Cenvat Credit on Outward Freight Charges Upheld Where Delivery Obligation Rests on Supplier — CESTAT Kolkata

Case Overview

Star Battery Ltd. Vs Commissioner of Central Tax (CESTAT Kolkata)

CESTAT Kolkata has delivered a significant ruling in favour of a battery manufacturer who had availed Cenvat credit on Service Tax paid towards outward freight charges on goods supplied to BSNL. The Tribunal set aside the demand in its entirety — both on merits and on the ground of limitation — holding that the credit was legitimately available for the entire disputed period spanning April 2005 to December 2009.

Background and Facts of the Case

The assessee, engaged in the manufacture of batteries, regularly cleared its finished goods to BSNL. In the course of its business, it availed Cenvat credit on the Service Tax paid against outward freight charges incurred for transporting goods from its factory to the buyer's premises.

The department issued a Show Cause Notice dated 01.02.2010, covering the period from April 2005 to December 2009, on the basis that the assessee was not entitled to claim Cenvat credit on Service Tax paid in respect of outward transportation services.

The assessee contested the notice on two distinct grounds:

  1. On merits — that it was fully entitled to such credit under Rule 2(l) of the Cenvat Credit Rules, 2004, both before and after the amendment dated 01.04.2008.
  2. On limitation — that the extended period of limitation was inapplicable since all relevant details were available in the statutory returns and financial records already in the department's possession.

The lower authorities confirmed the demand, and the Commissioner (Appeals) dismissed the appeal solely on account of delay in filing. The assessee thereafter approached the Kolkata High Court, which granted liberty to file an appeal before the Tribunal subject to pre-deposit of 25% of the confirmed demand. Upon compliance with this condition, the matter came up before CESTAT Kolkata.

The Tribunal carefully examined the text of Rule 2(l) of the Cenvat Credit Rules, 2004 as it stood before and after the amendment of 01.04.2008.

Pre-Amendment Position (Till 31.03.2008)

"(i) used by a provider of [output service] for providing an output service; or
(ii) used by a 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."

Post-Amendment Position (From 01.04.2008)

"(i) used by a provider of [output service] for providing an output service; or
(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal."