Credit Availed On Outward Transportation Services Eligible When Freight Charges Are Included In Taxable Value: Himachal Pradesh High Court

The Himachal Pradesh High Court has held that credit availed on outward transportation services is eligible when the freight charges are included in the taxable value.

The bench of Chief Justice M.S. Ramachandra Rao and Justice Jyotsna Rewal Dua observed that the Tribunal was not justified in holding that the place of removal for the GTA services provided under the sale contract is the manufacturer's premises and not the place where the goods are sold. The Tribunal was not justified in holding that the GTA services in the present case are being received beyond the place of removal and therefore not covered within the definition of input service under Rule 2(1) of the CENVAT Credit Rules, 2004.

The appellant/assessee is a company incorporated and registered under the Companies Act, 1956, and is primarily engaged in the manufacturing of industrial gases such as liquid oxygen, liquid nitrogen, liquid medical oxygen, and liquid argon falling under Chapter 28 of the Central Excise Tariff Act, 1985.

For its operations, the appellant had entered into an agreement with the customers for the manufacture of various gases and the delivery of its products to their premises.

As per purchase orders placed by its customers with it, the transportation of the liquid gases from the factory premises of the appellant to the customer's premises is the appellant's responsibility. The purchase order reflects only one agreed value for the entire transaction, as the consideration payable by the customer is inclusive of transportation charges. The excise duty and VAT at appropriate rates are to be paid on the basic rate, transportation charges, and facility charges. The appellant is responsible for any loss in transit as it is the responsibility of the appellant to deliver the goods. Ownership is transferred only when the goods are delivered and accepted by customers.

The appellant contended that it is availing and utilizing the CENVAT credit of duty paid on inputs and capital goods as well as the credit of service tax paid on input services, including GTA services, in terms of Rule 3(1) read with Rule 3(4) of the CENVAT Credit Rules, 2004.

The audit officers conducted an audit of the financial records of the appellant, and during the course of scrutiny of the records of the appellant, they observed that the appellant has taken CENVAT Credit of Service tax paid by them on the outward freight for transporting the gases from the factory gate to the buyers' premises by treating the same as input services and felt that the appellant has wrongly availed CENVAT Credit of Service tax amounting to Rs. 6,90,027/- for the period from March 2011 to September 2012 and has utilized the same for payment of duty.

The appellant contended that since there is no dispute, in the instant case the sale of gases is on a F.O.R. contract basis, and since ownership and risk in transit remained with the seller till goods were accepted by the buyer on delivery, the seller alone remained the owner of the goods, retaining the right of disposal.

The court held that in an F.O.R. sale, which the appellant was doing in the instant case, freight charges form part of the assessable value, the ownership of goods remains with the seller till delivery at the customer's doorstep, the seller bears risk of loss or damage to the goods during transit to the destination, and property in the goods is not transferred till delivery. So outward transportation qualifies as 'input service' and is eligible for CENVAT credit.

Counsel For Petitioner: Gopal Krishan Mundhra

Counsel For Respondent: Prince Chauhan

Case Title: M/s INOX Air Products Pvt. Ltd. Versus The Assistant Commissioner Central Excise & Service Tax Division

Citation: 2024 LiveLaw (HP) 7

Case No.: CEA No.2 of 2019

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