Whether Cenvat credit of ST can be availed for outward transportation of final product from place of removal to customers premises?

Case:- MADRAS CEMENTS LTD. Versus ADDITIONAL COMMR. OF C. EX., BANGALORE

Citation:- 2015 (40) S.T.R. 645 (Kar.)

Brief facts:- The dispute in the present appeal is with regard to the interpretation of “place removal” of goods for the purpose of input service under the Cenvat Credit Rules, 2004.
The appellant-assessee deals in the manufacture and sale of cement. According to the appellant, in the present case, sale of cement was made at the destination of the buyer and hence the appellant would be entitled to Cenvat credit on input service on transportation of the cement sold by the appellant-assessee. Initially, the period in dispute was from August, 2006 to October, 2007 and from November, 2007 to July, 2008. In view of the change in definition of input service provided in Rule 2(l) of the Cenvat Credit Rules, 2004 w.e.f. 1-4-2008 although the assessing authority as well as the first appellate authority had denied the benefit to the appellant for the entire period but the Tribunal granted the benefit of Cenvat credit to the appellant-assessee for the period upto 31-3-2008 but has denied the same from 1-4-2008 to 31-7-2008, which is the relevant period in question in this appeal.
They have heard Sri M.N. Shankare Gowda, learned counsel for the appellant as well as Sri C. Shashikantha, learned counsel for the respondents. With the consent of learned counsel for the parties, this appeal has been heard and is being disposed of at the admission stage. The question of law for determination in this appeal, as has been framed in the memorandum of appeal would arise for consideration and it reads as under :
“Whether the Tribunal was correct in disallowing Cenvat credit of service tax paid on the GTA service which is availed by the manufacturer on outward transport from the place of removal for the period after 31-3-2008 subsequent to the amendment of definition of “input service” under Rule 2(1)(ii) of Cenvat Credit Rules?”
The definition of “input service” as provided under Rule 2(l) of Cenvat Credit Rules, 2004, stood prior to 1-4-2008 is as under :
“(i) used by a provider of taxable service for providing an output service; or
(ii) used by the 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, ………………….”
After 1-4-2008, it stood amended as under :
“(i) used by a provider of taxable service for providing an output service; or
(ii) used by the 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, ………………..”
By the aforesaid amendment brought into effect from 1-4-2008 (vide Notification from the Ministry of Finance, Government of India, Department of Revenue dated 1-3-2008) in Clause (1) of Rule 2 the words “clearance of final products, upto the place of removal”, was substituted by “clearance of final products, from the place of removal”. Subsequent to the said amendment, by Notification dated 11-7-2014 issued by the Department of Revenue, Ministry of Finance, Government of India, the definition of “place of removal” was given by insertion of Rule 2(qa), which reads as under :
“(qa) ‘Place of removal’ means -
(i)         a factory or any other place or premises of production or manufacture of the excisable goods;
(ii)        a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty;
(iii)       a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory,
from where such goods are removed.”
After the said amendment came into force from 11-7-2014, a Circular was issued on 20-10-2014 the Department of Revenue, Ministry of Finance, Government of India (Central Board of Excise and Customs) which was to clarify the meaning of “place of removal” in the definition of input service. The relevant paragraph-6 of the circular dated 20-10-2014 is reproduced below :
“It is reiterated that the place of removal needs to be ascertained in term of provisions of Central Excise Act, 1944 read with provisions of the Sale of Goods Act, 1930. Payment of transport, inclusion of transport charges in value, payment of insurance or who bears the risk are not the relevant considerations to ascertain the place of removal. The place where sale has taken place or when the property in goods passes from the seller to the buyer is the relevant consideration to determine the place of removal.” (emphasis supplied)
The question of law which is required to be decided in this appeal has to be considered in the light of the aforesaid amendments and clarification issued.

Appellant’s contention:- The specific case of the appellant-assessee is that the sale of cement was completed only after delivery was made to the buyer. Invoices were produced and filed before the assessing officer, copies of which have also been placed before them for their perusal. In the said invoice, the price of cement has been calculated keeping in view that the same was to be delivered at the address of buyer and the price term clearly mentions as “FOR destination”. FOR herein stands for ‘Free On Road’, meaning thereby that the buyer need not pay for the transportation as the goods were to be supplied by the seller at the address of the buyer at cost of the seller.
The assessing officer as well as the appellate authority both has considered the invoices which were submitted before them. In his order, the assessing officer has recorded “that on perusal of the invoices it is found the Price Terms mentions as FOR destination” but has proceeded to record as under :
“I find that the assessee has not been able to establish the fact that:
(i) the ownership of the goods and the property in the goods remained with the seller of the goods till the delivery of the goods in acceptable condition to the purchaser at his doorstep;
(ii) the seller bore the risk of loss of or damage to the goods during transit to the destination;
since there is no documentary evidence to establish the fact of insurance coverage by the assessee.”
The sale was thus considered by the assessing officer to have been finalized at the factory gate and therefore the assessee was not found eligible for Service Tax credit availed by it on outward freight. No finding on merits with regard to such benefit being denied to the petitioner, was given by the Tribunal.

Respondent’s contention:- Sri C. Shashikantha, learned counsel for the respondents has submitted that he has received written instructions from the Commissioner of Central Excise and Service Tax, Bangalore, mentioning that in view of Rule 2(qa) of the Cenvat Credit Rules, 2004 and the clarification given in paragraph-6 of Board’s Circular dated 20-10-2014, the contention of the appellant-assessee should not be accepted and as such, assessee would not be entitled to Cenvat credit on outward transportation of goods on the ground that the place where sale has taken place or property in goods have passed from the seller to the buyer is the relevant consideration to determine the “place of removal”. In their view, the said instructions received by the learned counsel for the respondents are not based on sound reasoning. As they have already mentioned hereinabove, paragraph-6 of the Circular dated 20-10-2004, on which the respondents rely upon, would go in favour of the appellant-assessee and not the Revenue.

Reasoning of judgment:-Having heard learned counsel for the parties and considering the facts and circumstances of this case, they are of the considered view that as long as the sale of the goods is finalized at the destination, which is at the doorstep of the buyer, the change in definition of ‘input service’ which came into effect from 1-4-2008 would not make any difference. A perusal of invoices makes it clear that the goods were to be delivered and sale completed at the address of the buyer and no additional charge was levied by the assessee for such delivery. From these facts it is clear that the sale was completed only when the goods were received by the buyer. The Circular dated 20-10-2014 issued by the Central Board of Excise and Customs also, in paragraph-6 makes it clear that ‘payment of transport, inclusion of transport charges in value, payment of insurance or who bears the risk are not the relevant considerations to ascertain the place of removal.’
As per the said Circular, the place of removal has to be ascertained in terms of Central Excise Act, 1944 read with the provisions of the Sale of Goods Act, 1930 which has been dealt with in detail in the said Circular. According to the provisions of the Sale of Goods Act, 1930, the intention of the parties as to the time when the property in goods has to pass to the buyer is of material consideration. The record clearly shows that the intention of the parties was that the sale would be complete only after goods are delivered by the seller at the address of the buyer. The assessing officer as well as the appellate authority have held that the assessee would not be entitled to the benefit merely because no documentary evidence has been adduced to establish the fact of insurance coverage by the assessee. In their view, who pays for insurance or bears the risk of goods in transit would not be a material consideration. The same has also been made clear by the Central Board of Excise and Customs, Department of Revenue, Ministry of Finance, in its Circular dated 20-10-2014.
From the facts of the present case, it is clear from the invoices that title of the goods had passed on from seller to buyer only at the place of destination, which is the address of the buyer. As such, the buyer had no right over the goods till delivered to it. The Tribunal has not considered this aspect and has only relied on the amendment made to the definition of “input service” with effect from 1-4-2008 and rejected the claim of the appellant-assessee after that date. No further reason has been given by the Tribunal nor any finding has been recorded with regard to place of completion of sale of the goods.
Since they are of the opinion that the sale had concluded only after the delivery of the goods was made at the address of the buyer, in the facts of the present case the appellant-assessee would be entitled to the benefit of Cenvat credit on Service Tax paid on outward transportation of goods by the assessee even after 1-4-2008. The appellant-assessee would thus be entitled to such benefit for the period 1-4-2008 to 31-7-2008 which has been denied to it by the authorities below.
For the forgoing reasons, this appeal stands allowed. The question of law is answered in favour of the assessee and against the Revenue. The order of the Tribunal to the extent of disallowing Cenvat credit to the appellant for the period after 31-3-2008 is quashed.

Decision:- Appeal allowed.

Comment:- The analogy of the case is that As long as sale of goods is finalized at destination, which is at doorstep of buyer. Change in definition of “input service” which came into effect w.e.f. 1-4-2008 would not make any difference. Invoices shows that goods were to be delivered and sale completed at buyer’s address without levying any change by assessee for such delivery. Sale of goods completed only when buyer received the goods. Appellant’s records clearly shows that intention of parties was that sale would be complete only after goods delivered by seller at buyer’s address. Payment for insurance or bearing risk of goods in transit is not a material consideration. Sale of goods concluded only after delivery of goods made at buyer’s address, assessee entitled for benefit of Cenvat credit.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2960

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