2011 (4) TMI 835 - AT - Central Excise

Service tax credit for outward transportation of exported goods allowed up to port of export

The Tribunal held that cenvat credit on service tax paid for outward transportation of exported goods was admissible up to the port of export, considering ... Admissibility of cenvat credit on outward transportation - place of removal in export transactions - FOB exports and load port as place of removal - scope of input service vis-a -vis outward transportation up to place of removalAdmissibility of cenvat credit on outward transportation - place of removal in export transactions - FOB exports and load port as place of removal - Cenvat credit of service tax paid on outward transportation of exported excisable goods up to the port of export (place of removal) is admissible. - HELD THAT: - The Tribunal found that in the export transactions in question the sales were on FOB terms and the place of removal extends to the load port. Reliance was placed on earlier tribunal decisions and the Board's Master Circular interpreting that where ownership remains with the seller until delivery at the export port, the place of removal is the port area and services (including transportation up to that place) are utilized in relation to clearance. The Tribunal rejected the Revenue's contention that post-manufacture transportation cannot be treated as an input service to the extent it reaches the place of removal, observing that credit of service tax paid on outward transportation up to the place of removal is permissible, particularly where exports are on FOB basis and the department does not dispute the load port as place of removal. The Tribunal considered conflicting views (including the Larger Bench and High Court observations) but applied the principle that transportation costs up to the actual place of removal for exports qualify for input service credit. [Paras 4, 5, 6]Credit of service tax paid on outward transportation of exported goods up to the port of export (place of removal) was allowed.Limitation, penalty and interest arising from disallowance - Related consequences including limitation, imposition of penalty and recovery of interest founded upon the disallowance are not sustainable where the primary disallowance fails. - HELD THAT: - Since the primary demand denying cenvat credit on outward transportation up to the export port was held unsustainable, attendant measures based on that disallowance-namely limitation, penalty and interest-could not survive. The Tribunal therefore rejected the Revenue's appeal on these ancillary grounds as they flowed from the main issue which was decided in favour of the assessee. [Paras 7]The ancillary issues of limitation, penalty and interest were held not sustainable and the Revenue's appeal was rejected.Final Conclusion: The Revenue's appeal was dismissed: cenvat credit of service tax on outward transportation up to the export port (place of removal) for the period January 2005 to July 2007 was held admissible, and consequential claims of limitation, penalty and interest were consequentially rejected. Issues:1. Admissibility of cenvat credit on service tax paid for outward transportation of exported goods.Analysis:The case involved M/s. Kanoria Chemicals and Industries Ltd. availing cenvat credit on duty paid on inputs, capital goods, and service tax paid on input services, specifically on outward transportation for exported excisable goods from January 2005 to July 2007. The Revenue disputed the credit availed, leading to a show cause notice and confirmation of demand by the original adjudicating authority. However, the Commissioner (Appeals) allowed the appeals filed by the assessee, relying on the case law of the Larger Bench of CESTAT in ABB Ltd. Vs. CCE Bangalore.On appeal by the Revenue, it was argued that the Commissioner (Appeals) decision was erroneous as it was solely based on the Larger Bench's decision without valid reasons. The main contention of the Revenue was that transportation of finished goods post-manufacture cannot be considered as an input service, citing judgments of the Supreme Court and previous CESTAT decisions. The core issue was whether cenvat credit on service tax paid for outward transportation of exported goods was admissible.The Tribunal considered the place of removal in export cases, citing previous judgments and the Board's circular. It was established that in cases of export, the place of removal extends to the load port, and the ownership of goods remains with the seller until export. The Tribunal concluded that in the instant case, where export was carried out on a Free on Board (FOB) basis, the credit of service tax paid on outward transportation up to the port of export, the actual place of removal, was admissible.Further, the Tribunal referenced a judgment of the High Court of Karnataka, emphasizing the interpretation of clauses regarding input services and transportation up to the place of removal. The judgment highlighted the importance of harmonizing provisions and concluded that transportation charges up to the place of removal were included in the definition of input services.Based on the legal position and facts presented, the Tribunal found that the assessees were eligible for the credit on input service for outward transportation up to the place of removal. Consequently, the Revenue's appeal was rejected, leading to the dismissal of related issues such as limitation, penalty imposition, and interest recovery.