2011 (9) TMI 129 - AT - Service Tax

Tribunal Allows CENVAT Credit on Outward Transportation Services, Emphasizes Freight Charges Exclusion

The Tribunal upheld the decision allowing CENVAT credit on outward transportation services, following the precedent set by the Larger Bench. The Tribunal ... CENVAT credit of service tax paid on goods transportation service in respect of outward transportation of goods - Held that:- As regards the period on or after 1.4.2008, in view of the change definition of input service the Hon'ble High Court of Karnataka in ABB Ltd. (2011 -TMI - 203985 - KARNATAKA HIGH COURT) has held that the interpretation placed by the Tribunal on the words activities related to business as including clearance of final products from place of removal occurring in first part of rule 2(l)(ii) prior to 1.4.2008 runs counter to language employed in the second part of definition of input service and is to that extent contrary to the legislative intention and therefore unsustainable in law. Therefore, the appellate Commissioner s order is not sustainable in law for the period after 1.4.2008 unless the appellant satisfies all the conditions prescribed in the Board circular dated 23.8.2007 and accordingly the departmental appeal is partly allowed. Issues:- Whether outward transportation service can be considered as an input service for availing CENVAT creditRs.- Interpretation of Board circular no. 97/8/07-ST regarding conditions for claiming CENVAT credit on outward transportation.- Applicability of the decision in the case of ABB Ltd. & Ors. vs. CCE & ST 2009 (92) RLT 665.- Validity of CENVAT credit for the period before and after 1.4.2008 based on the definition of input service.Analysis:1. Outward Transportation as Input Service:The respondent, a manufacturer of excisable goods, availed CENVAT credit on service tax paid for outward transportation of goods. The department disallowed the credit, arguing that since the freight amount paid to the Goods Transport Agency (GTA) was not included in the assessable value of the final product, the credit should be denied. However, the Commissioner (Appeals) allowed the appeals based on the precedent set by the Larger Bench in the case of ABB Ltd. & Ors. The Larger Bench held that outward transportation is a business-related activity, and the non-inclusion of freight in the product price should not disallow the CENVAT credit.2. Interpretation of Board Circular:The department contested the Commissioner's decision, citing Board circular no. 97/8/07-ST, which specified conditions for claiming CENVAT credit on outward transportation. The circular required that the ownership and risk of goods, along with freight charges being integral to the price, must be met. However, the Tribunal upheld the decision in the ABB Ltd. case, emphasizing that the cost of freight need not be part of the transaction value for claiming CENVAT credit on outward transportation services.3. Validity of CENVAT Credit Pre and Post 1.4.2008:For appeals related to periods before 1.4.2008, the Tribunal dismissed the department's appeal, stating that the decision of the Larger Bench was valid until the amendment in the definition of input service by the Central government. However, for the period after 1.4.2008, the Tribunal noted a change in the definition of input service. The High Court held that the interpretation of activities related to business by the Tribunal was contrary to legislative intent post-amendment. The Tribunal partially allowed the department's appeal for the post-amendment period, requiring compliance with the conditions in the Board circular for claiming CENVAT credit on outward transportation.4. Penalty Imposition:Regarding penalties, the Tribunal found that the matter involved the interpretation of statutory provisions, and thus, no penalty was warranted. The imposed penalty of Rs. 2000 was set aside due to the nature of the case. The appeals were disposed of based on the above considerations, with the operative part pronounced in court.