Cenvat Credit--Service Tax paid on Outward Freight

Hi Divya,

This issue is certainly is a hot potato! I am of course assuming you're taking about GTA services availed in respect of Outward Freight. Because there is no doubt about the Service tax paid on Inward Freight being eligible for cenvat credit. This entire discussion revolves around the interpretation of the expression "place of removal" appearing in Rule 2(l)(ii) of the Cenvat Credit Rules 2004. Rule 2(l)(ii) defining `Input Service" stands thus as on date:[(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]"Place of removal" is defined in the Central Excise Act 1944 as follows:["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."]The Board has dealt with the issue of cenvat credit on outward freight in its Circular No 97/8/2007-ST dated 23rd Aug 2007. It has quoted from the judgements of Gujarat Ambuja Cements Ltd. v. CCE [2007] 8 STT 122 (Delhi - CESTAT.) and Ultratech Cements Ltd. v. CCE Bhavnagar 2007-TOIL-429- CESTAT-AHM in that circular. In these judgements the Tribunals had held that freight incurred towards post-sale transportation of goods is not an input service for the manufacturer/ consignor. The Circular upheld these judgements and assessees stopped claiming cenvat credit on ST paid on outward freight. But doubts still lingered, since there were conflicting judgements of the Tribunals. What the government has now done is amend the definition of "Input service" u/s 2(l)(ii) of the Cenvat Credit Rules. 1st April 2008 onwards, Section 2(l)(ii) will stand as follows:[(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products UPTO the place of removal]So "from" will make way for "upto" on the dawn of the new financial year. This has presumably been done to dispel any doubts about the non-availability of cenvat credit on ST paid on outward freight. If you're dispatching your goods to a depot or a warehouse from where they'll be sold out to customers, then you will be able to take cenvat credit on ST paid on GTA services. But when your place of manufacture itself is the place of removal, then you can forget about cenvat credit. This certainly is the line of thinking of the government. But this substitution of "from" with "upto" seems too cosmetic and shallow to clear the air on this issue even after 1st April 2008. The para succeeding the two sub-clauses of clause L still begins with the word "includes" and then goes to list various services some of which aren't even remotely connected with the manufacturing of goods. I don't know of any manufacturer/ consignor who is claiming cenvat credit on ST on Outward Freight. A few adventurous ones are claiming it and being denied. Thanks,

CA Sanjeev Bedi

--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, divya jaiswani wrote:>> Sir> > Further to that, considering the budget notifications issued by cbec can we take credit of service tax paid on GTA (paid @ 12 %) in netting of our liability of service tax payable of output service provided by us.> > Regards> Divya