2012 (6) TMI 493 - AT - Service Tax

Denial of cenvat credit of service tax paid on outward freight - Held that - The definition of input service contains both the word means and includes , the portion of the definition to which the word means applies has to be construed restrictively as it is exhaustive and includes has to be construed liberally as it is extensive - the exhaustive portion of the definition of input service deals with service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products, it also includes clearance of final products from the place of removal till it reaches its destination falls within the definition of input, service - the word transportation is included in the phrase clearance of final products from the place of removal after the final products has reached the place of removal - in the later portion of the definition the words activities relating to business is used to expand the meaning of the word input service - while dealing with outward transportation two words inputs or capital goods are conspicuously missing as after inward transportation of inputs or capital goods into the factory premises, if a final product emerges, that final product has to be transported from the factory premises till the godown before it is removed for being delivered to the customer, therefore, input service includes not only the inward transportation of inputs or capital goods but also outward transportation in favour of assessee.

Summary

Issues:
- Admissibility of cenvat credit on outward transportation services beyond the place of removal of excisable goods under Rule 2(1) of Cenvat Credit Rules, 2004.

Analysis:
- The appeal was filed by the Commissioner of Customs and Central Excise, Surat-II against the Order-in-Appeal of the Commissioner (Appeals) in the case of a company engaged in manufacturing excisable goods and availing cenvat credit. The Revenue contended that outward transportation services beyond the place of removal are not admissible as per Rule 2(1) of Cenvat Credit Rules, 2004.

- The original adjudicating authority confirmed the demand and imposed penalties, which was later set aside by the Commissioner (Appeals) upon appeal by the assessee. The Revenue challenged this decision, citing the decision of a Larger Bench of the Tribunal without providing valid reasons for setting aside the Order-in-Original.

- The Commissioner (Appeals) considered the definition of input service under Rule 2(1) of the Cenvat Credit Rules, 2004 applicable up to 01.04.08. Referring to the decision of the Larger Bench, it was found that services for outward transportation of final products are considered input services, and the service tax paid on such freight charges is admissible. The Commissioner (Appeals) held that the denial of cenvat credit was not sustainable for the period in question and allowed the appeal by the assessee.

- The judgment highlighted a decision of the Hon'ble High Court of Karnataka, emphasizing that transportation charges up to the place of sale are admissible for cenvat credit if certain conditions are met. The definition of "input service" was analyzed extensively, clarifying that outward transportation of final products up to the place of removal falls within the definition. The judgment concluded that there should be no variation in interpreting the issue, affirming the admissibility of outward transportation beyond the place of removal of excisable goods.

- In conclusion, the appeal filed by the Commissioner, Surat-II was rejected, affirming the admissibility of cenvat credit on outward transportation services beyond the place of removal of excisable goods.