2011 (5) TMI 517 - AT - Central Excise

Manufacturer denied Cenvat Credit for service tax on outward transportation as it didn't meet input service criteria.

The court held that the manufacturer was not eligible to avail Cenvat Credit for service tax paid on outward transportation of goods as it did not meet ... Cenvat credit of service tax on goods transport agency (GTA) for outward transportation - input service - place of removal (factory gate) - FOR destination basis (ownership and risk of goods during transit) - assessable value / integral part of priceCenvat credit of service tax on goods transport agency (GTA) for outward transportation - input service - FOR destination basis (ownership and risk of goods during transit) - assessable value / integral part of price - Whether GTA service for transportation of finished goods from the factory gate to customers' premises qualifies as an input service eligible for Cenvat credit. - HELD THAT: - The Tribunal applied the principle in Ambuja Cements Ltd. v. Union of India and Board Circular No.97/6/2007-ST, holding that GTA service for outward transportation can be treated as an input service only where the sale is on FOR destination basis so that (a) ownership of the goods remains with the assessee during transit, (b) the risk of loss or damage during transit lies with the assessee, and (c) freight forms an integral part of the price on which excise duty is paid. In the present case the assessee paid excise duty on value at the factory gate and did not produce evidence that the sales were FOR destination or that excise duty was paid on a price including freight to customers' premises. Since the transportation beyond the place of removal (factory gate) was not part of the assessable value, the outward GTA service does not qualify as an input service for Cenvat credit under the Cenvat Credit Rules. Accordingly the Commissioner(Appeals) was incorrect in setting aside the original adjudicating authority's denial of credit.The Tribunal allowed the Revenue's appeal, set aside the Commissioner(Appeals) order insofar as it granted Cenvat credit for outward freight, and restored the original order denying the credit; the cross-objection was disposed of accordingly.Final Conclusion: Cenvat credit of service tax paid on GTA services for transportation from factory gate to customers' premises is not admissible where sales are not on FOR destination basis and excise duty is paid on factory-gate value; Revenue's appeal allowed and original order restored. Issues:1. Eligibility of Cenvat Credit for service tax paid on outward transportation of goods.2. Interpretation of input services under Cenvat Credit Rules, 2004.3. Application of judgment regarding ownership and risk of goods during transportation.Analysis:1. The case revolved around the eligibility of the manufacturer of Pet bottles to avail Cenvat Credit for the service tax paid on outward transportation of goods from the factory to the customer's premises. The original adjudicating authority had disallowed the credit, leading to a demand of Rs.82,307 along with interest and a penalty. The Commissioner(Appeals) upheld the Central Excise duty demand but set aside the demand for Cenvat Credit. This discrepancy led to the department filing an appeal against the decision.2. The main contention was whether the transportation from the factory gate to the customer's premises could be considered an input service under Rule 2(l) of the Cenvat Credit Rules, 2004. The Departmental Representative argued that the conditions set by the Hon'ble Punjab & Haryana High Court needed to be satisfied for the transportation to qualify as an input service. These conditions included ownership of goods during transit, risk of loss or damage being with the manufacturer, and the freight charges being integral to the goods' price on which excise duty is paid.3. The judge, after considering the submissions and records, referred to the judgment of the Hon'ble Punjab & Haryana High Court in the case of Ambuja Cements Ltd. vs. Union of India. The judgment highlighted that transportation services could be considered input services only if the sale was on FOR destination basis, and specific conditions regarding ownership, risk, and integral freight charges were met. Since the manufacturer had paid excise duty at the factory gate and the transportation to the customer's premises was not included in the assessable value for duty payment, the transportation did not qualify as an input service for Cenvat Credit. Consequently, the order setting aside the Cenvat Credit demand was deemed unsustainable, and the original adjudicating authority's decision was restored. The Revenue's appeal was allowed, and the cross objection was disposed of accordingly.