay petition, the Tribunal adjourned the matter to await further clarity. The Tribunal highlighted the importance of the upcoming court decision and scheduled a follow-up hearing on the issue. Both parties were instructed to stay informed about the developments for the next hearing.