CENVAT CREDIT ON ‘GTA’ SERVICES OF TRANSPORTING OF GOODS TO DESTINATION

[Mr. M. GOVINDARAJAN]

Modvat scheme was introduced with effect from 01.03.1996 under Rule 57A to 57J by which the modvat credit for the excise duty already paid on the input could be availed.   The Supreme Court in ‘Ichalkaranji Machine Centre Private Limited V. Collector of Central Excise, Pune’ – 2004 (12) TMI 88 - SUPREME COURT OF INDIA has explained the principles of Modvat credit which is basically a duty collecting procedure which aims at allowing relief to a manufacture on the duty element borne by him in respect of the inputs used by him.   It entitled a manufacturer to take instant credit of the central excise duty paid on the inputs used by him in the manufacture of the finished product, provided that the input and the finished product were excisable commodities and fell under any of the specified chapters in the tariff schedule.

In the year 2000 the Parliament provided a better and more comprehensive scheme renaming ‘modvat credit’ to CENVAT credit’.   Section 3 was amended and duty of excise was called as Central Value Added Tax or the CENVAT under Section 3(1)(a) of the Act.  The Central Government initially framed the CENVAT Credit Rules, in the year 2002 and thereafter, they were replaced by the CENVAT Credit Rules, 2004.   They follow the same principle as the modvat credit but are better and improved version of the two.  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 price of the goods or was included towards the price of goods and not otherwise.

Rule 2(l) defines the term ‘input service’ as any service used by manufacturer in relation to the manufacture of final products and clearance of final products from the place of removal.    The term ‘place of removal’ has not been defined in the CENVAT Credit Rules, 2004.   Rule 2(t) of the CENVAT Credit Rules provides that the words and expressions use din these rules and not defined, but defined in the Excise Act or the Finance Act shall have the meaning assigned to them in those Acts.

Section 4 of the Act is titled as ‘Valuation of excisable goods for purpose of charging of duty of excise. Though Section 4(3)(c) defines the word ‘place of removal’ for the purpose of that section, the Judicial authorities, in the absence of its meaning for other sections, it has been considered it would be applicable unless it is otherwise provided.  Section 4(3)(c) defines the term ‘place of removal’ as-

• a factory or any other place or premises of production or manufacture of the excisable goods;
• a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty,
• a depot, premises of a consignment agent or any other place or premises from where excisable goods are to be sold after their clearance from the factory

from where such goods are removed.

If under the terms of the contract, the sale takes place at the destination then that place may be the place of removal and service tax paid on the GTA service for transporting the goods up to destination might be availing to taking CENVAT credit. Vide Circular No. 97/8/2007-CX.4, dated 23.08.2007 in para 8.2. it has been indicated –“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

• 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 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.”

In ‘Lafarge India Limited V. Commissioner of Central Excise, Raipur’ – 2014 (10) TMI 297 - CHHATTISGARH HIGH COURT the assessee manufactures cement and clinker and it supplied the goods to different entities on freight on road basis during the relevant period.   The contention of the assessee that it continued to be the 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.  A show cause notice was issued to the assessee asking it to show cause as to why the CENVAT credit claimed on the service tax on the GTA service be not reversed.  The Assessing Officer did not accept the contention of the assessee and reversed the credit to the extent of ₹ 5,57,224, charged interest on the amount and imposed penalty of ₹ 10,000/-.  The Tribunal upheld the order but set aside the penalty.   Against this the assessee preferred appeal before the High Court.

The assessee put forth the following arguments before the High Court:

• The goods were booked on freight on road 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 up to destination is, an input service; and
• The Assessee is entitled to claim CENVAT credit for the same.

The Revenue put forth the following arguments before High Court:

• The goods were manufactured in the assessee’s factory and transported by the different GTAs to their destination.   It is an output service and the CENVAT credit cannot be taken for the same;
• In case ownership over the goods continued with the Assessee till the 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, the value of GTA service was not integral part of the price of the goods; and
• The CENVAT credit cannot be claimed.

The High Court held that 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.  Therefore the High Court held that there is no illegality of the order of the Tribunal.

The High Court also analyzed the circular dated 23.08.2007.  In case the sales takes place at the destination then the circular envisages three conditions, as discussed earlier, to be satisfied before credit can be claimed on the service tax for the GTA service for transporting the goods to the destination.  In this case the first two conditions are fulfilled.   In regard to the third condition it stipulates that the service tax paid on the transportation up to such place of sale would be admissible only if the assessee establishes that the freight charges were integral part of the price of the goods transported.  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 assessee.

The High Court finally concluded as follows:

• In case of sale at the place of destination, an assessee is only entitled to claim the CENVAT credit on service tax paid for the Goods Transportation Agency service provided amount paid was integral part of the price of the goods;
• In this case, the amount paid for the GTA service was not integral part of the price of the goods; and
• The assessee was not entitled to claim CENVAT credit of the service tax paid.

The case has no merits and the High Court dismissed the appeal filed by the assessee.