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No Service Tax Credit on Outward Freight for manufacturers

AIT News Network

NEW DELHI. Consequent to a silent amendment in CENVAT Credit Rules vide Central Excise Non-Tariff Budget Notification No. 10/2008  dated 1st March 2008; the Government has disallowed the Credit of service tax paid on outward freight ( Goods Transport Agency Service ) to the manufacturers. The said Notification amends the definition of “input service”, and , therefore, disallows the credit on service used from place of removal which is factory in case of 99 per cent manufacturers .Howver, in special cases where manufacturers are paying Central Excise duty at Depots and are provisionally clearing the goods from the factory; they will be entitled for credit on freight from factory to Depot.

In the CENVAT Credit Rules, 2004 , in rule 2 (l), for the words “clearance of final products from the place of removal”,

the words “clearance of final products, up to the place of removal,” have been substituted.

Definition of “input service” after the amendment is as under:

“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 final products and clearance of final products, up to the place of removal,

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;

Definition of “input service” before the amendment was as under: 

“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 final products and clearance of final products from the place of removal,

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.

The issue of admissibility of Credit on Outward Freight for the past period is also pending before the Larger Bench of CESTAT in case of India Cement   AIT-2007-308-CESTAT wherein it was held that the outward transportation from the factory to the depot is an 'Input Service' and an outward transportation from the factory and from the depot to the premises of the buyer is also an 'Input Service'. It follows that once it is an input service there cannot be any denial of the credit.

The Larger Bench has to decide the issue as under:

Whether 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 Cenvat Credit Rules, 2004 and thereby enabling the manufacturer to take credit of the Service Tax paid on the value of such services?

OR

Whether 'Input Service' should be limited only to outward transportation upto the place of removal in terms of the inclusive definition as held in the Gujarat Ambuja case AIT-2007-151-CESTAT ?”

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