A rude shock!
RULE 2(l) of the CENVAT Credit Rules, 2004 has a ridiculous ability to court controversy just like Rule 6.
Prior to 01.04.2008 - Rule 2(l) read - "input service" means any service,-
(i) used by a provider of taxable service for providing an output service; or
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal,
and includes services used in relation to …, inward transportation of inputs or capital goods and outward transportation upto the place of removal.
With effect from 01.04.2008 - By amending Notification 10/2008 CE-(NT) dated 1.3.2008 [w.e.f 01.04.2008], in clause (l), for the words "clearance of final products from the place of removal", the words "clearance of final products, upto the place of removal," was substituted.
As to whether CENVAT credit is available on the GTA service used for removal of goods from the place of removal was the subject matter of a host of appeals and which finally came to be settled by the Larger Bench decision in ABB Ltd. & Ors. () holding that Services received for outward transportation of goods from the place of removal is input service as defined in Rule 2(l) of CENVAT Credit Rules, 2004.
It is pertinent to note that the period involved was prior to 01.04.2008.
There was euphoria amongst the assessees.
Revenue was not at all impressed with this ruling and took the matter to the Karnataka High Court which held () that Outward transportation of finished goods from place of removal is covered by definition of 'input service' upto 31.03.2008 and hence credit is admissible on GTA services till this date. This judgment is dated March 23, 2011.
The assessees cheered and braced for the reality that w.e.f 01.04.2008, on account of the amendment to rule 2(l) by Notification 10/2008-CE(NT) dated 1.3.2008, and which amendment played a crucial role in the decision of the Karnataka High Court, the benefit of CENVAT credit is not admissible on GTA service.
The Gujarat High Court in Parth Poly Woven Pvt. Ltd. () while relying upon the LB decision in ABB Ltd. (supra) and host of other judgments dismissed the Revenue appeal and held that the credit on GTA services is admissible up to 01.04.2008. This order is dated April 6, 2011.
November, 28, 2013 would soon be called a red letter day by the assessees for the reason that the Calcutta High Court in a Revenue appeal held that it was not able to persuade itself with the reasoning given by the Karnataka High Court.
In the matter of the decision of the Gujarat High Court, the Bench noted - "The Hon'ble Division Bench expressed their aforesaid opinion, but no reasons or appropriate reasons are ascertainable by us for the purpose of aforesaid proposition."
Suffice to say that the High Court while allowing the Revenue appeal observed -
+ Effect of the Circular cannot be to amend the Rules - Rules remain what they were - On the basis of the Circular issued by the Board, it cannot be said that under the Rules, ‘input service' includes the transportation service made available to the customer for the purpose of delivering the goods at the destination.
+ By the amendment made with effect from 1st April, 2008 substituting the word “from" by the word “upto" all that has been done is to clarify the issue - Neither the services rendered to the customer for the purpose of delivering the goods at the destination was covered by the definition of input service prior to 1st April, 2008, nor is the same covered after 1st April, 2008.
Nonetheless, acceding to the prayer of the respondent, the Calcutta High Court stayed the operation of the order for six weeks .
We had covered this issue extensively since the year 2005 and with the latest decision are bound to do it for a couple of years more.
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!