Composite freight for input procurement can qualify as input service credit when integrally linked to manufacture.

CENVAT credit on service tax paid for composite to-and-fro freight for fly ash transport was treated as admissible input service because the movement was integrally connected with procurement of a principal input used in cement manufacture. The return journey was viewed as part of the same transportation arrangement under Rule 2(1) of the CENVAT Credit Rules, 2004, so the related freight service fell within the input service definition. No substantial question of law was found for interference, and the credit claim was sustained while the departmental challenge failed.

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Issues: Whether CENVAT credit on service tax paid on freight charges for return transport of fly ash from the factory back to the thermal power plant was admissible as an input service.

Analysis: The respondent's freight arrangement was on a per metric ton basis for to-and-fro movement between the thermal power plant and the cement factory. The transportation was part of the procurement of fly ash, a principal input used in manufacture of cement. In these circumstances, the Tribunal's view that the return journey formed part of the composite transportation service connected with procurement of inputs, and therefore fell within the definition of input service under Rule 2(1) of the CENVAT Credit Rules, 2004, was upheld. No substantial question of law was found to arise for interference.

Conclusion: The credit was held admissible and the departmental challenge failed.

Final Conclusion: The appeal was rejected and the order granting relief to the assessee was sustained.

Ratio Decidendi: Where freight is charged on a composite to-and-fro basis for procurement of inputs and the service is integrally connected with manufacture, the related service tax may qualify as creditable input service.

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