CENVAT credit on outward transportation to a sister unit is allowable where service tax was paid under reverse charge.

CENVAT credit of service tax paid on outward transportation could not be denied merely because the goods were transferred to a sister unit rather than sold. The service tax was paid by the recipient under the reverse charge mechanism, and the scheme entitled the recipient to credit of tax suffered on the taxable service. Denial of credit on the ground that the sister unit should have taken it had no legal basis, so the credit claim was upheld as genuine.

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Issues: Whether CENVAT credit of service tax paid on outward transportation of goods cleared to a sister unit could be denied to the appellant on the ground that the credit ought to have been taken by the sister unit.

Analysis: The appellant had incurred the liability and paid service tax under the reverse charge mechanism. The scheme of taxation recognised that service tax suffered on the taxable service entitled the recipient to avail credit of such tax, and there was no legal basis to deny genuine credit merely because no sale had occurred or because the goods were transferred to a sister unit.

Conclusion: The appellant was entitled to the CENVAT credit of the service tax paid on outward transportation, and the denial of credit was unsustainable.

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