CENVAT credit allowed on freight charges for outward transportation of finished products from factory to dealers

The CESTAT Chennai allowed the appeal regarding CENVAT credit on freight charges for outward transportation of finished products from factory to dealers/buyers during January 2007 to February 2008. The Tribunal relied on its earlier decision in the appellant's own case, analyzing the definition of input service before and after April 1, 2008. The orders of both the Tribunal and Adjudicating Authority disallowing CENVAT credit for GTA services were set aside, with the demand being unsustainable and requiring reversal.

---

---

Issues Involved:
1. Eligibility for CENVAT credit on Service Tax paid on outward transportation of finished products prior to 1/4/2008.
2. Interpretation of the definition of 'input service' before and after 1/4/2008.

Summary:

Issue 1: Eligibility for CENVAT credit on Service Tax paid on outward transportation of finished products prior to 1/4/2008.

The appellant, engaged in manufacturing cement, availed CENVAT credit of Service Tax paid on freight charges for outward transportation of finished products from the factory to dealers and buyers. The department disputed the eligibility of this credit, arguing that outward transportation from the place of removal is not covered under the definition of 'input service' as per Rule 2(l) of CENVAT Credit Rules 2004. A Show Cause Notice dated 3/3/2009 was issued for the period January 2007 to February 2008 to disallow the credit, recover the same with interest, and impose a penalty u/s Rule 15(3) of CENVAT Credit Rules 2004. The original authority confirmed the demand, interest, and penalty, which was upheld by the Commissioner (Appeals). The appellant appealed against this decision.

Issue 2: Interpretation of the definition of 'input service' before and after 1/4/2008.

The Tribunal analyzed the definition of 'input service' before and after 1/4/2008. Prior to 1/4/2008, the definition included services used by the manufacturer for clearance of final products "from the place of removal." Post 1/4/2008, the definition was amended to include services used for clearance of final products "up to the place of removal." The department viewed outward transportation as a post-sale expenditure, hence ineligible for credit. The period of dispute in this case is prior to 1/4/2008.

The Hon'ble Supreme Court in M/s. Vasavadatta Cements Ltd. (2018 (11) GSTL 3 (S.C.)) held that the expression "from the place of removal" includes transportation up to the depot or customer's premises, making the tax paid on such transportation eligible for credit. This principle was affirmed by the jurisdictional High Court in M/s. Bata India Ltd. Vs. Commissioner of Customs & Central Excise, Chennai - III (2019 (24) GSTL 326 (Mad.)), which applied the Vasavadatta Cements decision to similar facts.

The Tribunal found that the facts in the present case are identical to those in the Vasavadatta Cements case. Therefore, the demand for disallowance of credit cannot be sustained and must be set aside.

Conclusion:

The impugned order is set aside. The appeal is allowed with consequential reliefs, if any. The judgment was dictated in open court.

---