In order to avail Cenvat credit on outward transportation, any service received up to ‘the place of removal’ should qualify as input service under the definition of ‘input service’ as defined in Rule 2(l) of the Cenvat Credit Rules, 2004 (the Credit Rules). Prior to July 11, 2014, the term, ‘place of removal’ was not specifically defined anywhere in the Credit Rules. Accordingly, the term was interpreted as per the definition provided under Section 4(3)(c) of the Central Excise Act, 1944 (the Excise Act).
However, effective from July 11 2014, the Credit Rules has been amended vide Notification No. 21/2014-CE (N.T.) dated July 11, 2014 (Effective from July 11, 2014) whereby a new sub-rule (qa) has been inserted in Rule 2 of the Credit Rules to introduce the definition of ‘place of removal’ as provided under Section 4(3)(c) of the Excise Act.
The meaning of the term ‘place of removal’ has been a litigated issue under the Central Excise Laws. The Central Board of Excise and Customs (“the Board”) issued two Circulars namely 37B Order No. 59/1/2003 dated March 3, 2003 and Master Circular No. 97/8/2007 dated August 23, 2007 (“the Master Circular”), which sought to suggest that the place where sale takes place is the ‘place of removal’.
Now, in view of the divergent instances that have come to notice of the Board, where on the basis of the claims of the manufacturer regarding freight charges or who bore the risk of insurance, the ‘place of removal’ was decided without ascertaining the place where transfer of property in goods has taken place, the Board vide Circular No. 988/12/2014-CX dated October 20, 2014 has clarified that the ‘place of removal’ needs to be ascertained in term of provisions of Excise Act 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’.
Our Comments:Despite the clarification of the Board vide the Master Circular clarifying ‘place of removal’ to be the customer’s premise when sales are made on Free on Road (“FOR”)destination basis, the Hon’ble CESTAT, Delhi, in the case of Ultratech Cement Ltd. Vs. Commissioner of C. Ex., Chandigarh [2013 (30) S.T.R. 220 (Tri. – Del.)], held contrary that where duty is chargeable at specific rates or at the value determined under Section 4A, and not at ad-valorem rates under Section 4 of the Excise Act, the definition of ‘place of removal’ as given under Section 4(3)(c) of the Excise Act would not be applicable and as such the ‘place of removal’ will be factory gate.
However, on appeal being filed to the Hon’ble High Court of Chhattisgarh, the Hon’ble High Courtin the case of Ultra Tech Cement Ltd. Vs. CCE, Raipur [2014-TIOL-1437-HC-CHHATTISGARH-CX.]clearly held that presumption by the Hon’ble Tribunal that ‘place of removal’ is factory gate of the manufacturer in case the Excise duty is charged on the specified rate is incorrect.
Following the aforesaid decision of the Hon’ble High Court of Chhattisgarh, the Hon’ble CESTAT, Delhi very recently in the case of Ultra Tech Cement Ltd. Vs. Commissioner of Central Excise and Service Tax, Rohtak [2014-TIOL-1934-CESTAT-DEL]has again held that Cenvat credit on outward transportation is allowed when the sales are made on FOR destination basis and place of removal would be customer’s premises.
(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)
Author Bio
Sale of goods act provides rules of presumption where the parties have not agreed for when the property in goods passes from the seller to the buyer. In other words it is the parties contract which prima facie determines the event and thus the place of transfer of property. The business agreements will have to be more specific and focussed on the issue to avoid controversies and litigation in future.
AP Agrawal, Advocate
Ex Lecturer Law
Ex Joint Secretary and Legal Adviser
Ministry of Law and Justice
and
Ex Member Sales Tax Tribunal Delhi