2010 (1) TMI 389 - AT - Service Tax

Cenvat Credit- whether the Cenvat credit of Service Tax on services provided by Goods Transport Operator pertaining to the transportation of the finished goods upto the customers place is admissible or not? Held that- the appeal partly succeeds as the impugned order is liable to be set aside and the matter to be remanded to the Commissioner (Appeals) to ascertain the entitlement of Cenvat credit based on the facts of the case and bearing in mind the law laid down by the Punjab & Haryana High Court, referred to above. The appeal is accordingly disposed of in the above terms.

Summary

Issues:
1. Admissibility of Cenvat credit on Service Tax paid to Goods Transport Operator for outward freight.
2. Disallowance of Cenvat credit on commission paid to commission agent for sale of finished goods.
3. Interpretation of 'input services' under Cenvat Credit Rules, 2004.
4. Application of legal precedents in determining admissibility of Cenvat credit.

Analysis:
1. The appellants, manufacturers of goods, availed Cenvat credit under Cenvat Credit Rules, 2004 for the period April 2005 to December 2005. The Department disallowed a portion of the credit related to Service Tax paid on services by Goods Transport Operator for outward freight and commission paid to a commission agent for sale of finished goods. A show cause notice was issued, leading to an order disallowing the credit, imposing a penalty, and ordering interest payment. The appeal before the Commissioner (Appeals) resulted in a partial allowance of the credit and reduction of penalty, prompting the present appeal.

2. The key issue for consideration was the admissibility of Cenvat credit on Service Tax paid to Goods Transport Operator for transporting finished goods to customers' locations. The Commissioner (Appeals) partially allowed the appeal, setting aside the disallowance related to commission payment but rejecting the claim regarding Service Tax on outward services. This decision was challenged in the present appeal.

3. The learned Departmental Representative argued that the Commissioner (Appeals) did not adequately address the factual aspects of the case before applying the relevant legal provisions on 'input services.' Referring to a decision by the Punjab & Haryana High Court, it was emphasized that eligibility for Cenvat credit on Service Tax paid for transportation during removal of excisable goods depends on the place of removal, as determined by the contract between the manufacturer and buyer.

4. The judgment highlighted the need to consider the terms of the contract between the manufacturer and buyer to determine the admissibility of Cenvat credit for transportation services. While acknowledging a previous decision by a Larger Bench, currently stayed by the Karnataka High Court, the judgment emphasized the importance of deciding each case based on its specific facts, as outlined by the Punjab & Haryana High Court. Consequently, the appeal was partly allowed, setting aside the impugned order and remanding the matter to the Commissioner (Appeals) for a reassessment based on the facts and legal principles discussed.

This detailed analysis of the judgment addresses the issues involved and provides a comprehensive overview of the legal reasoning and precedents considered in the decision-making process.