Cenvat credit on freight

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N.Roopashree

Articled Assisstant

25 Points Joined May 2012

My client is a manufacturing concern, they pay service tax on freight to the vendor, but they dont claim cenvat credit with respect to this service tax citing that freight is not related to production.There are 2 cases where freight is charged from the customer and the other where there is no freight in invoice. Can cenvat credit be claimed by this company ???

Replies (4)

Vikas

1135 Points Joined January 2010

You need to refer to definition of ‘input service’ for understanding the eligibility of Cenvat credit on a service.

Outward transportation of goods till the place of removal is available as Cenvat credit, provided the same is used in or in relation to manufacture of final product.

In the instant case, it is not clear as to why the transportation is not relation to manufacturing activity of the entity. Secondly, it is again not clear as to whether such transportation is inward or outward. Thirdly, what is being transported is not clear from the above.

I suggest, you go through the definition and decide accordingly, based on the facts.

N.Roopashree

Articled Assisstant

25 Points Joined May 2012

Hi, Thank you for the reply. To be clear the transport is used for delivery of FG to buyers and hence its outward. From the points highlighted by you, I think this particular freight expense is related to delivery of FG and not manufacturing activity. Hence, it comes under Selling and distribution expenses. Therefore, I think Cenvat credit on this expense cannot be claimed. Is my understanding right.

shubham shukla

ACCOUNTS MANAGER

173 Points Joined June 2013

It is the law of the country that a tax payer, who can avail the Cenvat credit on the inputs, Capital goods and input services which are used in the manufacturing processes. The Legislature of our country has given wider benefit to the tax payers to take credit on the manufacturing processes.

According to the Cenvat Credit Rules, 2004, the manufacturer has to first satisfy the following conditions:

i) That only the inputs/ capital goods, input services are eligible for Cenvat Credit;

ii) The above inputs/ capital goods, input services should be utilized/used in or in relation to the manufacture either directly or indirectly.

At the outset, let us examine the definition of the “Input Services” as per Rule 2(l) of Cenvat Credit Rules, 2004. The relevant rule reads as follows:

“Rule 2(l) - “Input Services” 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 up to the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and qualitative 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.

In conclusion, a manufacturer/consignor can take credit on the service tax paid on outward transport of goods up to the place of removal and not beyond that.

Regards,

Shubham