2010 (2) TMI 284 - AT - Service Tax

Transportation of Pallets Qualifies as Input Service under Cenvat Credit Rules

The Tribunal upheld the Commissioner (Appeals)' decision, dismissing the Revenue's appeal regarding the denial of credit for service tax paid on the ... Cenvat Credit – GTA service – input service – Held that: - The Commissioner (Appeals) has found that the respondents require metal tins for packing its final product and to procure the metal tins, it has to use plastic pallets. In order to transport the metal tins, the pallets are sent back to the supplier by the respondents and it incurs service tax under GTA for such transportation. - the service involved is in relation to procurement of inputs and is covered by the definition of input service in Rule 2(l) of the Cenvat Credit Rules. - This activity would also get covered by ‘activities relating to business’, which is also defined as input service – cenvat credit on GTA service allowed Issues: Appeal filed by Revenue challenging denial of credit for service tax paid on transportation of metal containers to the supplier.Analysis:1. The issue at hand revolves around the denial of credit for service tax paid on the transportation of metal containers to the supplier by a 100% EOU engaged in the manufacture of Instant Coffee. The original authority rejected the credit of service tax incurred under the head GTA for the transport of metal containers, leading to the appeal filed by the Revenue. The Commissioner (Appeals) found that the transport of plastic pallets back to the supplier of metal tins is directly related to and in aid of the activity of procurement of inputs by the EOU. The Commissioner noted that the transport of pallets aids in the efficient handling of tins, which play a direct role in the manufacture of final products, thereby qualifying as an input service under the Cenvat Credit Rules, 2004.2. The key contention raised in the appeal by the Revenue was that the credit for service tax paid on transportation cannot extend beyond the transport up to the place of removal, as per Rule 2(l) of the Cenvat Credit Rules, 2004. However, the Commissioner (Appeals) disagreed with this argument and held that the service involved in the present case is directly related to the procurement of inputs, which falls within the ambit of 'input service' as defined in the rules. The Commissioner further emphasized that the activity of transporting pallets back to the supplier is an integral part of the business process and qualifies as an input service, thereby rejecting the Revenue's contention.3. Upon hearing arguments from both sides, the Tribunal upheld the findings of the Commissioner (Appeals) and dismissed the appeal filed by the Revenue. The Tribunal concurred with the Commissioner's reasoning that the transport of pallets back to the supplier for the procurement of metal tins is a legitimate input service under the Cenvat Credit Rules. The Tribunal found no valid grounds presented by the Revenue to challenge the impugned order, emphasizing that the activity in question is directly linked to the procurement of inputs and falls under the definition of 'input service.' Consequently, the Tribunal rejected the Revenue's appeal, affirming the decision in favor of the respondents.In conclusion, the judgment highlights the importance of interpreting the scope of 'input service' under the Cenvat Credit Rules in cases involving the transportation of essential materials for manufacturing processes, ultimately emphasizing the nexus between such activities and the procurement of inputs for the production of final goods.