Cenvat Credit on GTA

This query is : Resolved 

11 January 2008

Dear sir\madam,

we are manufacturing of a lamination core which is used as raw material for the manufacturing of the Transformers.

1)We sold material all over india and we paid the transport charges to the transporter.
2)the transport charges are not reimbursed by the party
3)Service tax on transport charges is paid by us

1) so please let me know whether we can get the cenvat credit of service tax paid on outward freight ?
2) we can transfer this credit to the ultimate consumer to whom it is a input service?
3)we have charged the serive tax as an expenses and non recoberable item?

please clarify the issue

Thanking you

11 January 2008

As per the provisions of Finance Act, 1994(Service tax act)and in the presence of limited facts of the case presented by you ,following are the replies of your raised queries[in the sequnce in which you have raised your query]:

1)Yes, you can claim the cenvat credit of service tax paid by you only if Consignment note prepared by GTA is in your name and you are one of the regulated entity as mentioned in rule 2(1)(d)(v) of Service Tax Rules.As per this rule Consignor or consignee who is paying freight will be liable to pay service tax, if consignor or consignee is any one of the following –

any factory registered under or governed by the Factories Act, 1948 (63 of 1948)

any company established by or under the Companies Act, 1956 (1 of 1956)

any corporation established by or under any law

any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India

any co-operative society established by or under any law

any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder

any body corporate established, or a partnership firm registered, by or under any law

2)No,you cann't transfer the credit of the service tax actualy paid by you because it will amount to claiming of credit twice of the same service tax-one when GTA raised the bill on you and another when you will raise it on your buyer.
Also it has been clarified under department vide para 5.7 of its circular No. 341/18/2004-ST dated 17-12-2004,‘If service tax due on transportation of a consignment has been paid or is payable by a person liable to pay service tax, service tax should not be charged for the same amount from any other person, to avoid double taxation’.

3)There is no need to book the service tax paid by you as an expense since you can claim the credit of the same provided certain conditions are fullfilled.(as mentioned in Reply-1)

I think above replies would solve your queries.

Sathish k (Expert)
12 January 2008

According to Rule (3)1 of CENVAT credit Rules, 2004, a manufacturer or producer of final products or a provider of taxable service is allowed to tke CENVAT Credit of excise duties and ED there on and also of service tax and ED there on :-
(i) any input or capital gods received in the factory manufacture of final product or premises of the provider of output service ; and
(ii) any input service received by the manufacturer of final product or by the provider of output services.

Clause 1 of rule 2 of said rules defines "INPUT SERVICE" as under :

a. used by a provider of taxable service for providing an output service or
b. 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 revenue authorities relying on the wording used in the second part of the definition of INPUT SERVICE viz. outward transportation upto the place of removal have been restricting the CENVAT Credit of service tax aid on goods transport agency's service used in outward transport upto the place of removal only.

ii) CCE v NHK SPRINGS LTD. 2007(7) STR 63 (CESTAT-Del)

In this case, the tribunal observed that post-sale transport of manufactured goods is not an input in manufacture.
"The expression `outward transportation upto the place of removal', delineates the extent to which input service in respect of transportation could be claimed.

CBEC's clarification in Master Circular no. 97/8/2007 dt. 23-08-2007 has clearifies that a manufacturer/consignor can take credit on the service tax paid on outward transport of goods upto the place of removal and not beyond that.

sameer (Querist)
14 January 2008

Dear sir,

Thank you very much for your reply

But one thing i am still confused is as per decision of Gujarat Ambuja Cemments Ltd vs CCE 2007 (6) STR 249 (tri- del)
the place of removable whether inculdes the place of removable of consignee or consignor.i.e in our case we supply the manufactured goods which is used for manufaturing of transformers and we transport the material to the locations of our party and pay the freight and the billing of the freight is also done in our name by the transporter directly. so whether the final place of removale is at our fatory or at factory to whom we have supllied.

please clarify the same


Dayal (Expert)
13 February 2008

Dear Sameer,

If you go by the pure wording stating in the master circular, I am sure you will agree that in your case service tax is payable by you and credit is not admissible.

For you the finished goods is the goods manufactured by you. Though it may form as an input to the receiver, it is an output for you.

Kindly revisit the circular and should you need further clarification do let me know.

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