2009 (5) TMI 48 - AT - Service Tax

Service tax credit allowed for outward transportation of finished goods as input service under Rule 2(1)(ii); freight creditable

ABB LTD. Versus COMMISSIONER OF C. EX. & ST., BANGALORE

CESTAT, BANGALORE-LB - AT held that services procured by a manufacturer for outward transportation of finished goods from the place of removal qualify as ... Valuation' and 'CENVAT credit - expression 'input services' - GTA service - Whether the services availed by a manufacturer for outward transportation of final products from the place of removal should be treated as an 'Input Service' in terms of Rule 2(1)(ii) of CENVAT Credit Rules, 2004 and thereby enabling the manufacturer to take credit of the service tax paid on the value of such services? Whether 'Input service' should be limited only to outward transportation upto the place of removal in terms of the inclusive definition as held in the Gujarat Ambuja case [2007 (3) TMI 1 - CESTAT,NEW DELHI]? HELD THAT:- We note that transportation of goods to customer's premises is an activity relating to business. It is an integral part of the business of a manufacturer to transport and deliver goods manufactured. If services like advertising, market and research which are undertaken to attract a customer to buy goods of a manufacturer are eligible to credit, services which ensure physical availability of goods to the customer, i.e., services for transportation should also be eligible to credit. For admissibility to credit for outward transportation there is no requirement that the cost of freight should enter into the transaction value of the manufactured goods. According to the department, since the cost of outward transportation does not form part of the transaction value of the manufactured goods as defined in Section 4 of the Central Excise Act, 1944, any service tax paid for the outward transportation of goods from place of removal cannot be allowed as credit to the manufacturer, although, the question of denial of credit does not arise if the cost of freight is included in the transaction value. However this stand is not tenable. In other words, credit is not to be automatically disallowed in those cases where the freight cost does not form part of the transaction value. There is an additional reason for holding that CENVAT credit is admissible on services even if the value thereof is not part of the value subjected to duty. This is because the interpretation of the expression 'input services' cannot fluctuate with the change in the definition of 'value' in Section 4 of the Central Excise Act and cannot vary depending on whether the goods are levied to duty under Section 4A of the Central Excise Act or tariff value under Section 3(2) of the Central Excise Act or the product attract specific rate of duty. In the case of Gujarat Ambuja Cements Ltd. v. Commissioner of Central Excise, Ludhiana[2007 (3) TMI 1 - CESTAT,NEW DELHI] relied upon by the Revenue, the Tribunal had relied on the decision of the apex court in Reserve Bank of India v. Peerless Co.[1987 (1) TMI 452 - SUPREME COURT] to hold that the inclusive clause casts its shadow on the main definition also. The Tribunal also relied upon the decision in E.V. Mathai & Co. v. Commissioner of Central Excise [2003 (5) TMI 1 - CESTAT, BANGALORE] and Bhagyanagar Services v. Commissioner of Central Excise, Hyderabad [2006 (6) TMI 16 - CESTAT, BANGALORE] to hold that transportation is different from clearance. However, we agree with the assessees, that in the RBI case supra, the apex court was not interpreting a 'means and includes' definition and, therefore, the above decision will not apply to the interpretation of the definition of 'input services' in the CENVAT Credit Rules, 2004. The decisions in E.V. Mathai and Bhagyanagar Services supra dealt with the interpretation of the definition of 'clearing and forwarding services' contained in the relevant clause of the Finance Act, 1994 and it was held that service by a forwarding agent will not cover the service of transportation of goods. This interpretation of the definition of the 'Clearing & Forwarding Service' is not relevant for the interpretation of the definition of 'input services' under the CENVAT Credit Rules, 2004. Thus, we hold that the definition of 'input service' has to be interpreted in the light of the requirements of business and it cannot be read restrictively so as to confine only upto the factory or upto the depot of manufacturers. In the result, we answer the reference by holding that the services availed by a manufacturer for outward transportation of final products from the place of removal be treated as an input service in terms of Rule 2(1)(ii) of the CENVAT Credit Rules, 2004 and thereby enabling the manufacturer to take credit of the service tax paid on the value of such services. Issues Involved:1. Definition and interpretation of 'Input Service' under Rule 2(1)(ii) of the CENVAT Credit Rules, 2004.2. Eligibility of CENVAT credit for outward transportation services from the place of removal.3. Applicability of legal precedents and principles to the interpretation of 'Input Service'.Issue-wise Detailed Analysis:1. Definition and Interpretation of 'Input Service':The core issue was whether services availed by a manufacturer for outward transportation of final products from the place of removal should be treated as an 'Input Service' under Rule 2(1)(ii) of the CENVAT Credit Rules, 2004. The definition of 'input service' includes services used directly or indirectly in the manufacture and clearance of final products from the place of removal and encompasses a broad range of activities related to business.2. Eligibility of CENVAT Credit for Outward Transportation Services:The tribunal analyzed whether outward transportation qualifies as an 'input service'. The inclusive definition of 'input service' covers activities relating to business, including transportation up to the place of removal. The tribunal emphasized that transportation to the customer's premises is integral to business operations and should be eligible for credit. The tribunal referenced several legal precedents to support this interpretation, emphasizing that the term 'activities relating to business' is broad and includes outward transportation.3. Applicability of Legal Precedents and Principles:The tribunal cited multiple Supreme Court decisions to argue that each limb of the definition of 'input service' is independent and providing credit under one does not negate eligibility under another. They referenced the Kerala State Co-operative Marketing Federation Ltd. case, which established that different heads of exemption should be treated distinctly. The tribunal also cited Share Medical Care v. Union of India, emphasizing that benefits under different notifications or heads can be claimed if the conditions are met. The tribunal further referred to the HCL Ltd. case, where the Supreme Court allowed the benefit of a more favorable exemption notification.The tribunal rejected the Revenue's argument that credit for outward transportation cannot be allowed based on a specific clause in the definition, citing the principle that the word 'include' is generally used to enlarge the meaning of preceding words. They referenced the Apex Court's decision in Regional Director v. High Land Coffee Works and the Larger Bench of the Tribunal in Commissioner of Central Excise v. GTC Industries Ltd., which supported a broader interpretation of inclusive definitions.The tribunal concluded that the definition of 'input service' should be interpreted in light of business requirements and not restrictively. They held that services availed for outward transportation from the place of removal are indeed 'input services' under Rule 2(1)(ii) of the CENVAT Credit Rules, 2004, thereby enabling manufacturers to take credit for the service tax paid on such services.Conclusion:The tribunal answered the reference by affirming that outward transportation services from the place of removal qualify as 'input services' under the CENVAT Credit Rules, 2004, allowing manufacturers to claim CENVAT credit for the service tax paid on these services. The case was returned to the referring Bench for further orders.