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CENVAT Credit of Service Tax paid on outward transport - Delivery of goods at buyer's premises - Credit is not admissible of freight charges as they are not integral part of price of goods: HC

By TIOL News Service

BILASPUR, OCT 01, 2014: THE Assessee manufactures cement and clinker and it supplied the goods to different entities on FOR basis during the relevant period. According to the Assessee, it continued to be owner of the goods till delivery and the sale of the goods took place at the destination.

The amount paid for the GTA-service was not included in the price of the goods; and it was not integral part of the price of the goods. It was separately paid but the Assessee claimed Cenvat credit on the service tax paid.

The demand of CENVAT Credit was upheld by the Tribunal. Hence the assessee is in appeal before the High Court. The period of dispute is January 2005 to October, 2007.

The assessee submitted that the as per the circular number 97/8/2007-ST dated 23.08.2007, they are eligible for credit as:

The goods were booked on freight on road (FOR) basis and the ownership of the Assessee continued till the place of destination.

In the facts and circumstances of the case, the GTA-service taken by the Assessee for transporting the goods upto destination is, an input service; and the Assessee is entitled to claim cenvat credit for the same.

On behalf of revenue, it was contended that - In case ownership over the goods continued with the Assessee till destination or it is an input service then the cenvat credit can only be claimed if the value of the service was added in the value of the goods or it was integral part of the price of the goods. In the present case, value of the GTA-service was not integral part of the price of the goods; and the cenvat credit cannot be claimed.

After hearing both sides, the High Court held:

Not Entitled for Credit

The fundamental principle of cenvat credit is to avoid double taxation i.e. cenvat credit may be taken only of those inputs, whose price was added in the price of the goods or was included towards the price of the goods and not otherwise. It is also clear from the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 (the Valuation Rules).

Rule 5 of the Valuation Rules provides that the value of the excisable goods shall be deemed to be transaction value excluding the cost of transportation from the place of removal upto the place of delivery of such excisable goods but, explanation-2 to Rule 5 of the Valuation Rules provides that in case of the cost of the transportation from the factory to the place of removal, where the factory is not the place of removal, shall not be excluded for the purposes of determining the value of the excisable goods.

In the present case, the Assessee has not treated the GTA-services of transporting goods to the destination as a part of the input service. In case it had so treated then it should have added this value in the price of the goods or in the valuation for calculating duty.

The Assessee has not included the amount paid for the GTA-service in the price of the goods. It has not chosen it to be a part of the price and as such, the Assessee was not entitled to claim Cenvat credit for the same. There is no illegality in the order of the Tribunal. This is also clear from the Circular .

Not Entitled Under the Circular As Well

In case the sale takes place at the destination, then the Circular envisages three conditions to be satisfied before cenvat credit can be claimed on the service tax for the GTA-service for transporting the goods to the destination:

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;

The seller bore the risk of loss of or damage to the goods during transit to the destination; and

The freight charges were an integral part of the price of goods.

In the present case, the Tribunal has recorded a finding that the freight charges were not the integral part of the price of the goods so the Circular does not support the submissions of the counsel for the Assessee.

Conclusion:

In case of sale at the place of destination, an assessee is only entitled to claim cenvat credit on service tax paid for the Goods Transportation Agency service provided amount paid was integral part of the price of the goods.

(See 2014-TIOL-1720-HC-CHHATTISGARH-CX)


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