Service Tax on freight to depot – MRP assessees not eligible for credit – Board vs Board?
The Service Tax on GTA has generated more controversies than revenue. And this is continuing merrily right from 1997, with clarifications reaching their confusing crescendo in the years 2005 and 2006. The Board, the DGST, the Chief Commissioners and Commissioners, DGCEI not left out have been giving their own clarifications making life miserable for both the assessees and officers. Of course there is one section of society which is enjoying the tamasha, laughing all the way to the bank – the consultants. Every consultant in India has a few cases relating to the 75% abatement in which case in spite of the DGST’s letter (withdrawal), Show Cause Notices are being issued to all the manufacturers.
Sadly the latest clarification is from the horse’s mouth. Mr. R. Sekar, the Joint Secretary (Service Tax) in TRU is reported to have clarified in a PHDCCI seminar that a manufacturer of a product under Maximum Retail Price (MRP)-based excise levy would not be entitled to Cenvat credit on the service tax paid on freight incurred for moving the product from the factory gate to a depot. This is because such expenditure would be treated as post-manufacturing expenditure in the case of MRP-based excise levy, where the place of removal for excise duty purpose is the factory gate. He is quoted as saying, "For MRP-based excise levy, I go by the ex-factory price and do not determine the depot price. The assessable value is determined at the factory gate. Whatever happens outside the factory gate for such items is outside the purview of excise department and cannot be eligible for Cenvat credit"
As DDT has covered the issue on several occasions, repetition, though tempting is being avoided but we only hope Mr. Sekar has been misquoted and this could not be what he really said for what has excise valuation got to do with cenvat credit of Service Tax?
But what is really tragic is the difference of opinion within the Board. Now who is the real authority? The Board or the JS? May be it is actually the DGST! Why we have this doubt is the fact that Board had emphatically clarified on this very issue and the Board’s opinion is diametrically opposite to what Mr. Sekar is reported to have clarified. The Board had in F.No. 137/3/2006-CX.4 dated February 2, 2006 clarified this very issue as:-
02. In this regard a doubt has arisen as to whether a manufacturer manufacturing and clearing goods on payment of duty at specified rates (for example cement) or on the basis of valuation with reference to retail sale price (for example refrigerators), and selling the goods from a depot, is also eligible to take credit of service tax paid on transportation of goods up to such depot. The doubt appears to be based on reasoning that since such goods are not charged to duty on the basis of valuation under section 4 of the Central Excise Act, the definition of the expression 'place of removal' given in that section would not apply in case of such goods.
03. The matter has been examined at the level of the Central Board of Excise and Customs. It has been observed that the availment of credit and valuation for payment of duty are two independent issues. Further, the provisions under rule 2(t) of the CENVAT Credit Rules refers to definitions under the Central Excise Act, 1944 and the Finance Act, 1994 for uniform understanding of the words and phrases used in the Credit Rules. Therefore, if an expression is not defined in the Credit Rules but is defined under a particular section of the Central Excise Act, it shall be applicable to all goods for purposes of the Credit Rules, irrespective of whether or not the said section is applicable for the purposes of working out the duty on such goods.
04. In view of the above, the undersigned is directed to state that, in case of depot sales of goods, the credit of service tax paid on the transportation of goods up to such depot would be eligible, irrespective of the fact, whether the goods were chargeable to excise duty at specific rates or ad valorem rates on the basis of valuation under section 4 or 4A of the Central Excise Act.
Has Mr. sekhar over ruled the Board and is he competent to do so? They say in Government the left hand does not know what the right hand is doing but sometimes the left hand will not know what the left hand itself is doing.
In any case, as of now, we have a proper Board clarification which is binding on the department and the opinion of a Joint Secretary reported to have been expressed in a seminar, which certainly does not have any legal validity. As said earlier, we hope Mr. Sekhar has been misquoted; if so he should give a clarification before the panic buttons are pressed and Show Cause Notices are issued for recovery of irregular credit.
This is the problem with too many officers giving too many clarifications.