Manufacturer wins CENVAT credit for outward transportation services under Rule 3 after paying service tax

CESTAT Mumbai allowed the appeal challenging disallowance of CENVAT credit for outward transportation services from factory to principals' depots. Following precedent in MP Biscuits case, the Tribunal held that since the appellant paid service tax on input service of outward transportation to place of removal, CENVAT credit was rightfully availed under Rule 3 of CENVAT Credit Rules. The impugned order was set aside.

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Issues involved: Disallowance of CENVAT credit for outward transportation service and imposition of penalty under CENVAT Credit Rules, 2004.

Summary:
1. The appeal by M/s Bunty Foods (India) Pvt Ltd challenged the disallowance of CENVAT credit amounting to Rs. 25,96,230 for the period from January 2005 to April 2007, availed on tax included in consideration for procurement of 'outward transportation service' from their factory to depots of their principals, M/s Parle Products Pvt Ltd. The Commissioner of Central Excise (Appeals) in the impugned order displaced the original authority's decision in favor of the appellant, at the behest of the jurisdictional Commissioner of Central Excise. Additionally, a penalty of a similar amount was imposed under rule 15 of CENVAT Credit Rules, 2004.

2. The appellant, undertaking 'job-work' for M/s Parle Products Pvt Ltd, availed credit under CENVAT Credit Rules, 2004 for transport of goods procured before ultimate clearance by the manufacturer, as eligible 'input service'.

3. The first appellate authority's decision was based on the ruling of the Hon'ble Karnataka High Court in a similar case, distinguishing it from other decisions presented by the appellant-Commissioner. The Tribunal, in a related case, set aside the recovery of CENVAT credit for outward transportation of goods to the place of removal, considering it as falling within the definition of input service.

4. The law has attained finality on the issue, as clarified by the High Court, regarding the definition of 'input service' and the inclusion of outward transportation of the final product up to the place of removal. The Supreme Court's decision in Commissioner of Central Excise, Belgaum v. Vasavadatta Cements Ltd further supports this interpretation.

5. Consequently, the impugned order disallowing the CENVAT credit and imposing a penalty is set aside, and the appeal is allowed.

(Order pronounced in the open court on 01/11/2023)

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