Court : Punjab & Haryana High Court

Brief : : ST - Cenvat Credit on Outward Freight - Revenue disallows -held, Assessee is eligible for Credit: High Court

Citation : Ambuja Cements Ltd Vs UoI (Dated: February 10, 2009)

Judgment :

ST - Cenvat Credit on Outward Freight - Revenue disallows -held, Assessee is eligible for Credit: High Court


CHANDIGARH, MAR 04, 2009: IN DDT-599 while reporting the Gujarat Ambuja case (2007-TIOL-539-CESTAT-DEL) - No credit of Service Tax on outward freight - landmark order from Tribunal, we stated, Not everything is lost. The issue has to be taken to a Larger Bench/High Court/Supreme Court. In DDT-601, while reporting that the same issue was before the Bangalore Bench, we suggested, Now what can this Bench do, since there is already a decision by another Bench? It has only two choices – agree with the Delhi Bench or refer the matter to a Larger Bench. That is exactly what the Bangalore Bench did in the India Cement case - 2007-TIOL-1248-CESTAT-BANG.

While the Larger Bench of the CESTAT is yet to decide the issue, the Punjab and Haryana High Court has decided the issue – in favour of the Assessee.

The High Court observed,

The Central Board of Excise and Customs (CBEC) has issued a circular dated 23.8.2007 dealing with the issue concerning ‘up to what stage manufacturer/consigner could take credit on the service tax paid on goods transported by it by road’. The issue, in fact, has emerged out of the order of the Tribunal passed in the case of the appellant itself. The Board has opined that the phrase ‘place of removal’ has to be determined by taking into account the facts of each case. According to the circular, the expression ‘place of removal’ has been defined by Section 4 of the 1944 Act and according to sub-rule (t) of Rule 2 of the CC Rules, if any words or expression used in those rules are not defined but are defined in the 1944 Act or the 1994 Act then they are to be given the same meaning for the CC Rules as assigned to them in those Acts. Accordingly, reliance on Section 4 of the 1944 Act has been made where place of removal has been defined.

It is clear from the definition that for a manufacturer/consignor the eligibility to avail credit of the service tax paid on the transportation during removal of excisable goods would depend upon the place of removal. The circular further contemplates compliance of certain conditions where the sale has taken place at the destination point. The relevant part of the circular reads as under:-

“……However, there may be situations where the 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 the property in the goods remained with the seller of the goods till the delivery of the goods 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. In such cases, the credit of the service tax paid on the transportation up to such place of sale would be admissible if it can be established by the claimant of such credit that the sale and the transfer of property in goods (in terms of the definition as 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.”

It is well settled that the circulars issued by the Board are binding and aims at adoption of uniform practice. It is, thus, evident that the revenue is precluded from challenging the correctness of the circular even on the ground of the same being inconsistent with statutory provisions. It goes further to limit the right of the revenue to file an appeal against the correctness of the binding nature of the circular. Therefore, there is no escape from the conclusion that the circular is binding on the revenue.

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.

So the High Court held that the assessee is eligible to take credit on the service tax paid on outward freight – subject to fulfilling the conditions prescribed in the Board Circular.

This is perhaps not the END – the issue is referred to the Larger Bench and also before some more High Courts. The Government has solved the problem for the post 2008 period, can’t they simply accept the position for the pre 2008 period and close all the litigation?