2009 (2) TMI 50 - HC - Service Tax

GTA service eligibility for input service credit on the outward freight - entire cost of freight is paid by the manufacturer up to customer s doorstep place of removal - in view of Circular No. 97/6/2007-ST, dated 23-8-2007, credit is admissible if ownership of goods remain with seller till delivery of goods at customer s doorstep since sales is based on basis of FOR destination , transit insurance and freight charges are borne by appellant, so credit is admissible on outward freight

Summary

Issues Involved:

1. Whether the service of transportation up to the customer's doorstep, in the case of "FOR destination" sales where the entire cost of freight is paid and borne by the manufacturer, would be "input service" within the meaning of Rule 2(1) of the CC Rules?
2. Whether interest ought to have been demanded in the present case?

Issue-Wise Detailed Analysis:

1. Definition of 'Input Service' and Transportation Costs:

The primary issue revolves around whether transportation costs up to the customer's doorstep in "FOR destination" sales qualify as "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004 (CC Rules). The assessee, a manufacturer of cement, argued that since it paid service tax on the freight charges for transporting goods to the customer's location, it should be entitled to Cenvat credit for that service tax. The Tribunal, however, ruled against the assessee, stating that extending the credit beyond the point of duty-paid removal of the final product would contradict the Cenvat Credit Rules' scheme. The Tribunal cited precedents, including judgments from the Supreme Court, to support its view that transportation does not fall within the scope of "clearance" or "forwarding" of goods.

The High Court, however, sided with the assessee, emphasizing the inclusive definition of 'input service' in Rule 2(l)(ii) of the CC Rules, which includes services used in relation to the clearance of final products from the place of removal. The court referenced a CBEC circular clarifying that if the sale occurs at the destination point and the seller bears the risk and freight charges, the service tax paid on transportation to that point can be credited. The court concluded that the assessee fulfilled all conditions outlined in the circular, thus making the transportation cost an eligible "input service."

2. Interest on Cenvat Credit:

The second issue concerned whether interest should be demanded for the period during which the Cenvat credit was availed. Given that the High Court ruled in favor of the assessee on the first issue, it logically followed that there was no contravention of the law in availing the Cenvat credit. Consequently, the demand for interest was unwarranted. The court noted that since the credit was lawfully availed, there was no basis for demanding interest, thereby answering this question in favor of the assessee as well.

Conclusion:

Both substantive questions of law were answered in favor of the assessee and against the revenue. The court held that transportation costs up to the customer's doorstep in "FOR destination" sales qualify as "input service" under Rule 2(l) of the CC Rules, and no interest was warranted on the Cenvat credit availed. The judgment underscores the importance of adhering to circulars issued by the Central Board of Excise and Customs, which are binding on the revenue department.