No Service Tax Credit on Outward Freight for manufacturers

 

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 ?”

 

(Source: Allindiantaxes)

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9 Comments

  1. NAVIN S. PATWA said,

    March 5, 2008 at 11:07 am

    this is not clear that srvice tax applicable or not

  2. Manoj Thirani said,

    May 22, 2008 at 3:00 pm

    Resp Sir,

    We are the manufacturer of our goods and our unit is exciseable unit .

    We are selling our finised goods to another state party and paying service tax @ 3.09% ( 25% of 12.36% ).
    Freight Expenses are directly paid by us and goods are also insured by transit policy,the premium of which paid by us.

    Our question is that : Can we take the credit of this service tax ? as our Unit is Exciseable Unit.

    Hope to receive a favourable reply from you.

    with regards

    Manoj Thirani
    Ahmedabad

  3. Amit said,

    June 2, 2008 at 12:09 pm

    In Freight Outward which amount is taxable
    Amount include in Invoice or Amount what is to be paid ?

  4. srinivas said,

    September 11, 2008 at 12:10 pm

    sir,
    the above description is not clear and it is not explaining whether we can take input tax credit on the service tax paid on outward fright and if it can be taken as credit then how much amt can be taken and tax paid till place of removal is given mean what is meant by place of removal

  5. Satyajeet Tripathi said,

    February 8, 2009 at 3:50 pm

    Any Service tax paind on the out ward transpoartation by the fanufacture should be cenvatable either he removes the goods from the factory to depo.or from factory to any other destination if all the risk covered by the manufacturer till the delivery of the goods.In this regards in my openioun the amount paid by the manufacturer is available for cenvat credit.
    .

    Satyajeet Tripathi.
    Dy.manager Indirect Tax.

  6. Satyajeet Tripathi Sawran said,

    February 8, 2009 at 3:59 pm

    Service tax paid on outward transpoartation by the manufacturer is alwaya cenvatable.It is necessary for the promotion of business.So CENVAT credit is must be allowed in any case.

  7. V.K. MARIAPPAN said,

    June 23, 2010 at 1:34 pm

    Dear Sir

    Can any one clarilfy whether we can avail Cenvat Credit of Service Tax paid by us towards Outward Freight?

    V.K.MARIAPPAN

  8. dalip Kumar said,

    October 13, 2011 at 3:55 pm

    we are manufecturer of Pesticides & we have depots at different state, we remove our final product to depot from our fectory as stock transfer on duty paid invoice. can we take cenvat credit on freight outward to depots.

  9. Dalip Kumar said,

    October 13, 2011 at 3:57 pm

    what is place of removal. fectory gate or depot


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