The Panorama of CENVAT Credit on Outward Transportation

March 26,2018
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Poonam Harjani, Partner, Nitya Tax Associates
Lalitendra Gulani, Senior Associate
Anshika Agarwal, Associate

Admissibility of credit on services used for clearance of final products beyond the factory premises has always been a litigious issue. In case of Free-on-Road (‘FOR’) sales, the cost incurred in supply of goods beyond the factory premises forms a part of the price of final product on which excise duty is discharged. Disallowance of credit in such circumstances leads to cascading of taxes and frustrates the underlying objective of Credit Rules. Recently, the Apex Court in CCE v. Ultratech Cement Limited [TS-19-SC-2018(Ultratech Cement) dealt with a similar situation. Before drawing an analysis of the above judgement, it is pertinent to briefly chart the background and the development of definition of term ‘input services’.

The Credit Rules entrust a manufacturer and a service provider with the right to avail cenvat credit of specified duties and taxes paid on inputs, capital goods and input services. The term ‘input service’ as defined under Rule 2(l) of the Credit Rules can be fragmentated into three parts, viz. (i) Means clause, (ii) Inclusive clause, and (iii) Exclusive clause. Noteworthy, the credit on services used for clearance of final products, outward transportation and storage is restricted by reference to place of removal. Prior to March 2008, while the Means clause allowed credit on services used for clearance of final products from the place of removal, the Inclusive clause restricted it to services used for outward transportation and storage upto the place of removal.

At this juncture, it is pertinent to note the use of expressions ‘from’ and ‘upto’. The Çoncise Oxford English Dictionary [Twelfth edition (2011), Oxford University Press, refer at page 750 and 1590] defines the term ‘from’ as ‘indicating the point at which a journey, process or action starts’ and the term ‘upto’ as ‘as far as’. Simply put, while the term ‘from’ denotes the starting point, the term ‘upto’ denotes the finishing point.


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