2016 (7) TMI 1023 - AT - Central Excise

Tribunal confirms cenvat credit eligibility for service tax on outward transport to buyer's premises

The Tribunal affirmed the respondent's eligibility for cenvat credit on service tax paid for outward transport of finished goods up to the buyer's ... Cenvat credit of service tax on outward transportation - place of removal - sale on F.O.R. basis and transfer of property on delivery - inclusion of freight in assessable value / valuation - consumption-tax nature of service tax and input creditCenvat credit of service tax on outward transportation - sale on F.O.R. basis and transfer of property on delivery - inclusion of freight in assessable value / valuation - Entitlement to cenvat credit of service tax paid on goods transport agency services for outward transport up to the buyer's premises when goods are cleared on F.O.R. basis and freight forms part of the value - HELD THAT: - The Tribunal accepted the Commissioner (Appeals) finding that the respondent sold goods on F.O.R. basis with payment and property in the goods passing on delivery at the buyer's premises, and that insurance and transportation upto delivery were undertaken by the respondent. The Tribunal noted that the freight element was accounted for in the assessable value for excise purposes and that, applying the reasoning of earlier authorities and CBEC circulars, cenvat credit of service tax paid on outward transportation up to the place of delivery on F.O.R. basis is permissible. The Tribunal held that denying credit where the freight is integral to the value and the supplier bears risk and transport until delivery would be inconsistent and would convert service tax into a tax on business rather than a consumption tax. On these facts the impugned order allowing credit was upheld and the Revenue's demand, interest and penalty were held not to arise. [Paras 5, 6, 7, 8]Cenvat credit of service tax on outward transportation to the customer's premises is available to the respondent given F.O.R. terms, transfer of property on delivery, and inclusion of freight in assessable value; the Commissioner (Appeals) order is confirmed.Place of removal - valuation/assessable value inclusion of freight - Cenvat credit of service tax on outward transportation - Applicability of the Supreme Court decision in Ispat Industries (construing 'place of removal' for valuation) to deny cenvat credit in the present factual matrix - HELD THAT: - The Tribunal distinguished Ispat Industries, noting that that decision addressed valuation-whether freight from factory gate could be included in assessable value where goods were sold ex-factory-and thus concerned the concept of 'place of removal' in the valuation context. In the present case there was no definition of 'place of removal' in the Cenvat Credit Rules for the relevant period, and the factual matrix showed F.O.R. sales with freight borne and risk retained by the supplier until delivery and the freight forming part of the value for excise. Applying those facts, reliance on Ispat to deny cenvat credit would produce self-contradiction because the same freight was admitted to be part of assessable value; accordingly Ispat was not held to bar credit in these circumstances. [Paras 6]Ispat Industries is distinguishable and cannot be invoked to deny cenvat credit on the facts of this case; Revenue's reliance on that decision is rejected.Final Conclusion: The Tribunal rejected the Revenue's appeal and affirmed the Commissioner (Appeals) order allowing cenvat credit of service tax on outward transportation to the buyer's premises where goods were sold on F.O.R. terms, payment and transfer occurred on delivery, and the freight formed part of the assessable value; the Supreme Court decision in Ispat Industries was held distinguishable and inapplicable to deny credit in these facts. Issues:1. Eligibility of respondent for cenvat credit on service tax paid for outward transport of finished goods.2. Interpretation of 'place of removal' under Central Excise Act.3. Application of Hon'ble Supreme Court's decision in Ispat Industries Ltd.4. Consistency of impugned order with previous judgments.Analysis:1. The appeal concerns the eligibility of the respondent for cenvat credit on service tax paid for outward transport of finished goods. The dispute arose when the Revenue denied the credit based on the 'place of removal' concept under the Central Excise Act. The ld. Commissioner (Appeals) allowed the respondent's appeal, emphasizing that the property of goods passed to the buyer at the buyer's premises, making them eligible for the credit.2. The Revenue contended that the 'place of removal' being the factory gate, no credit should be allowed for transportation beyond that point, citing the Hon'ble Supreme Court's decision in Ispat Industries Ltd. The respondent argued that the amended definition of input services under Cenvat Credit Rules permits credit for outward transportation up to the place of removal, which, in this case, was the buyer's premises. The purchase order and invoice supported the claim that the sale occurred only upon delivery at the buyer's premises.3. The impugned order referenced various judicial decisions, including the Hon'ble High Court of Karnataka and Punjab & Haryana, supporting the availability of cenvat credit for outward transportation up to the customer's premises on F.O.R. basis. The order also highlighted the Hon'ble High Court of Andhra Pradesh's agreement with the Tribunal's view on the taxation aspect of transportation services. The judgment in Ispat Industries Ltd. was distinguished as concerning the valuation of goods, not cenvat credit eligibility.4. The Tribunal's previous decision in a similar case involving the same respondent affirmed the eligibility for cenvat credit on outward transportation. The present order found no grounds for interference, rejecting the Revenue's appeal. The consistency with past judgments and the factual circumstances of the case supported the conclusion that the respondent was entitled to the cenvat credit for the outward transportation of finished goods up to the buyer's premises.