Job worker entitled to CENVAT credit on service tax paid for outward transportation under section 4A valuation

CESTAT Ahmedabad held that a job worker manufacturing goods for a principal was entitled to CENVAT credit on service tax paid for outward GTA services. The tribunal determined that since goods were stock transferred from the factory to the principal's depot rather than sold at factory gate, and ownership remained with the principal throughout, the place of removal was the depot where actual sales occurred. The job worker could claim credit for transportation costs from factory to depot under rule 2(l) of 2004 Rules when valuation was determined under section 4A of Central Excise Act.

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Issues Involved:
1. Entitlement to CENVAT Credit on outward GTA service for transportation of goods from job worker to the depot of Principal.

Summary:

Issue 1: Entitlement to CENVAT Credit on outward GTA service for transportation of goods from job worker to the depot of Principal:

The Tribunal referred the issue to a Larger Bench due to conflicting views: "Whether in facts and circumstances as discussed above, the appellant is entitled for the Cenvat Credit on outward GTA service which is used for transportation of goods from job worker premise to the depot of Principal when the valuation was adopted u/s 4A by applying the Notification No. 36/2001-CE (NT)."

M/s. Sweety Industries (the appellant) is a contract manufacturing unit for Parle Biscuits Pvt. Ltd. The appellant availed CENVAT credit on service tax paid on GTA services for transporting biscuits from its factory to Parle's depots. The department contended that the place of removal is the factory gate of the appellant, not the depot of Parle.

Rule 2(l) of the 2004 Rules defines 'input service' and includes services used up to the place of removal. Rule 2(qa) defines 'place of removal' to include a factory, warehouse, depot, or any other premises from where excisable goods are sold after clearance from the factory. The appellant argued that the place of removal is Parle's depots or clearing and forwarding agents' premises, as the appellant is merely a contract manufacturer.

The Tribunal examined the Agreement dated 07.08.2009 between the appellant and Parle, which stipulated that the appellant would manufacture and deliver biscuits to Parle's depots, and the raw materials and finished goods remain Parle's property. The appellant availed CENVAT credit on inputs and capital goods procured by Parle and used in manufacturing biscuits, including GTA services for outward transportation to Parle's depots.

Two show cause notices were issued alleging wrongful availing of CENVAT credit on GTA services beyond the place of removal. The Assistant Commissioner confirmed the demand, and the Commissioner (Appeals) upheld the order, relying on the Tribunal's decision in M/s. Ultratech Cement Ltd. vs. CCE, Bhavnagar, which held that for goods valued u/s 4A, the place of removal is the factory gate.

The Tribunal referred to the Circular dated 08.06.2018 by the Central Board of Indirect Taxes and Customs, which clarified that the place of removal is generally the 'point of sale' and referred to Supreme Court judgments for guidance. The Tribunal also referred to a Larger Bench decision in M/s. Krishna Food Products vs. The Additional Commissioner of CGST & C. Ex., which held that a contract manufacturer steps into the shoes of the principal manufacturer.

The Tribunal concluded that the place of removal is Parle's depots or clearing and forwarding agents' premises, not the appellant's factory gate. The appellant is entitled to CENVAT credit on service tax paid on GTA services for transportation of goods from the factory to Parle's depots when the valuation is determined u/s 4A.

The reference was answered affirmatively, and the matter was remanded to the Division Bench for a decision on merits.

(Order Pronounced on 14.02.2024)

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