Service Tax paid on Outward Transportation allowed as CENVAT Credit - LB judgment valid till 31.03.2008 - Karnataka High Court
NETIZENS may recall that CESTAT Larger Bench in ABB Ltd & Ors 2009-TIOL-830-CESTAT-BANG-LB allowed CENVAT Credit of service tax paid on outward transportation from the place of removal to customer's premises by holding that it is an activity related to business. Aggrieved by this reversal, Revenue went in appeal to the High Court of Karnataka.
The long and desperate wait of all the stakeholders for more than two years ended on Friday when the Karnataka High Court released copy of its judgment delivered on March 23, 2011.
Referring to a host of provisions in CENVAT Credit Rules, 2004, Central Excise Valuation (Determination of Price of Excisable Goods), Rules, 2000, section 4 of Central Excise Act, 1944 and the judgment of Punjab and Haryana High Court in Ambuja Cements Ltd , the Karnataka High Court held that service tax paid on outward transportation from the place of removal is allowable as CENVAT Credit.
Though, it upheld the final outcome of the Larger Bench decision in ABB Ltd & Ors, the interpretation of the Larger Bench that outward transportation of finished goods as an ‘activity related to business' was held as not sustainable. The High Court observed that ‘input service' per se is not confined to pre-manufacturing stage but also refers to post manufacturing stages.
The High Court, while interpreting the definition of ‘input service' in Rule 2(l) of CENVAT Credit Rules, 2004 as it existed prior to 01.04.2008, observed that the exhaustive portion of the definition of ‘input service' (the ‘means' portion of the definition) deals with services used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and also includes clearance of final products from the place of removal. All the services rendered by the manufacturer which ensures proper delivery of the finished product upto the customer are included in the definition of ‘input service'.
The High Court further observed that the services that a manufacturer would normally render to a customer from the place of removal are packing, loading, unloading, transportation, delivery, etc. Though the word ‘transportation' is not specifically used in the said provision, in the context in which the phrase 'clearance of final products from the place of removal' is used, it includes ‘transportation charges' also. Therefore, services received or rendered by the manufacturer from the place of removal till it reaches its destination falls within the definition of ‘input service'.
For further analysis of this landmark judgment please see ‘Breaking News'.
We had covered this issue extensively in the last six years. Some of the stories are:
Service Tax on Goods Transport - yet another hornet's nest - no credit on outward transport? - TIOL-DDT 239 - 11 11 2005
Service Tax on Goods Transport “Clearance to depot “eligible for credit. - TIOL-DDT 304 - 16 02 2006
Cenvat Credit on GTA service - The myths and mysteries - By S R Dixit, Advocate
Revenue wins big case ; Service tax on outward freight - no CENVAT credit; says CESTAT
No credit of Service Tax on outward freight - landmark order from Tribunal - TIOL-DDT 599 - 24.04.2007
Credit of Service Tax on outward freight “landmark order from Tribunal“-There is still hope - TIOL-DDT 601 - 26.04.2007
Service Tax on outward freight - a doomed credit ?
The flutter over cenvat credit on outward freight - By Joseph Prabakar, Advocate
Credit on input service - Outward freight - Gujarat Ambuja disagreed with - referred to Larger Bench
Cenvat on Outward Transportation – Amendment puts an end to controversy - Joseph Prabakar, Advocate
ST - Cenvat Credit on Outward Freight - Revenue disallows - held, Assessee eligible for Credit : High Court
Cenvat Credit on input services - The certainty of uncertainty !