|
|
Total Number of Subscribers: 415 |
|
|
|
||
|
|
||
|
Date: 27 Feb 2008 |
Compiled by : M. Sathya Kumar |
|
|
|
Track the Service Tax ! Service Tax Circular denying Credit on
Outward Freight is not legally sustainable CBEC
has jumped the gun too early by denying the Credit of service tax paid on
transportation of outward freight to manufacturers by Circular No. 97 dated
23rd August 2007 without taking cognizance of CESTAT ruling dated 13th August
2007 AIT-2007-308-CESTAT which allows the Credit. Gujarat Ambuja
has become the most hated name for manufacturers and Consultants; not for
losing the case in Tribunal but for not challenging the ruling of the
Tribunal in High Court and thereby giving a weapon in the hands of CBEC to
issue Circular No 97. The
issue related to admissibility of Credit of service tax paid on outward
fright has been clarified by CBEC vide Circular No 97 as under: 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, "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." But
it is strange that Babus of CBEC neither sought the
Opinion of Attorney General or Solicitor-General of "A careful reading of the definition
reveals that any service interalia used by the
manufacturer in or in relation to clearance of final products from the place
of removal is an 'Input Service'. In
other words, the outward transportation of the final products from the
factory is an 'Input Service' and outward transportation of the final product
from the depot is an 'Input Service'. Once these services are defined as
'input Service', the credit cannot be denied. As
regards the outward transportation of the final products from the factory to
the depot is concerned, it is defined as 'Input Service' in view of the
inclusive definition which reads as "outward transportation up to the
place of removal". Once outward transportation upto
the place of removal is defined as an 'Input Service' the credit has to be
given. Therefore,
what is to be understood and appreciated is the inclusive definition cannot
limit the scope of 'Input Service' given in the first limb of the definition.
It is made clear 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." "Hence,
we do not agree with the interpretation of the Tribunal in the Gujarat Amubuja Case (supra). Since there is a difference in
opinion between the two coordinate benches, the issue has to be resolved by
referring the matter to a Larger Bench. The issue to be decided is stated in the
following manner. 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 cited
supra?" The
abovesaid ruling of the Tribunal was pronounced on
13th August 2007 and learned Departmental Representatives who are IRS
Officers were present before the Bench. All important decisions of Tribunal
are immediately conveyed to Chief Departmental Representative in Though
Babus of North Block may claim that they were
ignorant of such an important ruling till the issue of Service Tax Circular
dated 23rd August 2007; this itself gives a ground for challenging the
Circular in High Court. It
is well-settled by several Thus
CBEC Circular is not law. A Tribunal Ruling is not law. Almost every day a
Tribunal Ruling is set aside and quashed by the Supreme Court with the
remarks "the Tribunal was in error". What the Supreme Court pronounces is the
law. But
one thing is certain. The hands of Advocates are going to be full as for the
departmental officers; the dictate of CBEC is law and manufacturers are going
to be hammered with demand notices which may number over 1 Lakh as most of the manufacturers were availing Credit of
service tax paid on outward freight . But what will be the result? One
fine day Larger Bench Ruling or a High Court Ruling will come that the Credit
of service tax paid on outward transportation of finished goods is admissible
and CBEC Circular No 97 which has been issued solely relying on Gujarat Ambuja will be quashed. But it will be too late for
manufacturers who will have to shell out Crores to
the Advocates for handling the show cause notices. As defined by CENVAT Credit Rules;
"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" There
is no ambiguity in the definition of input service that a service used by the
manufacturer in relation to clearance of final products from the place of
removal is an input service and thus eligible for credit. Hon’ble
Tribunal was in error in even applying the rules of interpretation in its ruling in case of
Gujarat Ambuja. The rules of interpretation come
into play when there is any ambiguity in the law. When the law is clear;
there is no need for rules of interpretation for denying the Credit. It
would be a wise and face saving move for CBEC; if it requests Justice Abhichandani President of CESTAT for early hearing and
decision by Larger Bench so that the issue may be settled without any further
delay. Further,
till the issue is finally settled; the abovesaid
Clauses of the Circular No 97 denying the Credit should be kept in abeyance. But
those who have been with the Central Excise Department for a long time still
want to import the old concept of Central Excise where factory gate was Lakshman Rekha for deciding the
value and are unable to digest the new set of rules. With no such distinction
in the present rules as far as service tax credit is concerned; such mindset
has become outdated. Even old hands in Industry have advised their management
to refrain from availing Credit in such cases. The best option available for manufacturers is to avail
the Credit and not to utilize the said credit till the dust is finally
settled on the issue. Article by: RSS Sharma, allindiantaxes.com |
|
|
|
|
|
|
|
Rewards waiting for feedback at |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
Disclaimer: We believe that the information contained in this e-zine is true. If you do not wish to receive Smart Trainee please click here. |
|
|
|
||
|
|
|
|
|
|
Click here to contact us, if you are unable to view the content properly |
|
|
|
|
|
