Credit of Service Tax paid on outward freight not admissible to manufacturer

Exchange Rate for imported goods is Rs 74.03 Per Pound Sterling and Rs 51.22 Per Yen-Exchange Rate for export is Rs 72.45 Per Pound Sterling and Rs 49.94 Per Yen-Customs Non-Tariff Notification No.128 Sensex slips further and closes at 8773 100 per cent EOUs allowed to export non-basmati rice-DGFT Notification No.59 Customs duty of 5 per cent imposed on import of Pig Iron, spiegeleisen, semi-finished products, flat products & long products Import of Crude Soyabean Oil subjected to 20 per cent customs duty- no change in import duty on refined soyabean oil-Customs Tariff Notification No.122 Time-limit for filing refund of service tax extended to 6 months-Service Tax Notification No.32 Rahul Bajaj asks Industry to prepare for the worst Tariff Value for import of Brass Scrap is 3525 and for poppy seeds 5206-Customs Non-Tariff Notification No. 127 CBEC clarifies the entire amount of duty paid by the manufacturer, as shown in the invoice would be available as credit irrespective of the fact that subsequent to clearance of the goods, the price is reduced by way of discount or otherwise-Central Excise Circular No.877 Mandavariya (Kishangarh), District Ajmer notified for Unloading of imported goods and loading of export goods-Customs Non-Tariff Notification No.117 SC Ruling-the entitlement of benefit in terms of Section 32AB, Section 80HH and Section 80I of the Income Tax Act- conversion of Jumbo rolls of photographic films into small flats and rolls in the desired sizes amounted to manufacture/production-AIT-2008-413-SC SC Ruling-Whether any "gift" arose in terms of Section 2(xii) of the Gift-tax Act, 1958 on the allotment of rights issue by the appellant company to its shareholders vide Board's Resolution- Whether there was any element of "gift" as defined under Section 2(xii) in the appellant issuing Bonus shares in the ratio of 1:23-AIT-2008-412-SC DEPB benefit allowed on export of cement and steel-DGFT PN 108 exports of cement in all types and forms and primary steel products eligible for export incentives under Focus Market Scheme-DGFT Notification No.58 Import of Marble Tiles-DGFT Notification No.57 Clarification on setting up Duty Free Shops approved by FIPB-Customs Circular No.19 HC Ruling-Income Tax-"reserves" arising out of the acquisition of the business of Tata Cellular Limited could never have the character of "income" in the hands of the petitioners-pre-requisite condition contained in proviso to section 147 to enable the re-assessment to be opened after period of 4 years have elapsed have not been met-AIT-2008-410-HC HC Ruling-Central Excise- valuation of the goods for the purpose of excise duty and whether excise duty was chargeable under Section 4 or Section 4A of the Central Excise Act 1944-while construing rule 3, who are excluded are only the institutional or industrial consumers as explained in Rule 2A and the industrial or institutional consumers in terms of the proviso to rule 2(p) for the purpose of chapter-II are the same-If the person who purchase the prepacked commodity not directly from the manufacturer or packers, they are consumers and the declaration will be of no effect-AIT-2008-408-HC Government considering imposition of import duty on steel Bad News for Consulting Engineers- whether turnkey contract can be vivisected?- The conclusion in Daelim case on the point, prima facie, being not in accordance with law, matter goes to Larger Bench-AIT-2008-405-CESTAT Larger Bench of CESTAT rules Credit is admissible on an input service relating to the business-AIT-2008-407-CESTAT credit of the service tax paid on the outdoor catering (canteen) service is admissible as input service under Rule 2(l) of the Cenvat Credit Rules, 2004-AIT-2008-406-CESTAT The payment for use of "services for MTNL/other companies via the interconnect/port/access/toll by the assessee would not fall within the purview of payments as provided for under section 194J of the Act, so as to be eligible for tax deduction at source-The interconnect charges/port access charges cannot be regarded as fees for technical services-AIT-2008-404-HC Computation of Value under Section 14 for Levy of Export Duty - Customs Circular No. 18 Advance Ruling- Whether the service fee paid by the applicant to Intertek Testing Management Limited UK under Global Management Service Agreement is taxable as "Royalties & Fee for Technical Services" as per the provisions of Article 13 of DTAA between India & UK? 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Credit of Service Tax paid on outward freight not admissible to manufacturer

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NEW DELHI. Input service credit in respect of the service tax paid on the freight incurred on the transportation of finished goods sold is not admissible to a manufacturer as ruled by the Tribunal vide a recent ruling AIT-2007-151-CESTAT.Though the ruling may not sustain in High Court; many manufacturers have already discontinued the practice of availing Credit and keeping their fingers crossed awaiting the law on the issue to be finally settled.

T H E F A C T S:

The dispute in the appeal was in regard to service tax paid on the freight incurred on the transportation of final products sold by the appellant. The sale was on FOR destination basis and freight was paid by the appellant. The appellant also paid the service tax in regard to the said freight. It claimed input service credit in respect of the service tax so paid. That claim was rejected by the Commissioner of Central Excise.

The Revenue took the view that service tax credit is available only in respect of inward transportation (inputs) or outward transport of final products upto the place of removal. In the present case, since the goods were removed (upon payment of duty) for sale from the factory depots, revenue took the view that service tax paid on the cost of transportation from the factory/depots to the buyers' premises, would not be available as credit.

The definition of input service under CENVAT Rules is as under:

2(1) 'input service' means any service, -

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 service used in relation to setting up, modernization, renovation or repairs of a factory premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal" (emphasis added)

T H E R U L I N G:

· Crucial point to be noted in regard to Cenvat Credit is that credit availability is in regard to 'inputs'. The credit covers duty paid on input materials as well as tax paid on services, used in or in relation to the manufacture of the 'final product'. Therefore, extending the credit beyond the point of duty paid removal of the final product, would be contrary to the Scheme of Cenvat Credit Rules.

· The interpretation sought to be placed by the appellant does not flow from the definition of input service. 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." The learned SDR has brought to our notice the decisions of this Tribunal to the effect that transport does not come within the scope of clearance or forwarding. Further, that transportation (freight) is an entirely different activity from manufacture remains settled by the judgments of Hon'ble Supreme Court.

· The interpretation convassed by the appellant is also contrary to the rule on the subject contained in the judgment of Hon'ble Supreme Court in the Reserve Bank case. A statute is to be read as a whole and words used interpreted taking into account the context in which they are used. Definitions are to be looked at as a whole. Clauses of a definition are not to be read disjunctively. In the present case, the statute deals with a tax on manufacture. The definition is in the context of relief in regard to duty/tax paid on input services. Post sale transport of manufactured goods is not an input in manufacture. 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. The first clause does not mention transport service in particular. The second clause restricts transport service credit upto the place of removal. When these two clauses are read together, it becomes clear that transport service credit cannot go beyond transport upto the place of removal. 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 law’s scheme. The purpose of interpretation is to find harmony and reconciliation among the various provisions

( Click here for full text of ruling AIT-2007-151-CESTAT)