CBEC issues Service Tax Master Circulars on Technical & Procedural Issues

AIT News Network

NEW DELHI. CBEC has finally issued two Master Circulars on Service Tax after receiving feedback from the Industry. Circular No 96 dated 23rd August   has been issued on Technical Issues and Circular No 97 has been issued on Procedural Issues. The circulars supersede all circulars, clarifications and communications, other than Orders issued under section 37B of the Central Excise Act, 1944 (as made applicable to service tax by section 83 of the Finance Act, 1994), issued from time to time by the CBEC, DG (Service Tax) and various field formations on all technical issues including the scope and classification of taxable services, valuation of taxable services, export of services, services received from outside India, scope of exemptions and all other matters on levy of service tax.  With the issue of these circular, all earlier clarifications issued on technical issues relating to service tax stand withdrawn.  

Several significant issues have been clarified by CBEC on CENVAT Credit as under:

Service Tax Credit on Mobile Phone Bill allowed:

The Circular No.97 allows Credit on Mobile Phone service and clarifies as under:

“A doubt has been raised regarding admissibility of CENVAT credit on service tax paid in respect of mobile phones. In the Service Tax Credit Rules, 2002, it was prescribed that credit of service tax was admissible only on telephone connection installed in the business premises. A clarification to this effect was also issued vide circular No. 59/8/2003-ST, dated 20.6.2003, in the context of the Service Tax Credit Rules, 2002. However, in the CENVAT Credit Rules, 2004 no such condition has been prescribed. Therefore, w.e.f. 10.9.2004, credit of service tax paid in respect of mobile telephone service is admissible, provided the mobile phone is used for providing output service or used in or in relation to manufacture of finished goods”.

the consignor or the consignee has to be pay service tax in cash on goods transport by road service.

                ISSUE: Whether a manufacturer or taxable service provider having credit balance in his account can utilize that credit for payment of service tax on goods transport by road, as a consignor or as a consignee?

                COMMENTS: In terms of rule 3 (4) of the Rules, CENVAT credit can be utilized for the following payments:

(a) any duty of excise payable on any final product;
(b) …………………………………………..
(c) …………………………………………..
(d) service tax on any output service

                In terms of the CENVAT Credit Rules, ‘output service’ means any taxable service provided by the provider of taxable service to the service receiver. Further, the definition of ‘provider of taxable service’ includes a person liable to pay service tax. Therefore, reading the two definitions in conjunction, it is clear that, to form ‘output service’, taxable service has to be actually provided by the ‘provider of taxable service’. Even if due to a legal fiction, a consignor or a consignee qualifies to fall under the definition of ‘a person liable to pay service tax’ (and consequently a ‘provider of taxable service’), it cannot be said that he has actually provided any taxable service. The service provided by a Goods Transport Agent (GTA) for which the consignor or the consignee is made liable to pay service tax does not become an ‘output service’ for such consignor or the consignee. Therefore, the service tax payable by the consignor or consignee on transportation of goods by road cannot be paid through credit accumulated by such consignor or consignee. For example, a manufacturer of steel sheets procures duty paid steel ingots as input and avails CENVAT credit of the excise duty paid on ingots.  He clears his finished goods, i.e., steel sheets on payment of excise duty and sends the same to his customer, engaging the service of a goods transport agency.  In this case, he pays service tax on service received by him for transportation of the goods.  However, the input credit taken on steel ingots cannot be used for payment of service tax applicable to goods transport agency.  The reason is that the such manufacturer ( consignor) is not the service provider. The transport service is being provided by the ‘goods transport agency’ and the excise assessee pays the service tax only for the reason that  the  liability for payment of service tax has been shifted to the service receiver.    Accordingly, the consignor or the consignee has to be pay service tax in cash on goods transport by road service.

a consignee can take credit of the amount paid as service tax either by himself (as consignee) or by the consignor or by the Goods Transport Agency  

                ISSUE: Whether a consignee can take credit of the amount paid as service tax either by himself (as consignee) or by the consignor or by the Goods Transport Agency?

                COMMENTS: As per Rule 3 of the CENVAT Rules, 2004, CENVAT Credit of, inter alia, service tax leviable and paid on any ‘input services’ can be taken. The rule does not distinguish as to who (i.e. the GTA, the consignor or the consignee himself) has paid the aforesaid tax. The only condition required to be satisfied is that the consignee must be a manufacturer of excisable goods or a provider of taxable service and the service must be in the nature of ‘input service’ for such activity. In case of inward transportation of inputs or capital goods, such service (being specifically mentioned under the definition of ‘input service’) would qualify to be called as ‘input service’ and, thus, the service tax paid (by any of the persons mentioned above) on it would be eligible as credit to the receiver if he is either a manufacturer of excisable goods or a provider of taxable service.

Credit on outward freight not admissible

                ISSUE: Up to what stage a manufacturer/consignor can take credit on the service tax paid on goods transport by road? 
                COMMENTS: This issue has been examined in great detail by the CESTAT in the case of M/s Gujarat Ambuja Cements Ltd. vs CCE, Ludhiana AIT-2007-151-CESTAT . In this case, CESTAT has made the following observations:-

“the post sale transport of manufactured goods is not an input for the manufacturer/consignor. The two clauses in the definition of ‘input services’ 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, the one dealing with general provision and other dealing with a specific item, are not to be read disjunctively so as to bring about conflict to defeat the laws’ scheme. The purpose of interpretation is to find harmony and reconciliation among the various provisions”.

                The above observations and views explain the scope of the relevant provisions clearly, correctly and in accordance with the legal provisions.  In conclusion, a manufacturer / consignor can take credit on the service tax paid on outward transport of goods up to the place of removal and not beyond that.

                In this connection, the phrase ‘place of removal’ needs determination taking into account the facts of an individual case and the applicable provisions. The phrase ‘place of removal’ has not been defined in CENVAT Credit Rules. In terms of sub-rule (t) of rule 2 of the said rules, if any words or expressions are used in the CENVAT Credit Rules, 2004 and are not defined therein but are defined in the Central Excise Act, 1944 or the Finance Act, 1994, they shall have the same meaning for the CENVAT Credit Rules as assigned to them in those Acts. The phrase ‘place of removal’ is defined under section 4 of the Central Excise Act, 1944. It states that,-
“place of removal” means-

(i)  a factory or any other place or premises of production or manufacture of the excisable goods ;

(ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be stored without payment of duty ;

(iii) a 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; from where such goods are removed.”

                It is, therefore, clear   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 as per the definition.  In case of a factory gate sale, sale from a non-duty paid warehouse, or from a duty paid depot (from where the excisable goods are   sold, after their clearance from the factory), the determination of the ‘place of removal’ does not pose much problem. 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.

Click here for Service Tax Circular No 96 on Technical Issues
Click here for Service Tax Circular No 97 on Procedural Issues