Admissibility of Cenvat Credit of service tax on GTA Service
The services availed by a manufacturer for outward transportation of final products from the place of removal should be treated as an input service in terms of Rule 2(1)(ii) of the Cenvat Credit Rules, 2004 and thereby enabling the manufacturer to take credit of the service tax paid on the value of such services.
CESTAT, LARGER BENCH, BANGALORE
CCE & ST
Appeal No. ST/336/2007
May 18, 2009
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19. The issue in dispute in the present case is not one of valuation of excisable goods in terms of Section 4 of the Central Excise Act, 1944 or under the Central Excise Valuation Rules but admissibility of CENVAT credit of service tax on GTA service. The two issues, namely, ‘valuation' and ‘CENVAT credit' are independent of each other and have no relevance to each other as clarified by the Board's Circular No.137/3/2006-CX dated 02.02.2006. As per the Board Circular No.97/8/2009 dated 23.08.2007, there may be situations where a manufacturer/consignor may claim that the sale has taken place at the destination point because in terms of the sale contract/agreement (i) the ownership of goods and property in the goods remained with the seller of the goods till the delivery thereof in acceptable condition to the purchaser at his door step; (ii) the seller bore the risk of loss of, or damage to, the goods during transit to the destination; and, (iii) the freight charges were an integral part of the price of goods and in such cases, the credit of service tax paid on the transportation upto such place of sale would be admissible if it can be established by the claimant of such credit that the sale and transfer of property in goods (in terms of the definition under Section 2 of the Central Excise Act, 1944 as also in terms of the provisions under the Sale of Goods Act, 1930) occurred at the said place.
20. The guidelines issued by the Organisation for Economic Co-operation and Development (OECD) also throw some light on the above. The relevant portion from the guidelines is reproduced herein below:-
INTERNATIONAL VAT/GST GUIDELINES
“4. …. In addition, it should be borne in mind that value added tax systems are designed to tax final consumption and as such, in most cases it is only consumers who should actually bear the tax burden. Indeed, the tax is levied, ultimately, on these purchases is, in principle, fully deductible. This feature gives the tax its main characteristic of neutrality in the value chain and towards international trade.”
1. There are many differences in the way value added taxes are implemented around the world and across OECD countries. Nevertheless, there are some common core features that can be described as follows:
• Value added taxes on consumption, paid, ultimately, by final consumers.
• The tax is levied on a broad base (as opposed to e.g. excise duties that cover specific products);
• In principle, business should not bear the burden of the tax itself since there are mechanisms in place that allow for a refund of the tax levied on intermediate transactions between firms.
• The system is based on tax collection in a staged process, with successive taxpayers entitled to deduct input tax on purchases and account for output tax on sales. Each business in the supply chain takes part in the process of controlling and collecting the tax, remitting the proportion of tax corresponding to its margin i.e., on the difference between the VAT paid out to suppliers and the VAT charged to customers. In general, OECD countries with value added taxes impose the tax at all stages and normally allow immediate deduction of taxes on purchases by all but the final consumer.
2. These features give value added taxes their main economic characteristic, that of neutrality. The full right to deduction of input tax through the supply chain, with the exception of the final consumer, ensures the neutrality of the tax, whatever the nature of the product, the structure of the distribution chain and the technical means used for its delivery (stores, physical delivery, internet)
21. The Supreme Court has held in the All India Federation of Tax Practitioners case supra that service tax and excise duty are consumption taxes to be borne by the consumer and, therefore, if credit is denied on transportation service, the levy of service tax on transportation will become a tax on business rather than being a consumption tax. The submission of the Revenue that CENVAT credit cannot be allowed for services if the value thereof does not form part of value subjected to excise duty is clearly against the fundamental concept laid down by the Supreme Court in the All India Federation of Tax Practitioners case and the OECD guidelines.
22. There is an additional reason for holding that CENVAT credit is admissible on services even if the value thereof is not part of the value subjected to duty. This is because the interpretation of the expression “input services” cannot fluctuate with the change in the definition of “value” in Section 4 of the Central Excise Act and cannot vary depending on whether the goods are levied to duty under Section 4A of the Central Excise Act or tariff value under Section 3 (2) of the Central Excise Act or the product attract specific rate of duty. In the case of Gujarat Ambuja Cements Ltd. Vs Commissioner of Central Excise, Ludhiana [2007 (6) S.T.R. 249] relied upon by the Revenue, the Tribunal had relied on the decision of the apex court in Reserve Bank of India Vs Peerless Co. [1987) 1 SCC 424] to hold that the inclusive clause casts its shadow on the main definition also. The Tribunal also relied upon the decision in E.V. Mathai & Co. Vs. Commissioner of Central Excise [2006 (3) S.T.R. 116 (Tri.-Bang.)] and Bhagyanagar Services Vs, Commissioner of Central Excise, Hyderabad [2006 (4) S.T.R. 22 (Tri.-Bang.)] to hold that transportation is different from clearance. However, we agree with the assessees, that in the RBI case supra, the apex court was not interpreting a “means and includes” definition and, therefore the above decision will not apply to the interpretation of the definition of “input services” in the CENVAT Credit Rules, 2004. The decisions in E.V. Mathai and Bhagya Nagar Services supra dealt with the interpretation of the definition of “clearing and forwarding services” contained in the relevant clause of the Finance Act, 1994 and it was held that service by a forwarding agent will not cover the service of transportation of goods. This interpretation of the definition of the “Clearing & Forwarding Service” is not relevant for the interpretation of the definition of “input services” under the CENVAT Credit Rules, 2004. In India Japan Lighting Pvt. Ltd. Vs Commissioner of Central Excise [2007 (8) S.T.R. 124 (Tri.-Chennai) relied upon by learned JCDR, the Tribunal was dealing with issue of interpretation of the “means” clause and not the “Includes” clause. It also did not consider the expression “activity relating to business”, and, therefore, this decision is not relevant for the purpose of determining the issue before us.
23. We also note that the Gujarat Ambuja Cements decision of the Tribunal has been overruled by the Hon'ble Punjab & Haryana High Court in its decision reported in 2009 (14) S.T.R. 3 (P&H) holding as under:-
“ 11. The only question then is whether the appellant fulfills the requirement of circular. The first requirement is that the ownership of the goods and the property therein is to remain with the seller of the goods till the delivery of the goods in acceptable condition to the purchaser at his door step. The aforesaid condition has to be considered to be fulfilled because the supply of cement by the appellant to its customer is ‘FOR destination'. The appellant also bears the freight in respect thereof up to the door step of the customer. The freight charges incurred by it for such sale and supply at the door step of the customer are subjected to service tax which is also duly paid by the appellant. Moreover, the definition of expression ‘input service' is available in Rule 2(1) of the CC Rules, which reads thus:-
“2(1) “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 and includes services 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;”
12. The ‘input service' has been defined to mean any service used by the manufacturer whether directly or indirectly and also includes, inter alia, services used in relation to inward transportation of inputs or export goods and outward transportation up to the place of removal. It has also remain un-controverted that for transportation purposes insurance cover has also been taken by the appellant which further shows that the ownership of the goods and the property in the goods has not been transferred to the seller till the delivery of the goods in acceptable condition to the purchaser at his door step. Accordingly, even the second condition that the seller has to bear the risk of loss or damage to the goods during transit to the destination stand fulfilled.
13. The third condition that the freight charges were integral part of the excisable goods also stand fulfilled as the delivery of the goods is “FOR destination' price. This aspect has been specifically pointed out in para 2.2 of the reply dated 12.4.2006 given to the show cause notice. Therefore, we are of the view that the first question is liable to be answered in favour of the assessee and against the revenue.
The High Court has approved the CBEC circular dated 23.08.2007.
24. In the light of the discussion, we hold that the definition of “input services” has to be interpreted in the light of the requirements of business and it cannot be read restrictively so as to confine only upto the factory or upto the depot of manufacturers.
25. In the result, we answer the reference by holding that the services availed by a manufacturer for outward transportation of final products from the place of removal should be treated as an input service in terms of Rule 2(1)(ii) of the CENVAT Credit Rules, 2004 and thereby enabling the manufacturer to take credit of the service tax paid on the value of such services.