2007 (4) TMI 3 - AT - Central Excise

Cenvat Credit of Service Tax paid on Outward transportation is not allowed. The removal of the final products from the factory premises, so as to clear the factory premises of such goods, would be clearance, and outward transport beyond the place of removal, cannot be read in the word clearance .

Summary

Issues Involved:
1. Denial of Cenvat credit on Service Tax paid on outward transportation.
2. Imposition of penalties for availing Cenvat credit on outward transportation.

Detailed Analysis:

1. Denial of Cenvat Credit on Service Tax Paid on Outward Transportation:

The main issue revolves around whether the Service Tax paid on outward transportation qualifies as an 'input service' under Rule 2(1) of the Cenvat Credit Rules, 2004. The respondent company, engaged in manufacturing, availed Cenvat credit on outward freight. The Revenue issued two show cause notices, arguing that the goods were sold at the factory gate, making the factory the 'place of removal.' Therefore, outward transportation from the factory did not qualify as an 'input service.'

The adjudicating authority interpreted Rule 3(1) read with Rule 2(1) and held that 'input service' covers outward transportation only up to the place of removal, which in this case was the factory gate. The Commissioner (Appeals) disagreed, stating that the definition of 'input service' included outward transportation of finished goods. The Commissioner argued that if the intention was to exclude outward transportation, it would have been explicitly stated in the definition.

The Department's representative cited a Division Bench decision in M/s. Gujarat Ambuja Cements Ltd. v. CCE, Ludhiana, which held that transport service credit cannot extend beyond the place of removal. The Tribunal upheld this view, stating that the definition of 'input service' does not support credit for outward transportation beyond the place of removal.

2. Imposition of Penalties for Availing Cenvat Credit on Outward Transportation:

The adjudicating authority imposed penalties on the respondent for availing ineligible Cenvat credit. The respondent argued that penalties were unjustified due to the possibility of different interpretations of the rules. They cited a similar case, M/s. Universal Cables Ltd. v. Commissioner of Central Excise, Bhopal, where no mala fide intention was found, and penalties were not imposed.

The Tribunal noted that in similar cases, such as J.K. Cement Works v. CCE, Jaipur, and the aforementioned M/s. Universal Cables Ltd. case, penalties had been set aside. Given the circumstances and the precedent, the Tribunal decided to set aside the penalties imposed on the respondent.

Conclusion:

The Tribunal concluded that the Service Tax paid on transportation of finished goods from the factory to the customer's premises cannot be taken as Cenvat credit. However, the penalties imposed were not upheld. The impugned order of the Commissioner (Appeals) was set aside to the extent that it denied Cenvat credit, and the order-in-original was restored, including the requirement for payment of interest. Both appeals were partly allowed.