Outward transportation to principal manufacturer depots treated as input service, allowing Cenvat credit in job-work clearance.

A job worker manufacturing biscuits for a principal manufacturer was held entitled to Cenvat credit on service tax paid for outward transportation from the factory to the principal manufacturer's depots. The transportation was treated as part of clearance of final products up to the place of removal because the job-work arrangement contractually required delivery to those depots, together with inspection and packing obligations. On that basis, outward freight qualified as an input service under the Cenvat Credit Rules, 2004. The resulting demand, interest and penalty could not be sustained, and the orders denying credit were set aside.

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Issues: Whether the appellant, a job worker manufacturing goods for the principal manufacturer, was entitled to Cenvat credit of service tax paid on outward transportation of biscuits from the factory to the depots of the principal manufacturer, treating such transportation as input service up to the place of removal.

Analysis: The entitlement to credit turned on the definition of input service under the Cenvat Credit Rules, 2004 and the scope of clearance of final products from the place of removal. The record showed that the appellant manufactured biscuits on behalf of the principal manufacturer under an authorisation and job work arrangement requiring inspection, packing and delivery to depots of the principal manufacturer. In that setting, the depots to which delivery was contractually required constituted the relevant place of removal for the outward movement of goods. Service tax had been paid on the transportation charges for such delivery, and the transportation formed part of the clearance of final products up to the place of removal.

Conclusion: The outward transportation qualified as input service in the facts of the case, and the appellant was entitled to Cenvat credit of the service tax paid thereon.

Final Conclusion: The demand, interest and penalty could not be sustained, and the orders denying credit were set aside.

Ratio Decidendi: Where a job worker is contractually obliged to deliver manufactured goods to the principal manufacturer's depots, outward transportation to those depots forms part of clearance up to the place of removal and is an input service eligible for Cenvat credit.

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