Eligibility of credit on outward freight.

PJ/CASE LAW/2015-16/2791

Case:- NEW ALLENBERRY WORKS VERSUSCOMMISSIONER OF C. EX., NEW DELHI

Citation:-2015 (37) S.T.R. 303 (Tri. - Del.)

Brief facts:- All the appeals were being disposed of by a common order as the issue involved was the identical. The disputed issue involved was whetherCenvat credit of Service Tax can be taken for the outward freight for excisable goods delivered by the appellants at the premises of their buyer M/s. Mahindra and Mahindra. The period involved is November, 2009 to March, 2010.

Appellant’s contention:- The contention of the appellant was that they paid Excise duty on the value inclusive of freight and the contract was for supply of goods at destination on FOR destination basis. The issue had been decided against the appellants by the lower authorities for the reason that the appellants were not able to show that they had taken insurance for the goods during transportation from the factory to the premises of the buyer. The Counsel relied on the decision of Ambuja Cement v. CCE -2009 (236) E.L.T. 431(P&H) and points out that since the Excise duty was paid on value inclusive of freight, he should be allowed to take Cenvat credit. As the agreement with the buyer was to supply goods at the premises of the buyer, it was evident that the risk in the goods was with the appellant till delivery of the goods to buyer. The seller had the option to bear the risk either by taking insurance policy or incurring loss on account of damages if any. How the risk was born was actually a matter of business decision and that cannot be a reason for denying the Cenvat credit.

Respondent’s contention:-The respondent reiterated the findings of the lower adjudicating authority.

Reasoning of judgment:- After considering the submissions made by both the sides, the Tribunal found that the issue was no more res integra and stands covered by the decision of the Hon’ble Punjab & Haryana High Court in the case of M/s. Gujarat Ambuja Cement Ltd. referred supra. Where the place of delivery of the goods was the customer premises and the freight is borne by the manufacturer, the place of removal has to be held as the customer’s factory gate.

They further found that the Board had also clarified the issue vide Circular No. F/137/85/2007-CX-IV, dated 23-8-2007. Even after the amendment of the definition of “input services” with [effect from] 1-4-2008, replacing the words ‘from the place of removal’ to “up to the removal”, the place of removal got extended up to the buyers premises in case of FOR sales and as such the said amendment would not make any difference, where the sales are on FOR basis. The appellant had rightly contended that even in terms of Sale of Goods Act, 1932, goods were sold with the ownership and risk and transfer takes place on the point of delivery of the goods to the buyers. In the case of FOR destination sales, the ownership and risk was transferred when the seller manufacturer delivered the goods to the buyer at his premises. As such, they found no reasons to deny the Cenvat credit of Service Tax paid on the transportation of goods. Accordingly, the impugned order was set aside and appeal was allowed with consequential relief to the appellant.

Decision:-Appeal allowed.

Comment:- The substance of this case is that as held by Hon’ble Punjab & Haryana High Court in the case of M/s. Gujarat Ambuja Cement Ltd. where the place of delivery of the goods was the customer premises and the freight was borne by the manufacturer, the place of removal had to be the customer’s factory gate. Further in terms of Sale of Goods Act, 1932, goods were sold with the transfer of ownership and risk taking place on the point of delivery of the goods to the buyers. Therefore, in the case of FOR destination sales, the ownership and risk was transferred when the seller manufacturer delivers the goods to the buyer at his premises. Therefore the credit of outward freight was admissible.

{Prepared by:- Prayushi Jain}

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PJ/CASE LAW/2015-16/2791

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