2009 (2) TMI 50 - HC - Service Tax

Taxpayer entitled to service tax credit for door-to-door transportation when seller bears freight and transit risk

AMBUJA CEMENTS LTD. Versus UNION OF INDIA

HC held that the taxpayer was entitled to credit of service tax on transportation to the customer's doorstep where sales were FOR destination and the ... Eligibility to avail credit of the service tax - Service of transportation up to the customer's doorstep - phrase 'place of removal' - 'FOR destination' sales - entire cost of freight is paid and borne by the manufacturer - Compliance of circular dated 23-8-2007 - HELD THAT:- According to the circular, the expression 'place of removal' has been defined by Section 4 of the 1944 Act and according to sub-rule (t) of Rule 2 of the CC Rules, if any words or expression used in those rules are not defined but are defined in the 1944 Act or the 1994 Act then they are to be given the same meaning for the CC Rules as assigned to them in those Acts. It is clear from the definition that for a manufacturer/consignor the eligibility to avail credit of the service tax paid on the transportation during removal of excisable goods would depend upon the place of removal. The circular further contemplates compliance of certain conditions where the sale has taken place at the destination point. The 'input service' has been defined to mean any service used by the manufacturer whether directly or indirectly and also includes, inter alia, services used in relation to inward transportation of inputs or export goods and outward transportation up to the place of removal - Accordingly, even the second condition that the seller has to bear the risk of loss or damage to the goods during transit to the destination stand fulfilled - third condition that the freight charges were integral part of the excisable goods also stand fulfilled as the delivery of the goods is 'FOR destination' price. Once the first question has been answered in favour of the assessee and against the revenue then it is evident that there is no contravention and violation of any of the provisions of law and the credit has been lawfully availed. Therefore the allegation concerning not availing the service within the meaning of 'input service' and irregular availment of credit could not be sustained. Then the question of payment of interest does not arise and the answer to the second question consequently would be against the revenue and in favour of the assessee. Both the questions of law are answered against the revenue and in favour of the assessee. Issues Involved:1. Whether the service of transportation up to the customer's doorstep, in the case of 'FOR destination' sales where the entire cost of freight is paid and borne by the manufacturer, would be 'input service' within the meaning of Rule 2(1) of the CC RulesRs.2. Whether interest ought to have been demanded in the present caseRs.Issue-Wise Detailed Analysis:1. Definition of 'Input Service' and Transportation Costs:The primary issue revolves around whether transportation costs up to the customer's doorstep in 'FOR destination' sales qualify as 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004 (CC Rules). The assessee, a manufacturer of cement, argued that since it paid service tax on the freight charges for transporting goods to the customer's location, it should be entitled to Cenvat credit for that service tax. The Tribunal, however, ruled against the assessee, stating that extending the credit beyond the point of duty-paid removal of the final product would contradict the Cenvat Credit Rules' scheme. The Tribunal cited precedents, including judgments from the Supreme Court, to support its view that transportation does not fall within the scope of 'clearance' or 'forwarding' of goods.The High Court, however, sided with the assessee, emphasizing the inclusive definition of 'input service' in Rule 2(l)(ii) of the CC Rules, which includes services used in relation to the clearance of final products from the place of removal. The court referenced a CBEC circular clarifying that if the sale occurs at the destination point and the seller bears the risk and freight charges, the service tax paid on transportation to that point can be credited. The court concluded that the assessee fulfilled all conditions outlined in the circular, thus making the transportation cost an eligible 'input service.'2. Interest on Cenvat Credit:The second issue concerned whether interest should be demanded for the period during which the Cenvat credit was availed. Given that the High Court ruled in favor of the assessee on the first issue, it logically followed that there was no contravention of the law in availing the Cenvat credit. Consequently, the demand for interest was unwarranted. The court noted that since the credit was lawfully availed, there was no basis for demanding interest, thereby answering this question in favor of the assessee as well.Conclusion:Both substantive questions of law were answered in favor of the assessee and against the revenue. The court held that transportation costs up to the customer's doorstep in 'FOR destination' sales qualify as 'input service' under Rule 2(l) of the CC Rules, and no interest was warranted on the Cenvat credit availed. The judgment underscores the importance of adhering to circulars issued by the Central Board of Excise and Customs, which are binding on the revenue department.