It might be clich?d to say that certainty is one of the hallmarks of tax administration but nevertheless its importance cannot be under emphasised.
With increasingly difficult business environment, focus on tax finds increasing importance in the boardrooms, and with an active tax administration seeking to garner additional revenues, tax issues often make it to the headlines.
There is perhaps a sense of unease with what is becoming an increasing trend?judicial decisions over ruling the ?settled? principles laid down over a period of time. The uncertainty created by varying interpretations would lead to increase in litigation for issues which the companies may be dealing with basis other judicial precedents which is certainly not a desirable outcome.
In a recent decision in the case Commissioner of Central Excise Vs Vesuvious India Ltd, the Calcutta High Court held that outward transportation for clearance of goods from the factory to buyer?s premises will not qualify as an input service and therefore service tax paid for the same would not be eligible for claiming the Cenvat credit.
The High Court has taken cognisance of other decisions which were given by the Karnataka High Court in the case Commissioner of Central Excise vs ABB Ltd and Gujarat High Court in the case Commissioner of Central Excise vs Parth Poly Wooven Pvt Ltd?which were in favour of the assessee?but has taken a different view denying the benefit of Cenvat credit.
Before analysing the decision in detail, let us analyse the definition of ?input service? which is the subject matter of the dispute.
Rule 2(t) of Cenvat Credit Rules defines ?input service? and has two limbs??means? and ?includes?.
The ?means? portion of the definition covers any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of the final product and clearance of final product from the place of removal.
The above definition was amended on April 1, 2008, and now ?input service? would be any service used by the manufacturer for clearance of final products upto the place of removal. Thus, the word ?from? has been substituted by ?upto? in the definition.
The ?includes? portion of the definition specifies that output transportation upto the place of removal is also an ?input service? which remains unamended.
Section 4(3)(c) of the Central Excise Act defines place of removal as any factory, depot or any other place from where the excisable goods are sold.
In ABB Ltd?s decision, the Karnataka High Court held that prior to April 1, 2008, any service required for clearance of final product from the place of removal would qualify as an input service. It was argued that the definition of ?place of removal? as per Section 4(3) of Central Excise Act should be confined to the said section itself provided that the definitions given therein are only for the purposes of the said section. The High Court therefore accepted the contention that the meaning of ?place of removal? for the purposes of the definition of ?input service? must be construed as understood in common parlance.
While arriving at the above conclusion, the High Court had given due consideration to the fact that the legislature had amended the definition of ?input service? with effect from April 1, 2008, by substituting the word ?from? with ?upto? to restrict the activities undertaken by the manufacturer which can qualify as an ?input service?. Therefore, till the amendment to the ?input service? definition, transportation from the factory to the buyer?s premises will qualify as ?input service?.
The Gujarat High Court in Parth Poly?s decision also took a similar view that the transportation activity undertaken for delivering the goods from the seller?s premises to the destination point will qualify as an ?input service?.
The Calcutta High Court distinguished the above decisions and agreed with the arguments placed by the Counsel for the tax department. The Calcutta High Court took the view that the definition of ?input service? cannot be interpreted in a wide manner and meaning has to be restricted to transportation undertaken before the excisable goods reach the place of removal or for movement of excisable goods from one place of removal to another place of removal.
While departing from the views taken by the other High Courts, unfortunately no specific reasoning has been given to distinguish the interpretation done by other High Courts.
The Calcutta High Court further went on to decide that the amendment made to the definition of ?input service? of substituting the word ?from? with ?upto? is only for the purpose of clarification which also is contrary to the decisions by the other High Courts. One can therefore infer that the Court intended to imply that the amendment will have retrospective application.
While matters of law can always be susceptible to varying interpretations, it is the unsettling of the settled judicial precedents, without appropriate justifications which should be avoided.
The author is partner, indirect tax, KPMG in India
