2007 (7) TMI 19 - AT - Service Tax

Tribunal: Outward transportation not 'input service' for CENVAT credit. Time-barred demands, penalties reconsidered.

The Tribunal held that outward transportation of final products from the factory to customers' premises does not qualify as 'input service' for CENVAT ... Cenvat credit - Alleged that appellant is not entitle for Cenvat credit on the removal of goods to their customer from factory and accordingly demand were made alongwith interest and penalty - Held that allegation was correct and demand interest and penalty sustained Issues Involved:1. Entitlement to CENVAT credit on service tax paid for outward transportation of final products.2. Interpretation of 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004.3. Applicability of extended period of limitation for demand.4. Imposition of penalties under Rule 15(3) of the CCR 2004 and Section 11AC of the Central Excise Act.Detailed Analysis:1. Entitlement to CENVAT Credit on Service Tax Paid for Outward Transportation:The core issue was whether the appellants were entitled to avail CENVAT credit of service tax paid on freight for transporting their final products from the factory to the customers' premises. The appellants argued that such transportation should be considered as 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004. They interpreted 'clearance' to include transportation from the factory to the customers' premises, citing the Supreme Court's judgment in Doypack Systems (Pvt) Ltd. v. UOI. However, the Tribunal rejected this interpretation, stating that 'clearance' ends at the factory gate and does not include subsequent transportation.2. Interpretation of 'Input Service' under Rule 2(l) of the CCR 2004:The Tribunal analyzed the definition of 'input service' which includes services used in or in relation to the manufacture and clearance of final products from the place of removal. The place of removal was identified as the factory. The Tribunal concluded that outward transportation from the factory to the customers' premises does not qualify as 'input service' because it occurs after the clearance from the factory. The Tribunal emphasized that the inclusive part of the definition restricts outward transportation to the place of removal only.3. Applicability of Extended Period of Limitation for Demand:In the case of M/s. SGGL, part of the demand was contested on the ground of limitation. The appellant argued that they had disclosed relevant information to the department in a letter dated 8-8-2005. The Tribunal found that this letter provided adequate information and thus, there was no suppression of facts post 8-8-2005. Consequently, the demand for the period prior to 8-8-2005 was upheld under the extended period of limitation, while the demand for the remaining period was set aside as time-barred.4. Imposition of Penalties:The Tribunal addressed the penalties imposed on both appellants. For M/s. IJLL, the penalty under Rule 15(3) was set aside, considering the dispute was largely interpretative. However, for M/s. SGGL, the Tribunal upheld the imposition of penalty under Section 11AC due to suppression of facts, but found the maximum penalty imposed by the Commissioner to be extremely harsh. The case was remanded for re-quantification of the demand and reconsideration of the penalty extent.Conclusion:The Tribunal concluded that the outward transportation of final products from the factory to customers' premises does not qualify as 'input service' for CENVAT credit purposes. The demand on M/s. SGGL for the period prior to 8-8-2005 was upheld, while the demand for the remaining period was set aside as time-barred. Penalties on M/s. IJLL were set aside, and the case of M/s. SGGL was remanded for re-quantification and reconsideration of the penalty.(Pronounced in open Court on 13-7-2007)