Eligibility of cenvat credit on outward freight

[HITENDRA DAVE]

Cenvat credit of service tax on out word freight eligble or not

[Guest]

The Larger Bench (‘LB’) in the case of ‘India Cements Limited and Others’ has held that services availed by a manufacturer for ‘outward transportation' of final products ‘from the place of removal’ should be treated as an ‘Input Service’ in terms of Rule 2(l)(ii) of Cenvat Credit Rules, 2004 (“Rules”). In the judgment, the LB has discussed at length the wide import of the words ‘activities relating to business’ and ‘such as’. The LB also held that the definition of Input Service has to be interpreted in the light of the requirements of business and cannot be read restrictively so as to confine only up to the factory or up to the depot of the manufacturers.

[Guest]

Further,it is pertinent to note that the ‘means’ part of the definition of ‘input service’ was amended from April 1, 2008 to substitute the words ‘from the place of removal’ by the words ‘up to the place of removal’. The LB decision seems to suggest that the credit of outward transportation also qualifies under ‘activities relating to business such as’ [the ‘includes’ part]. This creates a possibility of claiming credits on outward transportation for periods on or after April 1, 2008 under the ‘includes’ part.

AI Summary

Larger Bench rules outward freight qualifies as 'Input Service' for Cenvat credit under Rule 2(l)(ii), Cenvat Credit Rules, 2004. A discussion on the eligibility of Cenvat credit for service tax on outward freight highlights a decision by the Larger Bench in the case of 'India Cements Limited and Others.' It was determined that services for outward transportation of final products from the place of removal qualify as 'Input Service' under Rule 2(l)(ii) of the Cenvat Credit Rules, 2004. The definition of Input Service should be interpreted broadly, considering business needs, and not limited to the factory or depot. An amendment effective April 1, 2008, suggests potential for claiming credits on outward transportation under 'activities relating to business.'