TIOL-DDT 599 · the untouched capture
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<p align=justify><font size="3" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399">TIOL-DDT 599</font></b><b></b></font><font face="Verdana, Arial, Helvetica, sans-serif"><font size="2"><b><br>
24.04.2007<br>
Tuesday</b></font></font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">No credit of Service Tax on outward freight - landmark order from Tribunal </font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Are you paying for outward freight and Service Tax thereon on for clearance from your factory? If so, stop this practice, for you will not get credit. You can ask the consignee to pay the freight and if he is a manufacturer, he will get credit on the Service Tax paid on freight, for him, it is inward transport! The trade lost a major case in the Tribunal.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Input</strong> service has been defined as any service</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) used by a provider of taxable service for providing an output service or</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) used by a manufacturer in or in relation to the manufacture of final products and<strong> clearance of final products from the place of removal.</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>and includes</strong> services used in relation to XXXXXXXXXXX, <strong><font color="#663399">outward transportation up to the place of removal.</font></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Based on the above definition let’s examine whether a manufacturer is eligible for taking credit of the service tax on the outward freight incurred for clearing his finished products<br>
<br>
Clause (ii) above includes services used for <b>clearance</b> of final products from <strong>the place of removal</strong> as well as<strong> transportation up to the place of removal.</strong> This means that a manufacturer of excisable goods is eligible to take credit of the service tax paid on transport of his finished goods as the transport of finished goods is clearly covered under the definition of input service, though it may not logically look like an input service. But law is often beyond logic. In fact the manufacturer is eligible for credit not only of the service tax paid for transport of his goods from the factory to a depot but is also eligible for the credit of the service tax paid for transport of the goods from the depot. Let us see an example.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A manufacturer has a factory in Chennai. He has a depot in <st1:place w:st="on"><st1:City
w:st="on">Bangalore</st1:City></st1:place>. He has a customer in <st1:place
w:st="on"><st1:City w:st="on">Delhi</st1:City></st1:place> to whom he delivers the goods at his cost. He pays Service Tax for the transport of his goods from Chennai to <st1:City w:st="on">Bangalore</st1:City> and from Chennai to <st1:place w:st="on"><st1:City w:st="on">Delhi</st1:City></st1:place>. Sometimes his Bangalore Depot also sells goods at <st1:place w:st="on"><st1:City
w:st="on">Delhi</st1:City></st1:place> and he pays Service Tax on the transport. Now what is his credit eligibility?</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>1. On the Transport of goods from his factory in Chennai to his depot in <st1:City w:st="on"><st1:place w:st="on">Bangalore</st1:place></st1:City></strong> - Here there is no problem as the inclusive definition of input service covers outward<em> transportation up to the place of removal.</em> <strong>So credit allowed.</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>2. On the transport of his goods to the customer in <st1:City w:st="on"><st1:place
w:st="on">Delhi</st1:place></st1:City>.</strong> Here the Department will allow credit only if <st1:City w:st="on"><st1:place w:st="on">Delhi</st1:place></st1:City> is the place of removal. But even if Chennai is the place of removal credit should be allowed as the main meaning of input service covers <em>"clearance of final</em><strong><i> products from the place of removal"</i></strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. <strong>On the transport of goods from the depot to the customer in <st1:City w:st="on"><st1:place w:st="on">Delhi</st1:place></st1:City>.</strong> The Department will not allow credit as it is clearance <b>from</b> the place of removal. <b><font color="#663399">But the law says that clearance from the place of removal is allowed</font></b><font color="#663399">.</font></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Why should the law mention both clearances from the <em>place of removal and up to the place of removal?</em> Please note that "up to the place of removal" is covered under the inclusive category of the definition while "from the place of removal" is in the main part of the definition. For a moment assume that transport of goods up to the place of removal is not covered as input service. Then in the above example, transport charges <strong>from </strong>the depot in <st1:City
w:st="on">Bangalore</st1:City> will be covered but the charges <strong>up to</strong> <st1:City w:st="on"><st1:place
w:st="on">Bangalore</st1:place></st1:City> will not be allowed. This would lead to a ridiculous situation. It is to avoid this gap that transportation up to the place of removal was <strong>included </strong>in the definition.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But unfortunately, Department would allow the <strong>included</strong> part and not the main part of the definition, because logically moving out of goods cannot be an input service!<br>
<br>
For a better understanding of the issue, let us have a look at another definition in the Cenvat Credit Rules - Rule 2(d)<br>
<br>
(d) "exempted goods" means excisable goods which are exempt from the whole of the duty of excise leviable thereon, and includes <strong>goods which are chargeable to "Nil" rate of duty;</strong><br>
<br>
Will the department take the main definition or the inclusive one or both? If only the inclusive definition is taken, exempted means only those goods which are chargeable to nil duty, but if they are exempted by a notification, they are not considered as exempted!</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But the Tribunal was not impressed. In a recent case which we are carrying today, the Tribunal held that cenvat credit of the Service Tax paid on outward transport cannot be allowed holding that:-</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ extending the credit beyond the point of duty paid removal of the final product would be contrary to the Scheme of Cenvat Credit Rules.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ The main clause in the definition states that the service in regard to which credit of tax is sought, should be used in or in relation to clearance of the final products from the place of removal.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ Definitions are to be looked at as a whole. Clauses of a definition are not to be read disjunctively.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ The two clauses in the definition take care to circumscribe input credit by stating that service used in relation to the clearance from the place of removal and service used for outward transportation upto the place of removal are to be treated as input service.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ The first clause does not mention transport service in particular. The second clause restricts transport service credit upto the place of removal.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ When these two clauses are read together, it becomes clear that transport service credit cannot go beyond transport upto the place of removal.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ The two clauses, one dealing with general provision and another dealing with a specific item, are not to be read disjunctively as to bring about conflict and to defeat the laws scheme.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>But is there a conflict? What can be the services used for clearance, if not transport? Service Tax on the fee paid to an auditor is included as input service. Is it not a service after removal of goods? </b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In any case, even the Tribunal is ready to allow the credit for transport up to the place of removal. Now what is this place of removal? As per the definition in Section 4 of the Central Excise Act,</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(c) "place of removal" means.</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> i. a factory or any other place or premises of production or manufacture of the excisable goods; </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> ii. a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> iii. depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory;</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">from where such goods are removed;</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So any place from where the goods are sold after their removal from the factory is the place of removal. And as per the CESTAT order transport up to the place of removal is allowed as credit. Maybe these facts were not brought to the notice of the Hon’ble Tribunal. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Not everything is lost. The issue has to be taken to a <st1:Street w:st="on"><st1:address
w:st="on">Larger Bench/High Court/Supreme Court</st1:address></st1:Street>.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">See more details of this case in our<a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=5373" target="_blank"> <u>Breaking News</u></a> today. </font></p>
<p align=center><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">Scholarships for Customs Kids</font></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBEChas sanctioned an amount of Rs 33.89 lakhs as scholarship to 188 staff children. The scholarship is given by the way of reimbursement of tuition fees borne by officers for providing under-graduation level technical education to their children. The criterion for selection is merit-cum-means of applicants.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>For the list of scholars</strong>, <u><a href="http://www.taxindiaonline.com/RC2/pdfdocs/scholarship.pdf" target="_blank">click</a></u><a href="http://www.taxindiaonline.com/RC2/pdfdocs/scholarship.pdf"> here </a></font></p>
<p align=center><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">Sky is no more the limit; it’s our birthday</font></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">My friend (and a very powerful writer in this portal), Suresh Kumar Nair who left the Central Excise Department and joined a leading consulting firm yesterday, wrote to me around this time last year, </font></p>
<blockquote>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">"Building a bridge" is not an easy task - but that's what <b>TIOL</b> has successfully engineered during these years -- and that too an epic marvel in the history of Indian taxation -- <br>
Now whether it is complicated flyovers or connecting roads, most of us are sure it will be a grand grand success !!! And we wish the same on this occasion.</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>TIOL</b> has reached a stage in its evolution when the expectation of netizens out of the portal has simply soared and is getting demanding day by day -- That's where the acid test will be in the coming years --- meeting the expectation of netizens who have started to look at <b>TIOL</b> akin to the proposed one window LTU for taxation issues ( the only contradiction will be one is not sure whether the LTU will do justice to the proposed ideas and the need for its existence )</font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">All
the very best wishes for all future endeavors --- And I just recollected
an eminent personality -- his words are apt for TIOL on this occasion "The
sky is no longer the limit"</font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">And
an editor’s nostalgia </font></b></font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">May I invite your attention to an article I wrote for the 2<sup>nd</sup> anniversary souvenir of TIOL, five years ago? I had no idea at that time that I would be part of this great happening team. We in <b>TIOL</b> are grateful to all our netizens for the valuable support and promise to continue our mission. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">See <u><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=5370" target="_blank">Taxindia anniversary.</a></u></font></p>
<p align=center><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#006600">And DDT is 600 tomorrow</font></b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Tomorrow I will present to you with all humility and pride (that’s the contradiction in our laws) the 600<sup>th</sup> edition of <b>DDT</b>.</font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until tomorrow with 600<sup>th</sup>Edition of DDT</font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day. </font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="mailto:vijaywrite@taxindiaonline.com"> vijaywrite@taxindiaonline.com</a> </font></p>
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