Rebate of duty - Determination of Assessable value - Inclusion of Post removal expenses from factory gate to Port

PJ/Case Study/2011-12/29

CASE STUDY

Prepared By:
CA Pradeep Jain
Sukhvinder Kaur LLB [FYIC]

Introduction:-

In case of export of goods on payment of duty, the benefit of rebate of duty paid on the finished goods is granted to the exporter under Rule 18 of the Central Excise Act, 1944. The assessable value is to be determined for calculation of duty will include the costs upto the place of removal. As to what will constitute the place of removal has been defined under Section 4 of the Central Excise Act, 1944. In case the place of removal is the factory gate, the charges incurred upto the factory gate are to be included. However, in case the place of removal is beyond the factory gate i.e. upto the port of export then whether the post removal charges incurred from factory gate to port of export will be included in the assessable value. In the case under study the rebate claims were sanctioned under CIF basis and not on the FOB basis. Whether the rebate of duty will be allowable on the post removal charges is the issued raised in this case study.

Commissioner of Central Excise, Jaipur-II v/s M/s Dinesh Enterprises (U-II) and Others, Jodhpur
[Order-in-Revision No. 1225-1226/11-CX, Dated: 14.09.2011]

Relevant provisions:-

- Definition of “Place of Removal” in Section 4 of the Central Excise Act, 1944: -

“(c) "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.

Brief Facts:-

- Respondent-assessee are exporters of goods and had filed rebate claims in respect of central excise duty paid on goods exported vide various AREs-1 in terms of Rule 18 of the Central Excise Rules, 2002.

- The refund claims were sanctioned to the respondents. Against the Order-in-Original granting refund claims, appeal before the Commissioner (Appeal). The contention raised by the Department is that the claims were erroneously sanctioned to the assessee without deducting from FOB value of all post removal expenses incurred factory gates onwards like transportation charges from ICD to port of export, CHA charges, terminal handling charges, etc. It was alleged that the Adjudicating Authority erred in sanctioning the rebate claim in cash without ascertaining the correct value under Section 4 of the Central Excise Act.

- The Commissioner (Appeal) rejected the appeals and held that value for the purpose of export shall be the transaction value and should conform to Section 4 or Section 4A, as the case may be of the Central Excise Act, 1944. The Commissioner (Appeal) rejected the department contention that Section 4 value in case of export shall be FOB value less post removal expenses from factory gate to port of export. That inc ase of export, the place of removal is not factory gate but the place where the delivery of the consignment is given to the buyer and property in the form of goods is passed on to the buyer. It was held that in case of export, port was the place of removal.

- Department preferred revision of the impugned orders under Section 35EE of Central Excise Act, 1944 granting rebate before the Central Government.

Department’s Contention:-

- Department contended that the learned Commissioner erred in rejecting their contention that Section 4 value in case of export shall be value at the factory gate and hence it will be and FOB value less post removal expenses from factory gate to port of export.

- Reference was made to the definition of ‘place of removal’ as per Section 4 of the Central Excise Act, 1944 and it was submitted that a perusal of the said definition, it is seen that in the case of export the place of removal is factory gate only and thus the expenses incurred after removal of goods from the factory gate do not constitute part of assessable value and such expenses are required to be deducted from the FOB value for the purpose of arriving at the assessable value under Section 4 for the purpose of rebate therefore, the finding of the Commissioner (Appeal) that in case of export, the place of removal is not factory gate but the place where the delivery of the consignment is given to the buyer and properly in the form of goods is passed on to the buyers are not correct.

- As per Rule 2 (1) and 3 of the CCR, 2004, Cenvat credit has been allowed upto the place of removal. Following the same, Hon’ble Tribunal in the case of Nirma Ltd v/s CCE, Bhavnagar [2009 (13) STR 64 (Tri-Ahmd)] held that CHA service in respect of export are not having nexus with manufacture and clearances from factory and such services rendered in port are not covered under input service. Findings of the Tribunal also support the view that place of removal is factory gate in case of export.

- Since Cenvat credit is not allowed on services incurred factory gate onwards, Government of India has issued Notification No. 41/2007-ST dated 06.10.2007, which allows refund of service tax paid on such post removal services like services provider for transport of goods from factory to ICD, inland container depot to the port of export etc which also make it evident that in the case of export the place of removal is factory gate only.

- The respondents were required to pay duty on export clearance only on the transaction value & were accordingly eligible of rebate in cash only to that extent and the additional duty paid by them can be refunded only as Cenvat credit from where it was paid. Government of India vide Order No. 589-593 dated 29.11.2005 in the case of M/s National Tools (Exports), Jodhpur and Order No. 536-582/2005 dated 24.11.2005 in case of M/s Banswara Syntex Ltd, Banswara have allowed the Department Revision Application, which also makes it evident that the place of removal in export cases is factory gate.

- Sanction of rebate claims in cash to the extent that include the amount which represents the amount of duty paid on all the expenditures incurred by the assessee, from factory gate onwards, is improper as these charges were required to be deducted from FOB value to arrive at assessable value under Section 4 of the Central Excise Act, 1944, for the purpose of rebate claim.

- It appears that the Commissioner (Appeals) has erred in rejecting the departmental contention that Section 4 value in case of export shall be FOB value less post removal expenses from factory gate to port of export. The findings of Commissioner (A) do not seems to be correct because as per provisions of Section 4 of the Central Excise Act, 1944 it is amply clear that factory gate is the place of removal in the export also.

Assessee’s Contentions:-

Assessee made following submissions before the Reversionary Authority: -

- Place of Removal: It was submitted that the impugned revision application is contending that the place of removal in case of exports is the factory gate as provided in the clause (i) to Section 4 of the Central Excise Act, 1944. In this regard, relying on provisions of Section 4 it was submitted that the analysis of the definition makes it clear that the clause (i) is the general clause which says normally the factory will be the place of removal. However, clause (iii) states or any other place or premises from where the excisable goods are to be sold after their clearance from the factory, i.e., in the case where the actual sale take place after clearance of the goods from the factory, place of removal will be that place. In other words, place of removal will be the place of actual sale, where the risks and rewards pertaining to the goods are transferred to the buyer. As such, in case of exports where the sale is at FOR basis, property in the goods is transferred to the buyer at port of export only. In other words, till port, all the risks related to goods are borne by the seller/exporter only.

It is further submitted that Section 5 of the Central Sales Tax Act also clarifies that in the case of export and import the sale or purchase of goods shall be deemed to take place in the following manner:-

“when is a sale or purchase of goods said to take place in the course of import or export- (A) a sale or purchase of goods shall be deemed to take place in the course of export of the goods out of the territory of India only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have crossed the Customs frontiers of India.”

This means, in respect of export goods, place of removal is the place where the documents are presented to the Customs officers for export and not the factory gate. This view has been taken in the case of M/S Kuntal Granite Ltd. v/s Commissioner of C. Excise, Bangalore [2007 (215) E.L.T 515 (Tri. Bang)]. As such, in view of above clause in the definition of place of removal, the port will be the place of removal in case of export.

- Assessee placed reliance on the judgment given by the Hon’ble Bangalore Tribunal in the case of M/s Maini Precision Products Pvt Ltd [2010-TIOL-163-CESTAT-BANG] wherein it was held as under:

Central Excise – Rebate/Refund – Duty paid on CIF value of export consignments instead of FOB value, eligible for rebate – Rebate sanctioning authority should not examine the correctness of assessment but should examine only admissibility of rebate of duty paid on goods covered by the claim – No reason to interfere with lower authority’s order.

It is submitted that in the afore-cited case, the reasoning followed by the Tribunal was that if an assessee has discharges the duty liability on the value which is higher than the value and if the said assessment is not challenged by the revenue on the duty paying documents subsequently in an appeal whereby rebate has been sanctioned, the assessment cannot be called on for the correctness. In this regard, the Tribunal had relied upon the Circular No. 510/06/2000-CX dated 3.02.2000 of the Board wherein it was clarified that the rebate sanctioning authority should not examine the correctness of assessment but should examine only the admissibility of rebate of the duty paid on goods covered by a claim.

- It is submitted that the Hon’ble Tribunal had accepted the reasoning of the Commissioner (Appeal) that admissibility of rebate claim cannot be examined without first examining the correctness of assessment. It was held that in the case of CCE, Delhi v/s M. F. Rings and Bearing races Ltd [2009 (119) ELT 239 (T)] that in a situation similar to the impugned case, it was held that exporter having paid duty on amounts falling outside the purview of Section 4 of CEA, 1944, there is no justification on the part of the department to appropriate the said excess amount paid by the exporter.

Accordingly, it was submitted that the facts of the afore-mentioned case are the same as in their case and the benefit of the said case should be extended to them. It is submitted that the post-removal expenditure included in the assessable value the rebate of which was claimed by the assessee cannot be retained by the Revenue as the said amount was received outside the purview of Section 4 of CEA, 1944. Therefore, the rebate claim sanctioned to the assessee was justified and could not be denied to them.

- Assessee further submitted that the learned Commissioner while filing the revision application has taken the mechanical interpretation of the definition of place of removal given in Section 4 ibid. Since the interpretation taken by the Commissioner defeats the purpose of inclusion of phrase – “or any other place or premises from where the excisable goods are to be sold after their clearance from the factory”, as such this interpretation is not justified in the light of decision of hon’ble Supreme Court in the case of British Airways PLC vs Union of India [2002 (139) ELT 6 (S.C.)]. In this case it was held that:-

“8.While interpreting a statute the court should try to sustain its validity and give such meaning to the provisions which advance the object sought to be achieved by the enactment. The court cannot approach the enactment with a view to pick holes or to search for defects of drafting which make its working impossible. It is a cardinal principle of construction of a statute that effort should be made in construing the different provisions so that each provision will have its play and in the event of any conflict a harmonious construction should be given. The well-known principle of harmonious construction is that effect shall be given to all the provisions and for that any provision of the statute should be construed with reference to the other provisions so as to make it workable. A particular provision cannot be picked up and interpreted to defeat another provision made in that behalf under the statute. It is the duty of the court to make such construction of a statute which shall suppress the mischief and advance the remedy. While interpreting a statute the courts are required to keep in mind the consequences which are likely to flow upon the intended interpretation.”

An analysis of this decision makes it clear that the various provisions of an enactment should be so interpreted that every provision is effective and if there is any conflict, the harmonious interpretation should be given effect. Similar decision has been given by larger bench of Mumbai Tribunal in the case of CCE, Mumbai-V Vs M/s GTC Industries Ltd [2008-TIOL-1634-CESTAT-MUM-LB.]. The verdicts of hon’ble Tribunal are produced as follows:-

“It is well settled that every clause of the Statute should be construed with reference to the context in which it is issued. A bare mechanical interpretation of words and application of legislative intent is devoid of concept and purpose will reduce most of the remedial and beneficial legislations to futility. To be literal in meaning is to see the skin and miss the soul.

The legislature never wastes its words or says anything in vain and a construction which attributes redundancy to legislation will not be accepted, as has been observed by the Supreme Court in the case of Union of India vs. Hansoli Devi 2002 7 SCC 273”

In appellant’s case also, if the interpretation taken by learned Commissioner is accepted, then there would be no use of including the phrase “or any other place or premises from where the excisable goods are to be sold after their clearance from the factory” in the definition of place of removal; as they can take factory gate as place of removal for every situation which is not specifically provided. Therefore, extending the ratio of above show cause notice, the impugned revision application should be quashed and the order in appeal should be kept intact.

- It was further submitted that the learned Commissioner in his revision application is alleging that under Rule 2(l) and 3 of the Cenvat Credit Rules, 2004; Cenvat Credit has been allowed upto the place of removal and in case of Nirma Ltd. vs CCE Bhavnagar, credit has been denied on CHA services in respect of export. While deciding this case, it was held that these services do not have any nexus with manufacture and clearance of goods from factory and as such are not covered in the definition of input services. In this regard, it is submitted that the definition of input services as given in Rule 2(l) of the Cenvat Credit Rules, 2004 is a inclusive definition and it covers a no. of services that have no nexus with manufacture and clearance of final products. This fact is further illuminated by the recent decision of Larger bench of Bangalore Tribunal wherein the credit in respect of outward transportation of goods has been allowed. This decision is given in the case of ABB LTD Vs CCE & ST, Bangalore [2009-TIOL-830-CESTAT-BANG-LB]. Whileallowing the credit it has been held that the definition of input services is very wide and it includes a no. of services in its ambit even covering services like advertising, market and research. As such, decision of Nirma Ltd. is not sustainable in the light of decision of Larger Bench wherein credit has been allowed in respect of outward transportation. It is further held in the following cases that the port is the place of removal in the case of export:-

Ø                   CCE, Ahmedabad Vs M/s ADF Foods Ltd [2009-TIOL-1363-CESTAT-AHM]:-

“Service Tax - Port is the place of removal in case of exports on FOB basis - Even LB in ABB Ltd & Ors 2009-TIOL-830-CESTAT-BANG-LB allowed credit of service tax paid on outward transportation even from factory gate - No merit in revenue appeal - Appellate Commissioner's order allowing refund of service tax upheld: AHMEDABAD CESTAT;”

Ø                   M/s Rawmin Mining and Industries Ltd Vs CCE, Bhavnagar-I [2008-TIOL-1997-CESTAT-AHM]:-

“Service Tax - refund of service tax credit under Rule 5 of the CENVAT Credit Rules 2004 - C&F agent service is eligible for credit as place of removal in case of FOB exports has to be treated as the port - The rejection of claim cannot travel beyond the scope of the show cause notice - whether appellants have taken cenvat credit correctly or not should have been raised either by issue of show cause notice or taking that as one of the grounds for rejecting the claim: AHMEDABAD CESTAT;”

Ø                   CCE, Rajkot vs. M/s Rolex Rings Pvt. Ltd. [2008-TIOL-383-CESTAT-AHM]:-

“ST – Cenvat Credit – CHA service is covered in the definition of input service as the manufacturer continues to remain the owner of the goods in question till the same are exported – Revenue’s appeal rejected”.

In this regard, the assessee submits that in the case of Srikrishna Ultramarine & Chemicals Ltd v/s Commissioner of Central Excise, Chennai [2010-TIOL-1709-CESTAT-MAD] it was held that

Central Excise – Valuation – Demand of duty on goods cleared through consignment agent – No merit in the submission of the appellant that the factory gate price is available and the same has to be adopted – As per the amended Section 4 of the Central Excise Act, 1994, place of removal includes the premises of a consignment agent –Demand upheld.

It is further submitted that in the case of Commissioner, C Excise, Ahmedabad v/s M/s ADF Foods Ltd [2009-TIOL-1363-CESTA-AHM] it was held that:

Service Tax – Port is the place of removal in case of exports on FOB basis – Even LB in ABB Ltd & Ors 2009-TIOL-830-CESTAT-BANG-LB allowed credit of service tax paid on outward transportation even from factory gate – No merit in revenue appeal – Appellate Commissioner’s order allowing refund of service tax upheld.

Similarly, in the case of CCE, Rajkot v/s M/s Adani Pharmachem Pvt Ltd & Ors [2008-TIOL-2584-CESTAT-AHM] it has been held that

Cenvat credit on CHA Service admissible as Input Service, when export has been made on FOB basis or CIF basis in view of the fact that “place of removal” is Port in such case – The definition of the term “place of removal” given at Section 4 of the CEA, 1944, it is necessary to consider as to exactly which is the place of removal before allowing benefit of Cenvat credit – CBEC Circular No. 97/8/2007-ST dated 23.08.2007 clarifying that credit of service tax paid on transportation upto such place of sale would be admissible.

The analysis of these decisions makes it ample clear that the hon’ble Tribunals are of the view that the place of removal in case of export is the port and in the light of these decisions the impugned revision application is not justified and is liable to be quashed. The Order in Appeal should be upheld.

- Assessee submitted that the revision application filed by the Commissioner is giving reference of Notification no. 41/2007-ST dated 6.10.07 which allows refund of service tax paid on post removal services like transport of goods from factory to ICD, ICD to port of export, etc. In this regard, it is submitted that this Notification is being issued by the government in order to provide one more incentive to the exporters. There is nothing prescribed in this notification which says that this notification is a substitute of the Cenvat Credit. It is further submitted that there is a condition prescribed in the notification that must be fulfilled for availing benefit under this notification. This condition no. (d) to this notification states that no CENVAT credit of service tax paid on the specified services used for export of said goods has been taken under the CENVAT Credit Rules, 2004. If the Cenvat Credit was not allowed at all on these specified services, there was no need of inserting this condition in the notification. The insertion of this condition in the notification itself makes it clear that Cenvat Credit may be taken in respect of the services specified in the notification, however, in order to avoid the double benefit, this condition is being inserted in the notification and option has been left over to the exporter whether he intends to claim Cenvat Credit under the provisions of Cenvat Credit Rules, 2004 or refund of service tax under the provisions of Notification no. 41/2007-ST dated 6.10.07. This fact is further clarified by the case laws cited hereinabove in para 4 which allows Cenvat Credit of outward transportation, C & F Agent and CHA services which are related to export of goods and are duly covered in the list of Services specified in Notification no. 41/2007-ST dated 6.10.07. As such, contention of learned Commissioner is not legally sustainable and is liable to be quashed. The Order in Appeal should be upheld.

- Assessee further submit that the learned Commissioner is alleging in Para 4 of the revision application that the duty paid by them is not correct. In this regard it is submitted that the verification of assessment of duty is done by the Central Excise officers before the goods are removed for export. At that time, no objection is raised and when the assessee comes for claiming the rebate, the amount of rebate is reduced by saying that the assessment is not proper. Since the assessment is approved by the department, the same office cannot take different stand later on. It has been clarified by CBEC in their supplementary instructions that the Central Excise officer has to verify the identity of the goods and the assessment of duty at the time of removal of goods for export. There are two procedures for clearance of goods for export. It can be under self sealing or it can be under examination and sealing by the Central Excise officer. In both the cases the assessment of duty is finalized and approved by the Central Excise Officer. The relevant para no. 4.5 of Chapter 8 of the Supplementary instructions given by the Board clarifies this in case of Sealing of goods and examination by the Central Excise Officer. This para is produced as follows for your ready reference:-

“The Superintendent or Inspector of Central Excise, as the case may be, willverify the identity of goods mentioned in the application and the particulars of the duty paid or payable. If he finds that the declaration in ARE.1 and the invoices are correct from the point of view of identity of goods and its assessment to duty, and that the exporter has recorded the duty payable in Daily Stock Account, he shall seal each package or the container ensuring that the goods cannot be tampered with after the examination. Normally, individual packages should be sealed by using wire and lead seals and an all-sides-closed container by using numbered one time Lock/Bottle seals or in such other manner as may be specified by the commissioner of Central Excise by a special or general written order.

Thereafter, the said officer shall endorse and sign each copy of application in token of having such examination done and such examination report must accompany the export goods to the port/airport of export.”

Similar explanation has been given by the Board in case of Dispatch of Goods by self sealing and self certification by the exporter. It has been given at para 6.3 of the Supplementary instructions by the Board and is produced as follows:-

“ The said Superintendent and Inspector of CentralExcise shall verify the particulars of assessment, the correctness of the amount of duty paid or duty payable, its entry in the Daily Stock Account maintained under rule 10 of the said Rules (the manufacturer or warehouse owner will be required to present proof in this regards), corresponding invoice issued under Rule 11. If he is satisfied with this particular, he will endorse the relevant A.R.E. 1 and append their signatures at specified places in token of having done the verification. In case of any discrepancy, he will take up the matter with the assessee for rectification and also inform the jurisdictional Deputy/ Assistant Commissioner. Once verification is complete and the A.R.E.1 is in order, he shall distribute the documents (A.R.E.1) in the following manner:…”

The analysis of the above two para makes it clear that in every export, before removal of the goods the particulars of the assessment and the correctness of the duty paid is verified by the Central excise officer. Since this assessment is not challenged by the department, it cannot be confronted later on at the time of claiming the rebate. This has been held in the case of Collector of Central Excise, Kanpur versus Flock (India) Pvt. Ltd. [2000 (120) E.L.T. 285 (S.C.)].In this case it was held that where any assessment is finalized by any Central Excise officer and that assessment is not challenged by the Revenue, later on the refund/rebate cannot be challenged on the grounds that the assessment is not proper. The verdicts of Hon’ble Supreme Court are produced as follows for your ready reference:-

“Order - Appealable order - Finality - Non-challenge of an appealable order - Effect - Where an adjudicating authority has passed an order which is appealable under the statute and the party aggrieved did not choose to exercise the statutory right of filing an appeal it is not open to the party to question the correctness of the order of the adjudicating authority subsequently by filing a claim for refund on the ground that the adjudicating authority had committed an error in passing his order - Sections 35, 35A and 35C of Central Excise Act, 1944 - Rules 11 and 173B of Central Excise Rules, 1944……”

The analysis of this decision makes it clear that this case is equally applicable in assessee’s case also. Since in the instant case also, the assessment is finalized by the Inspector/Superintendent of Central Excise and this assessment is not challenged by the Revenue, the same cannot be challenged now at the time of claiming rebate. Therefore, relying on the decision of the Hon’ble Apex Court, the impugned revision application filed by the Commissioner is not justified and is liable to be quashed. The order in appeal should be upheld.

- Assessee further submit that the F.O.B. value of the export goods is arrived at after considering all the post removal expenses. The Board has also clarified that the Cenvat Credit is allowed on the Outward freight (which is a post removal expense) if the sale has taken place at destination point. This has been clarified by the Board in Circular no. 97/08/2007 dated 23.08.07. The relevant para from this Circular is produced as follows:-

“……However, there may be situations where the manufacturer/consignor may claim that the sale has taken place at the destination point because in terms of the sale contract/agreement (i) the ownership of 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 door step; (ii) the seller bore the risk of loss of or damage to the goods during transit to the destination; and (iii) the freight charges were an integral part of the price of goods. In such cases, the credit of the service tax paid on the transportation up to such place of sale would be admissible if it can be established by the claimant of such credit that the sale and the transfer of property in goods (in terms of the definition as under Section 2 of the Central Excise Act, 1944 as also in terms of the provisions under the Sale of Goods Act, 1930) occurred at the said place.”

The analysis of above para makes it clear that even the Cenvat Credit is allowed if the exporter is able to prove that the sale has taken place at destination. Following the same analogy, there should not be any deduction of post removal expenses. The deduction of outward freight is accepted by the assessee only to avoid the conflicts and the same is not required as per above Circular. As such, the rebate claim sanctioned to assessee should be kept intact and the order in appeal should be upheld.

- It is further submitted that the impugned revision application is contending that the post removal expenses should be deducted from the F.O.B. value to arrive at the transaction value under Section 4 of the Central Excise Act, 1944. This allegation directly reflects that the department is of the view that the transaction value is always lower that the F.O.B. value whereas the supplementary instructions issued by the board say that the assessable value can be more or less than the FOB value of the goods. This clarification is given in Chapter 7 of the Supplementary Instructions issued by the CBEC. The relevant para 7.1 is produced as follows for the sake of convenience:-

“7.1      The exporter is required to prepare five copies of application in the form ARE-1. The form is specified in Annexure-14 to Notification no. 42/2001-Central Excise (N.T.) dated 26-6-2001 (See in Part 7). The goods shall be assessed to duty in the same manner as the goods for home consumption, though duty is not required to be paid considering the clearance is meant for export without payment of duty. The classification and rate of duty should be in terms of Central Excise Tariff Act, 1985 read with any exemption notification and/or the said Rules. The value shall be the “transaction value” and should conform to section 4 or section 4A, as the case may be, of the Central Excise Act, 1944. It is clarified that this value may be less than, equal to or more than the F.O.B. value indicated by the exporter on the Shipping Bill.”

The analysis of above makes it ample clear that the transaction value may be less than, equal to or more than the FOB value. However, the view taken in the impugned appeal is in contradiction to the instructions given by the Board. Such an appeal is not legally sustainable and is liable to be quashed and the rebate sanctioned to the assessee should be kept intact.

- Without prejudice to the submissions made hereinabove, alternatively Assessee submitted that though on the strength of the grounds mentioned here above, the rebate claim sanctioned to them is correct yet if the case is decided in favour of the Revenue, then the Cenvat Credit of the expenses deducted from the F.O.B. value should be allowed. It is submitted that in many of the decisions cited hereinabove, the post removal expenses paid upto the place of removal being port of export, the cenvat credit of the said goods has been allowed to the assessee. It is submitted that all the post removal expenses sought to be deducted from the rebate claim have been paid by the assessee out of their own account. Therefore, the cenvat credit of the same should be allowed to the assessees, in case the contention of the Revenue is accepted.

Reasoning of the Reversionary Authority:-

The Government held as under:

- The Government noted the relevant statutory provisions for determination of value of excisable goods i.e. Section 4(1) (a) of the Central Excise Act, 1944, definition of word of ‘Sale” in Section 2 (h) of the Central Excise Act, 1944, definition of Place of removal defined under Section 4 (3) (c) (i), (ii) (iii); Rule 5 of the Central Valuation (Determination of Price of Excisable Goods) Rules, 2000.

It was observed that from the perusal of above provisions, it is clear that the place of removal may be factory/warehouse, a depot, premise of a consignment agent or any other place of removal from where the excisable goods are to be sold for delivery at place of removal. The meaning of the word “any other place” read with definition of “sale”, cannot be construed to have meaning of any place outside geographical limits of India. The reason of such conclusion is that as per Section 1 of Central Excise Act, 1944, the Act is applicable within the territorial jurisdiction of whole of India and the said transaction value deals with value of excisable goods produced/manufactured within this country. Government observes that once the place of removal is decided within the geographical limit of the country, it cannot be beyond the port of loading of the export goods. Under such circumstances, the place of removal is the port of export where sale takes place.

- Further, CBEC vide it (Section) 37B order 59/1/2003-CX dated 03.03.2003 has clarified as under:

7.         "Assessable value" is to be determined at the "place of removal". Prior to 1.7.2000, "place of removal" [section 4 (4)(b)-sub clauses (i), (ii) and (iii)], was the factory gate, warehouse or the depot or any other premises from where the goods were to be sold. Though the definition of "place of removal" was amended with effect from 1.7.2000, the point of determination of the assessable value under section 4 remained substantially the same. Section 4 (3)(c)(i)[as on 1.7.2000] was identical to the earlier provision contained in section 4(4)(b)(i), section 4 (3)(c)(ii) was identical to the earlier provision in section 4(4)(b)(ii) and rule 7 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, took care of the situation covered by the earlier section 4(4)(b)(iii). In the Finance Bill, 2003 (clause 128), the definition "place of removal" is proposed to be restored, through amendment of section 4 to the position as it existed just prior to 1.7.2000.

8.         Thus, it would be essential in each case of removal of excisable goods to determine the point of "sale". As per the above two Apex Court decisions this will depend on the terms (or conditions of contract) of the sale. The ‘insurance’ of the goods during transit will, however, not be the sole consideration to decide the ownership or the point of sale of the goods.

- Government noted that department has not determined the place of removal as per the above mentioned statutory provisions. Therefore, Commissioner (Appeal) has rightly held that it is essential to first determine the place of removal and then decide as to what shall be the assessable value under Section 4. Government is in confirmity with the views of Commissioner (Appeals). Therefore, Government directed the Original Authority to determine the place of removal taking into account the above observation and decide the rebate claims accordingly. The principles of natural justice are infact required to be followed while deciding the case.

Decision of the Reversionary Authority:-

Revision applications disposed off accordingly.

Conclusion:-

The Central Government rightly held that the place of removal can be the beyond the factory gate and upto the port of export. And for deciding the issued with regard to assessable value of goods, the first and foremost issue to be determined is as to what will be the place of removal of finished goods and all the expenses till such place will be includible in the assessable value on which the duty is payable and the rebate of duty will be allowed accordingly on such value.

Normally, the department is allowing rebate claim till the factory gate and the duty paid in excess is allowed credit in Cenvat account. But this decision is landmark decision and the department has to change its approach. Let us hope that the department does so.

******

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