2008 (7) TMI 102 - AT - Service Tax

CHA services to load port for FOB/CIF exports are input services; service tax eligible for CENVAT credit, appeals dismissed

CCE, RAJKOT Versus ADANI PHARMACHEM P. LTD. & ORS.

CESTAT held that where exports are on FOB/CIF terms the place of removal is the load port and CHA services rendered to facilitate outward transportation ... Eligibility to avail credit of service tax paid on CHA services rendered in the port to the exporter when the export has been made on FOB basis or CIF basis - HELD THAT:- From the circular, it is quite clear that in case where the sale is on FOB/ CIF basis, the place of removal has to be the load port only. Further the definition of input services also has been defined to mean any service rendered in relation to outward transportation up to the place of removal. Since, input service includes services rendered for outward transportation up to the place of removal, all the service tax paid to facilitate goods to reach the place of removal has to be eligible for the benefit of CENVAT credit. Further the definition of input service also includes any service used for manufacture directly or indirectly in or in relation to the manufacture of final products and clearance of final products from the place of removal. There is no dispute that the CHA services are required to facilitate clearance final products from the place of removal i.e. the load port. The decision of the Tribunal cited by the ld. Advocate for the respondents is applicable on facts and this decision has also considered the decision in M/s. Excel Crop Care Ltd. [2007 (4) TMI 15 - CESTAT, AHMEDABAD] and has distinguished the same. I am in full agreement with the decision cited by the ld. Advocate and in view of the discussions above, the appeals filed by the Department are without merit and accordingly are rejected. Issues:Eligibility of service tax paid on CHA services for exporters on FOB or CIF basis.Analysis:In a series of appeals, the issue revolved around the eligibility of service tax paid on Customs House Agent (CHA) services for exporters when exporting goods on Free on Board (FOB) or Cost, Insurance, and Freight (CIF) basis. The Commissioner (Appeals) had ruled in favor of allowing CENVAT credit for service tax paid on CHA services, considering the port where goods are loaded onto the ship or aircraft as the place of removal. This decision was supported by a Tribunal judgment and a Circular issued by the Central Board of Excise and Customs (CBEC).During the hearing, the Revenue cited a different Tribunal decision to argue against the admissibility of CENVAT credit for duty paid on CHA services, contending that activities at the load port are unrelated to the manufacturing process, which concludes at the factory gate for export goods. Conversely, the Respondent's Advocate relied on another Tribunal decision and the CBEC Circular, emphasizing that the place of removal depends on the passing of property or ownership of goods, particularly in FOB/CIF sales.After considering both arguments, the Member analyzed the CBEC Circular's definition of 'place of removal' under the CENVAT Credit Rules, highlighting that for manufacturers or consignors, the eligibility for service tax credit during goods transportation hinges on the place of removal. The Circular specified that in FOB/CIF sales, the place of removal is the load port, making service tax paid for outward transportation up to this point eligible for CENVAT credit. Additionally, the Circular clarified that services facilitating final product clearance from the place of removal, i.e., the load port, are considered input services.The Member noted a conflict between the two Tribunal decisions cited, where one considered the place of removal as the factory gate and the other as the load port. However, the Member concluded that the Tribunal decision supporting the Respondent's position was more applicable to the current case, distinguishing it from the conflicting decision. Emphasizing the need to determine the specific place of removal in each case, the Member rejected the Revenue's appeals, ruling in favor of allowing CENVAT credit for service tax paid on CHA services in the context of FOB/CIF export sales.In conclusion, the judgment clarified the eligibility of service tax paid on CHA services for exporters on FOB or CIF basis, emphasizing the importance of determining the place of removal for CENVAT credit purposes and reconciling conflicting Tribunal decisions through a case-specific analysis.