whether Cenvat credit available on the outward transportation of finished goods?

PJ/Case Law /2016-17/3365

Case-COMMISSIONER OF C. EX., DEHRADUN Versus FORACE POLYMERS PVT. LTD.

Citation-2016 (45) S.T.R. 198 (Tri. - Del.)
Issue-whether Cenvat credit available on the outward transportation of finished goods?
Brief Facts-The appeal was by Revenue against order dated 28-1-2016 of Commissioner (Appeals-I), Meerut. The respondents were engaged in the manufacture of Resin, Catalyst, thinner, varnish, etc., liable to Central Excise duty. The dispute was related to eligibility of the respondent for Cenvat credit of service tax paid on GTA services for outward transport of finished goods from the factory to the buyer’s premises. The Revenue denied the credit on conclusion of the proceedings initiated by show cause notice dated 2-5-2014. The order of the Original Authority was set aside by the ld. Commissioner (Appeals) by allowing the respondent’s appeal. The ld. Commissioner (Appeals) held that in terms of purchase order 100% payment for the finished goods will be made on receipt of goods; delivery was FOR destination basis and the insurance was also done by the respondent. There was clear evidence that the property of the goods passed on from the respondent to the buyer at buyer’s end only. He relied on the various decided cases on the subject.

Appellant’s Contention-The Revenue preferred this appeal mainly on the ground that the respondents were not eligible for such credit on the basis of Hon’ble Supreme Court’s decision in the case of Ispat Industries Ltd.- 2015 (10) LCX 8. It was the case of the Revenue that based on the definition of “place of removal” appearing under Section 4 of the Central Excise Act, 1944, outward transportation up to the “place of removal” can only be considered for credit. When the “place of removal” is factory gate, there could be no credit on transportation of goods up to the buyer’s premises.

Respondent’s Contention-Ld. Counsel for the respondent countered the appeal by the Revenue stating that an attempt is being made to apply the interpretation of “place of removal” decided by the Hon’ble Supreme Court in Ispat Industries Ltd. (supra) for the purpose of denial of Cenvat credit to the respondent. He submitted that the amended definition of “input services” under Rule 2(l) of Cenvat Credit Rules, 2004 clearly stipulates that outward transportation up to the “place of removal” is eligible for credit. In the respondent’s case, it is an admitted fact that the goods were cleared on FOR basis and the money consideration is paid only on the delivery of goods to the buyers and up to such delivery, the risk of the goods is with the respondent. He further submitted the various documents including the purchase order from the buyers and invoice to reiterate that the sale in effect is happening only upon delivery of the goods in the buyer’s premises. The impugned order by the Commissioner (Appeals) is legally correct and there was no ground to interfere with the same.

Reasoning Of Judgement:-In the impugned order, the Commissioner (Appeals) concluded as below:-
“I find that the Hon’ble High Court of Karnataka has affirmed the decision of the Larger Bench of the Tribunal in the case of ABB Ltd. & Ors. v. CCE, Bangalore - 2009 (15)S.T.R.23 (Tribunal-LB). In Para 32 of the decision, the Hon’ble High Court has also made reference to the above decision of the Hon’ble High Court of Punjab & Haryana in the case of M/s. Ambuja Cement v. Union of India reported in 2009 (236)E.L.T.431 (P&H). A careful study of these judgments read with C.B.E. & C. Circular No. 97/6/2007-S.T., dated 23-8-2007 and Circular No. 988/12/2014-CX, dated 20-10-2014 clarifying the impugned issue, reveals that the Cenvat credit in respect of the service tax paid on the outward transportation of the goods up to the place of removal in cases of supply of goods on F.O.R. basis is available. In a recent judgment by Hon’ble High Court of Andhra Pradesh in the case of CCE & Cus., Hyderabad-III v. Grey Gold Cements Ltd. [2014 (34)S.T.R.809 (A.P.), the Hon’ble Court concurred with the view of the CESTAT (Bangalore) [2009 (15)S.T.R.23 (Tribunal-LB)] wherein the latter relied on a judgment in the case of All India Federation of Tax Practitioners v. Union of India [2007 (7)S.T.R.625 (S.C.)] wherein Hon’ble Supreme Court observed that service tax and excise duty are consumption taxes to be borne by the consumer and therefore, if credit is denied on transportation service the levy of service tax on transportation will become a tax on business rather than being a consumption tax. Hon’ble High Court also agreed with the Tribunal’s view in order dated 18-5-2009 wherein the Hon’ble Tribunal has held that the submission of the Revenue that the Cenvat credit cannot be allowed for service if the value thereof does not form part of the value subjected to excise duty runs counter to the fundamental concept of service tax laid down in All India Federation of Tax Practitioners’s case (supra).
Applying the ratio of the judgments as discussed, hereinabove, I hold that the Cenvat credit of the service tax paid in respect of outward transportation of the goods up to the customer’s premises on F.O.R. basis is available to the appellant. Once there is no demand, question of interest and penalty does not arise.”
The main thrust in the Revenue’s appeal is the finding of the Hon’ble Supreme Court in Ispat Industries Ltd. (supra) regarding “place of removal”. The Hon’ble Supreme Court was examining the question of valuation of excisable goods with reference to inclusion or otherwise, the freight charges from the factory gate to the buyer’s premises. In the said case, admittedly, the goods were sold ex factory. The Revenue intended to include the freight element in the assessable value. The Hon’ble Supreme Court, after examining, the relevant provisions under Section 4 as existing during the periods 28-9-1996 to 1-7-2000 and from 1-7-2000 to 31-3-2003 held that under no circumstances, can buyer’s premises be the “place of removal” for the purpose of Section 4 on the facts of the present case. As is evident from the analysis and conclusion of the Hon’ble Supreme Court the matter under examination was clearly valuation of excisable goods with specific reference to the transport charges from the factory. The issue involved in the present appeal is availability of Cenvat credit on the outward transportation of finished goods. Admittedly, during the relevant period, there was no definition of “place of removal” under Cenvat Credit Rules, 2004. The definition available under Section 4 has been taken to interpret the same for credit purposes. Here, in the present case, the respondent was clearly selling their goods on the basis of purchase order, which clearly stipulated that 100% payment will be only on receipt of goods delivered at the premises of the buyer. Up to that the Insurance and Transport of the goods is at the vendor’s cost. In these factual circumstances, the respondent had undertaken the transportation and the value of such transportation was apparently included for the purpose of discharging Central Excise duty on the finished goods.The freight was integral part of the value in the present case had been admitted by the Original Authority. Such being the case, it was not open to Revenue to rely on the decision of the Hon’ble Supreme Court as stated above to hold that the respondent are not eligible for Cenvat credit on freight element though admittedly, such freight forms part of the assessable value. Such assertion will result in self-contradiction.
The Tribunal found that a very same issue in respect of the same respondent had been a subject matter of decision by the Tribunal in Final Order No. 51918/2016, dated 24-5-2016. The Tribunal, after examining the various decided cases on the subject, held that the respondent were eligible for Cenvat credit on such outward tranportation.
Considering the above discussion, it was found that the impugned order does not require any interference and accordingly, the appeal by the Revenue was rejected.

Decision-Appeal rejected.
Comment-This case revolves around the Cenvat Credit of GTA services for outward transportation of goods wherein place of removal is buyer’s place. This issue has been in the litigation from long time now having contradictory decision of various tribunals and High Courts. In the case in hand it was held that the Landmark decision of Supreme court Ispat Industries Ltd.- 2015 (10) LCX 8relates to prior period and as the goods were delivered on F.O.R. basis, the property in goods did not pass on to the buyer till delivery, and the fright was integral part of assessable value, the credit of outward freight was admissible to assessee.

Prepared By - Praniti Lalwani

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PJ/Case Law /2016-17/3365

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