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PJ-Case law-2012/13-1571

Outward freight credit admissible on satisfaction of three conditions prescribed by Board’s circular.

Case:-  POOJA FORGE LAB VERSUS COMMISSIONER OF CENTRAL EXCISE, FARIDABAD

Citation:-2013(30) S.T.R. 371 (Tri.-Del.)

Brief Facts:The appellant is engaged in the manufacturing of nuts and bolts, wire equipment etc. and they entered into FOR contract with their customer. As such, the transportation of the said goods is the responsibility of the appellant. They are undertaking the same, paying Service Tax on the said GTA services so availed by them and are taking credit of the same.
The dispute in the present appeal relates to the availment of credit of Service Tax so paid by the appellant on GTA services. Revenue by entertaining a view that with the amendment in the definition of inputs services with effect from 1-4-2008 replacing the expression “clearance from the place of removal” to the “clearance up to the place of removal”, the assessee is not entitled to avail the credit. Accordingly, proceedings were initiated culminating into passing of impugned order confirming denial of Cenvat credit and imposition of penalties.
It is seen that appellant took a categorical stand before the lower authorities that their sales are on FOR basis and as such place of removal is not their factory but gets extended to the buyers premises. In support of the above contention, they produced on record the purchase order as also the invoices. To  substantiate the above stand, they also produced on record Chartered Accountant’s certificate indicating that their said sales are on FOR basis and relied upon the Punjab and Haryana High Court decision in the case of Ambuja Cements Ltd. v. Union of India reported as [2009 (236) E.L.T. 431 (P & H)] where the Board’s Circular of 2007 was examined.
The appellant authority have examined the appellants case. And has in categorical terms accepted that the purchase orders were on FOR basis and as such place of delivery is the buyer premises. However, he has gone through and examined the Chartered Accountant’s certificate and has observed that inasmuch as the said certificate has not given details of the cost of raw materials, the cost or/and other pre-manufacturing and post-manufacturing expenses and other overhead expenses charges etc., same cannot be accepted.
 
Appellant’s Contention:- The Appellant contended before the lower authorities that they are entitled to the benefit of Cenvat credit of Service Tax Paid on the GTA services. Paras 5,12,13 and 14 of the said decisions of Punjab and Haryana High Court was reproduced as follows:-
“5. He has then argued that Board’s Circular No. 97/6/2007-S.T., dated 23-8-2007, which has been issued in pursuance to the order passed by the Tribunal has clarified the issue as to up to which stage a manufacturer or consigner take benefit of tax on goods sent by transport(“A”). He has drawn our attention to Para 8.2 of Board’s circular which lay down the requirement of fulfilling three conditions, namely,
(a)   The ownership of goods and the property of goods remained with seller of goods till delivery of goods in acceptable condition to the purchaser at his door step;
(b)  The seller bore the risk of loss of or damage to the goods during transit to the destination; and
(c)   The freight charges were an integral part of the price of goods.
Accordingly to learned counsel the property in the goods was never transferred to the purchaser and remained with the seller. i.e. assessee till the delivery of goods to purchaser at his door steps. He has also emphasized that the assessee had taken an insurance cover bearing the risk of loss or damages to the goods during transit to destination and that the freight charges were an integral part of the price of goods. Learned Counsel has maintained that the revenue is bound by the Circular issued by it. He has placed reliance on a judgment of Hon’ble the Supreme Court rendered in the case of Paper Products Ltd. v. Commissioner of Central Excise, 1999 (112) E.L.T. 765 (S.C.) = (1999) 7 SCC 84.  While concluding his submissions learned counsel has prayed that both the questions which have emerged from the order of the Tribunal deserved to be answered in favour of the assessee and against the revenue.
12. The ‘input service’ has been defined to mean any service used by the manufacturer whether directly or indirectly and also includes, inter alia, services used in relation to inward transportation of inputs or export goods and outward transportation up to the place of removal. It has also remain uncontroverted that for transportation purposes insurance cover has also been taken by appellant which further shows that the ownership of the goods and property in goods has not been transferred to the seller till the delivery of the goods in acceptable condition to the purchaser at his door step. Accordingly, even the second condition that the seller has to bear the risk of loss or damages to the goods during transit to the destination stand fulfilled.
13. The third condition that the freight charges were integral part of the excisable goods also stand fulfilled as the delivery of the goods of ‘FOR-destination’ price. This aspect has been specifically pointed in para 2.2 of reply dated 12-4-2006 given to show cause notice. Therefore, we are of the view that the first question is liable to be answered in favour of the assessee and against the revenue.
 14. Once the first question has been answered in favour of the assessee and against the revenue then it is evident that there is no contravention and violation of any of the provisions of law and the credit has been lawfully availed. Therefore, the allegation concerning not availing the service within the meaning of ‘input service’ and irregular availment of credit could not be sustained. Then the question of payment of interest does not arise and the answered to second question consequently would be against the revenue and in favour of the assessee.”

Respondent’s Contention:-The Respondent submitted that with the amendment in the definition of inputs services with effect from 1-4-2008 replacing the expression ‘clearance from the place of removal’ to “clearance up to place of removal”, the assessee is not entitled to avail the credit. Accordingly, denial of Cenvat credit and imposition of penalties should be upheld.
 
Reasoning of Judgment:-We have considered the submission from both the parties and perused the record, we find that no justifiable reasons to uphold the finding of the lower authorities. Admittedly, the Chartered Accountant’s certificate to the effect that sale is FOR basis and all expenses incurred upto the buyer premises form part of the cost of final product. Commissioner (Appeals) has also held in favour of the appellant, when he observed that the purchase orders are on FOR basis and it is appellant who has to bear the freight and insurance by arranging transportation of the goods. It is also not the Revenue’s case that anything more than what has been reflected in the invoices as the cost of goods sold, stands  recovered by the appellant from their buyers in the name of freight and insurance. If that be so, all the expenses incurred up to the buyers premises, which are also reflected in the invoices and adopted by the appellant as an assessable value, are required to be treated as part and parcel of the assessable value. We have also seen the invoices raised by the appellants indicating the cost of goods sold. There is no separate realization towards freight and insurances. It is also not the Revenue’s case that freight and insurance is being charged/collect by appellant separately. In these circumstances, in view of the decision of Hon’ble Punjab & Haryana High Court read with Board’s Circular it has to be held that appellants were the owners of the goods upto the place of delivery that is the buyer’s premises and as such the GTA service so availed by them, are to be treated as inputs services. If that be so, they are entitled to avail the credit of the same.
In view of the above, Tribunal set aside the impugned order and allow the appeal with consequential relief to the appellant.
 
Decision:- Appeal allowed with consequential relief.

Comment:-The substance of the case is that appellant has entered into “FOR contract” with their customers. They have paid the service tax on the GTA services and availed the credit on same only on fulfilling the following conditions:
(a)   Assessee is not transferred the ownership of goods and property of goods till the delivery of goods in acceptable condition to the purchaser at his door step;
(b)  The assessee has borne the risk of loss of or damage to the goods during transit to the destination; i.e. he is taken insurance on goods for protection of damages or loss.
(c)   The freight charges were an integral part of the price of goods. i.e. as delivery of goods is “FOR destination” price.
Thus, as all the aforementioned conditions were fulfilled by the assessee, they were entitled to avail the credit of service tax paid on GTA services availed. 

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