Cenvat Credit on outward freight - delivery is on FOR basis - place of removal

[chaganti srinivas]

Dear Sirs, We are availing service tax credit on outward freight charges based on the terms of Purchase order which were 'FOR destination.'. In one particular customer terms mentioned as 'Insurance covered by us'. Hence department denied cenvat credit of outward freight on that particular customer transactions. Can we contest on this issue?. Besides, we are also charging Freight for some customers in the invoice. Is it necessary to include this amount also in assessable value? - Please provide your valuable opinion.

[Rama Krishana]

Cenvat crdit on outward freight beyond the place of removal is not allowed. Since your terms of agreement is FOR destination basis, it means, your place of removal is destination i.e customer's place. In such situation, department should not deny the benefit of credit. Since this is a question of fact and to seen that how insurance would be a bearing factor on the transaction, as such, and since the department has denied the credit, you should take the matter with the authorities at appropriate level that you are fulfilling the conditions for availing the credit, credit should be allowed. Second part of the query is more relevant to determine the correctness of your claim of FOR delivery. In case of FOR delivery, in excise, you have to charge duty of excise on the value inclusive of freight. If you are not doing or no paying duty of excise on gross value including freight, you are contradicting your own facts and arguments that you are selling on FOR basis.

AI Summary

Cenvat credit on outward freight depends on FOR destination removal and inclusion of freight in assessable value. Cenvat credit on outward freight is disallowed when freight relates to movement beyond the place of removal; credit depends on demonstrating a FOR destination sale so removal is at the buyer's premises, with factual issues like insurance allocation affecting entitlement and freight being includible in assessable value if the transaction is treated as inclusive of freight.