Eligibility of cenvat credit on outward freight

[HITENDRA DAVE]

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

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.

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

Input service classification for outward freight enables cenvat credit where transport qualifies up to the place of removal.
The Larger Bench held that services for outward transportation of finished goods qualify as Input Service under the Cenvat Credit Rules because 'activities relating to business' must be read broadly and not restricted to within the factory. An amendment changing 'from the place of removal' to 'up to the place of removal' further supports claiming cenvat credit on outward transportation where such transport falls within the 'includes' part of the input service definition for periods after the amendment.