Service Tax on freight

[Samik Chaudhuri]

Sir

We are manufacturing co, can we avail Service Tax credit on freight for direct selling if the payment of freight is made by us. Please clarify.

With thanks and reagrds

Samik Chaudhuri.

[Rajagopalan Ranganathan]

Sir,

According to rule 2 (l) of Cenvat Credit Rules, 2004 "input service" means any service used for inward transportation of inputs or capital goods and outward transportation upto the place of removal. Therefore you cannot avail service tax credit on freight for direct selling even if payment of the freight is made by you.

[DR.MARIAPPAN GOVINDARAJAN]

The views of Shr Rajagopalan Renganathan are correct.i

[PAWAN KUMAR]

Dear Sir,

I am agree with the reply of Sh.Ranganathan Sir.

Sir, In case if manufacturer arranges for the transportation and deliver the goods to the customer door step in well acceptable conditions, risk and insurance are also in scope of manufacturer, then, in such case, will the service tax cenvat credit be admissible ? As per the recent circular issued on the judgment place of removal has been alinged with CST Act which covers the customer destination. What is the impact of this ? Kindly guide.

[Rajagopalan Ranganathan]

Dear Shri. Pawan Kumar,

As per CBEC's Circular Circular No. 97/8/2007 dated 23.8.2007 (Para 8.2) the phrase 'place of removal' needs determination taking into account the facts of an individual case and the applicable provisions. The phrase 'place of removal' has not been defined in CENVAT Credit Rules. In terms of sub-rule (t) of rule 2 of the said rules, if any words or expressions are used in the CENVAT Credit Rules, 2004 and are not defined therein but are defined in the Central Excise Act, 1944 or the Finance Act, 1994, they shall have the same meaning for the CENVAT Credit Rules as assigned to them in those Acts. The phrase 'place of removal' is defined under section 4 of the Central Excise Act, 1944. It states that,-

"place of removal" means-

(i) a factory or any other place or premises of production or manufacture of the excisable goods ;

(ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be stored without payment of duty ;

(iii)a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory;

from where such goods are removed."

It is, therefore, clear that for a manufacturer /consignor, the eligibility to avail credit of the service tax paid on the transportation during removal of excisable goods would depend upon the place of removal as per the definition. In case of a factory gate sale, sale from a non-duty paid warehouse, or from a duty paid depot (from where the excisable goods are sold, after their clearance from the factory), the determination of the 'place of removal' does not pose much problem. However, there may be situations where the manufacturer /consignor may claim that the sale has taken place at the destination point because in terms of the sale contract /agreement (i) the ownership of goods and the property in the goods remained with the seller of the goods till the delivery of the goods in acceptable condition to the purchaser at his door step; (ii) the seller bore the risk of loss of or damage to the goods during transit to the destination; and (iii) the freight charges were an integral part of the price of goods. In such cases, the credit of the service tax paid on the transportation up to such place of sale would be admissible if it can be established by the claimant of such credit that the sale and the transfer of property in goods (in terms of the definition as under section 2 of the Central Excise Act, 1944 as also in terms of the provisions under the Sale of Goods Act, 1930) occurred at the said place.

Therefore if conditions stipulated in the highlighted portion above are satisfied, then service tax paid on outward freight is available even now.

[PAWAN KUMAR]

Dear Sir,

Thanks for providing your guidance.

[Mahir S]

Yes sir, input service credit for outward transporrtation admissible only upto the place of removal.

AI Summary

Service tax credit on freight limited to transport up to place of removal; allowed if sale transfers property at destination. Under the Cenvat Credit Rules, input service covers outward transportation only up to the place of removal, so service tax credit on freight is ordinarily unavailable for direct deliveries beyond that point; however, if contractual facts show sale and transfer of property occur at the buyer's destination (ownership retained by seller until delivery, seller bears transit risk, freight included in price), freight to that destination may be treated as transportation up to the place of removal and the service tax paid may be admissible as Cenvat credit.