2009 (12) TMI 301 - AT - Service Tax

Cenvat Credit of Service Tax- Input Service- The amount is Service tax under the category of GTA service paid by the appellants for transport g empty gas cylinders from their premises to M/s. Travancore Cochin Chemicals Ltd., Udyogamandal, Cochin for procuring liquid Chlorine, one of the major inputs required for the manufacture of its final product Titanium Dioxide. The lower authority held that out ward transportation of empty cylinders can get credit only up to the place of removal in terms of Explanation 2(2) of Rule 2 of CCR. Held that- the impugned order affirming denial of such credit and ordering recovery of the same is not in accordance with law. The same is set aside and the appeal filed by the appellants is allowed.

Summary

Issues:
1. Whether the transportation of empty gas cylinders by a state PSU for procuring liquid Chlorine constitutes an input service under the Cenvat Credit Rules, 2004.

Analysis:
The appeal was filed by a state PSU seeking to vacate an order affirming the demand of Cenvat credit for Service tax paid under the category of GTA service. The appellants paid Service tax for transporting empty gas cylinders to procure liquid Chlorine, a major input for manufacturing Titanium Dioxide. The original authority held that this service was not an input service as defined in the Cenvat Credit Rules, 2004, as the transportation of empty cylinders was not directly or indirectly related to the manufacture of the final product. The Commissioner sustained the demand but vacated the penalty imposed.

Upon careful consideration of the records and rival submissions, the Appellate Tribunal found that the outward transportation of empty cylinders is essential for procuring the input liquid Chlorine, necessary for manufacturing the final product. The Tribunal noted that the definition of 'input service' under the Cenvat Credit Rules includes any service used by the manufacturer, directly or indirectly, in relation to the manufacture of final products. It was established that the transportation of empty cylinders by the assessee was necessary and the Service tax paid for such transportation was incurred in relation to the manufacture of the final products.

The Tribunal concluded that the GTA service used for transporting empty cylinders to the supplier of raw material, liquid Chlorine, indeed constitutes an input service. Therefore, the impugned order denying the credit and ordering recovery of the amount was deemed contrary to the law. Consequently, the Tribunal set aside the order and allowed the appeal filed by the appellants.

This judgment clarifies the scope of 'input service' under the Cenvat Credit Rules, emphasizing that services directly or indirectly related to the manufacture of final products, including those used to procure inputs, qualify for credit. It highlights the importance of a broad interpretation of input services to facilitate the smooth functioning of manufacturing processes and the entitlement of manufacturers to claim credits for essential services utilized in their production activities.