Cenvat credit on GTA services when goods cleared on FOR basis

Sanghi Industries Ltd. Vs CCE (CESTAT Ahmedabad)

CESTAT Ahmedabad allows CENVAT credit on GTA services for doorstep delivery, distinguishing from Ultratech judgment. Relying on Circulars, benefit extended during the relevant period.

CESTAT Ahmedabad has held that Cenvat credit was available on GTA services for delivering goods to buyer’s doorstep, in a case involving both MRP and non-MRP sales. Period involved was after 1-4-2008. The Tribunal observed that goods were cleared on FOR basis and freight/damages in transit was responsibility of assessee. Supreme Court judgement in Ultratech was distinguished noting that it did not consider Point of Sale or FOR price issue. CBIC Circulars dated 22-12-2014 and 23- 8-2007, as in force during relevant time, were relied upon.

Till the goods are handed over to the buyer, the cost is borne by the assessee or in other words where the goods are cleared on FOR basis the freight paid on outward transportation would qualify as “Input Service”

As regard the issue raised by the appellant that the excise duty paid on the element of freight being more than the element of cenvat credit on the outward GTA, therefore, there should not be any demand. We find force in the argument of the appellant however, since we are deciding the issue on merit, the admissibility of the Cenvat Credit on outward GTA on the basis of provision under Cenvat Credit Rules itself, we need not to deal this aspect hence, the issue related to this fact left open. As regard the submission made by Ld. Counsel that they have been operating as per the guideline given in the Circular dated 22.12.2014 and 23.08.2007 which was operative at the relevant time, therefore, even though the same were withdrawn w.e.f. 08.06.2018, but at the relevant time the benefit of said Circular shall be available. We find force in the argument of the Ld. Counsel as the law on this issue has been settled time and again by the Hon’ble Supreme Court as per the judgment cited by the Ld. Counsel and on various other judgments that beneficial Circular cannot be withdrawn retrospectively. Consequently, the benefit of the said Circulars shall be available to the appellant during the material period of this case.

FULL TEXT OF THE CESTAT JUDGEMENT

The present appeals have been filed by M/s Sanghi Industries Ltd. against Order-in-original No. KCH-EXCUS-000-COM-028 to 030-2016- 17 dt. 31.03.2017 passed by the Commissioner, Central Excise & Service Tax, Audit – I, Ahmedabad and Order-in-Original No. RAJ­EXCUS-OOO-COM-27 to 40-14-15 dt. 13.11.2014 passed by the Commissioner, Rajkot.

1.1 The brief facts leading to the dispute that the appellant are engaged in manufacture of cement which is sold on MRP Basis as well as non MRP basis. They are making MRP based sale to Dealers/ Stockist etc., in case of which MRP is mentioned on bags and Non MRP sale is made to users e.g. Industrial consumers and institutional customers in case of which no MRP is mentioned on bags. The cement is directly dispatched to the customers from the factory or to the Depot and they are availing services of Goods Transport Agency for transportation of cement. The appellant were issued show cause notices for the period April’2008 to December’ 2008, Jan’2009 to August’2013, June’2014 to Jan’2015 and February’2015 to September 2015 proposing to deny cenvat credit availed on service tax paid on outward transportation of service tax. The demand was confirmed by the adjudicating authorities holding that the credit on GTA service is available as input service only up to place of removal after 01.04.2008 in terms of Rule 2 (l) of Cenvat Credit Rules, 2004. He held that in terms of Section 4 (3) (c) of the Central Excise Act. ‘place of removal’ means factory or any other place or premises of production or manufacture of the excisable goods; warehouse or any other place or premises wherein the excisable goods have been permitted to be stored without payment of duty; 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”. That as per Board’s circular Nos. 37B order No. 59/1/2003 dt. 03.03.2003 and no. 97/8/2007 dt. 23.08.2007 the place where the sale takes place, is the place of removal. Further CBEC vide Circular No. 988/12/2014 –CX dt. 20.10.2014 has stated that the place where the sales take place is the place where the transfer in property of goods takes place from seller to buyer. He held that the Appellant has not produced any evidence showing the details such as name of depot/ dumpyard, quantity/ value of goods sent to their depots/ dumpyard and credit involved therein. For being eligible to avail credit one has to establish that the conditions of Board Circular of 98/7/2007 – ST dt. 23.08.2007 has been satisfied. That the Appellant has not produced evidence to this effect and hence the credit is not available to the Appellant. The adjudicating authority confirmed the demands. Being aggrieved the Appellant has filed the present appeal.

2. Shri Jigar Shah, Ld. Counsel appearing for the Appellant submits that they have cleared the goods on MRP basis to their Dealers! Stockist by making valuation under Section 4A. That in case of clearance to institutional consumers the Valuation under section 4 was adopted. In both the cases the goods are cleared on FOR basis and all the expenses upto delivery of goods including damage to the goods and transportation uptill the buyers doorstep is borne by the Appellants. The price charged to the customer is inclusive of freight and insurance charges. Hence the credit of service tax paid on freight amount is available to them. He also takes us through the invoices issued to this effect showing that no freight over and above invoice value is charged from the customers. In case of clearances of goods to the industrial and institutional consumers the valuation was made under Section 4 of the Act and the goods were cleared on FOR basis. He also submits that the contracts for sale clearly states that the freight has to be borne by the Appellants. He submits that the adjudicating authority has merely held that appellants would be eligible for credit of service tax paid on transportation of goods from factory to dump yard! depot (if that was the place of removal) but the Appellant has not produced any evidences showing the details as name of depot, quality, value of goods sent to their depots and credit involved therein. He submits that the findings of the adjudicating authority are cryptic as the demand calculation sheets to the show cause notice itself states that the goods were sent to dumpyards! depots and other buyers premises. That the same is absolutely clear from the excise invoice cum gate pass and hence the contention of the adjudicating authority is wrong. He also invited our attention to the copies of gate passes cum excise invoices on which clearances were made to depots/ stockists as well as institutional consumers. He also invites our attention to certificate issued by the Chartered/ Cost Accountant certifying that the goods were cleared on FOR basis and the freight charges are part of assessable value. He also relies upon the Board Circular No. 1065/4/2018- CX dt. 08.06.2018 wherein the CBEC has viewed that the “place of removal” is required to be determined with reference to “point of sale”. That in the present case since the liability of freight and damages to goods uptill doorstep of buyers is of Appellant, the point of sale is when the ownership of the goods changed hands i.e doorstep of buyers. In case of Appellant, he has also produced copy of OIO dt. 16.11.2016 pertaining to subsequent period wherein the adjudicating authority has held that the contracts are on FOR basis and hence credit has been allowed. He alternatively submits that the Cenvat Credit availed by the appellant on the outward transport charges cannot be recovered as the appellants have already discharged higher duty amount on the said services, since, the service charges was included in the assessable value of the final product cleared on payment of duty. He submits that if the Revenue is of the opinion that the factory gate is the place of removal in the said case the outward transportation charges is also not includible in the assessable value of the final product and consequently the same will not suffer excise duty. The excise duty so paid on the element of outward freight charges is much more than the Cenvat Credit availed on the outward GTA for the obvious reason that the Cenvat Credit on the outward transportation is only on the abated value of 25% whereas the entire 100% transportation was included in the assessable value of the final product. Therefore, for this reason the recovery on account of Cenvat Credit cannot be made. In this regard, he prepared a calculation and submitted in their written submissions which shows that the excise duty on the element of freight charges is much more than the element of Cenvat Credit availed of GTA. In this support, he placed reliance on judgment in the case of CCE Vs. Telco Limited-2016 (196) ELT 308 (T). As regard, withdrawal of the Circular dated 22.12.2014 and relevant para of Circular dated 23.08.2007 the same cannot have the retrospective effect for the reason that the Hon’ble Supreme Court in the case of Suchitra Vs. CCE -2007 (208) ELT 321(SC) held that beneficial Circular to be applied retrospectively while oppressive Circular applicable prospectively.

2.1 He further submits that the demand is hit by limitation as there is no suppression of fact on the part of the appellant. The issue of admissibility of Cenvat Credit on outward GTA involved matter of grave litigation in various judgments at various judicial forums, therefore, it cannot be said that the appellant suppressed any fact. Shri Jigar Shah Ld. Counsel also relied upon following judgments:

• CCE vs Ispat Industries Ltd. 2015 (324) ELT 670 (SC)
• CCE vs Vasavadatta Cement 2018 (11) GSTL 3 (SC)
• 2018 (9) GSTL 337 (SC) CCE vs Ultratech Cement Ltd.
• 2013 (294) ELT 203 CCE vs Ajinkya Enterprises
• 2009 (235) ELT 785 (Guj) CCE vs Creative Enterprises affirmed by Hon’ble Supreme Court 2009 (243) ELT A-120 (SC)
• 2015 (37) STR 364 (T) Ultratech Cement Ltd. vs Commr.
• 2015 (319) ELT 221 (SC) CCE vs Roofit Industries
• 1995 (77) ELT 424 (T)-Pioma Industries Ltd.
• 2014 (35) STR 645 (Chhattisgarh) Lafrage India Ltd.
• 2010 (19) STR 340 (Tri. Del.) L G Electronics (India) P. Ltd.
• 2018 (5) TMI 1454-CESTAT Mumbai
• JSW Steel Ltd. 2018 (4) TMI 660 CESTAT Mumbai

3. On the other hand, Shri. Jeetesh Nagori Ld. Addl. Commissioner (AR) appearing for revenue submits that the Hon’ble Apex Court in the case of CCE Vs. Ultratech Cement Ltd. 2018 (9) GSTL 337 (SC) has held that the cenvat credit on GTA Services availed for transport from place of removal to buyers premises is not admissible. He also reiterates the findings of the adjudicating authorities. Shri Nagori, Ld. AR also relied upon various following judgments:

• 2018 (9) GSTL 337 (SC) CCE vs Ultratech Cement Ltd.
• 2018 (13) GSTL J101 (SC) Ultratech Cement Ltd. vs Commr.
• 2018 TIOL 2226 CESTAT Del- Pee Cee Cosma Sope Ltd.
• 2018 TIOL 2810 CESTAT MAD- HCL Infosystems Ltd.
• 2018 TIOL 2943-CESTAT HYD-Cement Division Unit of Kesoram Industries Ltd.
• 2018 TIOL 1878 CESTAT MUM- Ved PMC Ltd.
• 2017 TIOL 3966 CESTAT DEL – Aksh Optifibre Ltd.
• 2017 TIOL 4358 CESTAT DEL- Lally Automobiles P. Ltd.
• 2008 (2310 ELT 22 (SC) CCE vs Ratan Melting & Wire Industries
• 2018 (14) GSTL 497 (SC) JK Lakshmi Cement Ltd.
• 2014 (35) STR 751 (Tri Del) Ultratech Cement Ltd.
• 2014 (36) STR 1128 (Tri. Del.) Hero Motocorp Ltd.
• 2015 (37) STR 567 (Tri. Del.) Kohinoor Biscuit Products
• 2015 (38) STR J124 (All.) Kohinoor Biscuit Products
• 2014 (35) STR 645 (Chhattisgarh) Lafrage India Ltd.
• 2010 (19) STR 340 (Tri. Del.) L G Electronics (India) P. Ltd.
• 2015 (3240 ELT 670 (SC) CCE vs Ispat Industries Ltd.
• 2018 TIOL 2223 HC MUM ST – Zee Entertainment Enterprises Ltd.
• 2009 (240) ELT 641 (SC) Maruti Suzuki Ltd.

4. Heard both the sides and perused the records of the case. We find that the Appellants are clearing their goods on MRP basis in case of clearance from their depot! stockists or to their customers and in case of sale to institutional consumers the goods are being cleared by them by applying valuation in terms of Section 4. The Appellant have annexed copies of excise invoice cum gate pass which shows that the prices are inclusive of freight and insurance and nothing extra has been charged. The goods are being cleared on FOR basis and all liabilities in respect of transportation of goods or damage to goods were on account of Appellants. They were liable for safe delivery of goods upto their customers’ doorstep. In such case when the sale of the goods is completed at the doorstep of the Customer or depot! stockist as the case may be the point of sale shall be such doorstep. We find that the Circular No. 1065/4/2018 – CX dt. 08.06.2018 issued by the CBEC in this context clarifies as under:

3. General Principle: As regards determination of ‘place of removal’, in general the principle laid by Hon’ble Supreme Court in the case of CCE vs Ispat Industries Ltd 2015 (324) ELT 670 (SC) may be applied. Apex Court, in this case has upheld the principle laid down in M/s Escorts JCB (Supra) to the extent that ‘place of removal’ is required to be determined with reference to ‘point of sale’ with the condition that place of removal (premises) is to be referred with reference to the premises of the manufacturer. The observation of Honb’le Court in para 16 in this regard is significant as reproduced below :

“16. It will thus be seen where the price at which goods are ordinarily sold by the assessee is different for different places of removal, then each such price shall be deemed to be normal value thereof. Sub-clause (b) (iii) is very important and makes it clear that a depot, the 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 are all places of removal. What is important to note is that each of the premises is referable only the manufacturer and not to the buyer of excisable goods. The depot or the premises of the consignment agent of the manufacturer are obviously places which are referable to the manufacturer. Even the expression “any other place of premises” refers only to a manufacturer’s place or premises because such place or premises is to be stated to be where excisable goods “are to be sold”. These are key words of the sub­section. The place or premises from where excisable goods are to be sold can only be manufacturer’s premises or premises referable to the manufacturer. If we were to accept contention of the revenue, then these words will have to be substituted by the words “have been sold” which would then possibly have reference to buyer’s premises. ”

4. Exceptions:

(i) The principle referred to in para 3 above would apply to all situations except where the contract for sale is FOR contract in the circumstances identical to the judgment in the case of CCE, Mumbai-III vs Emco Ltd 2015(322) ELT 394(SC) and CCE vs M/s Roo fit Industries Ltd 2015(319) ELT 221 (SC). To summarise, in the case of FOR destination sale such as M/s Emco Ltd and M/s Roo fit Industries where the ownership, risk in transit, remained with the seller till goods are accepted by buyer on delivery and till such time of delivery, seller alone remained the owner of goods retaining right of disposal, benefit has been extended by the Apex Court on the basis of facts of the cases.

5. We find that the Chartered! Cost Accountant has certified that the goods were sold on FOR basis by the Appellant and the freight! damages in transit was responsibility of Appellant till the goods reached the doorstep of the Customers. Also we find that the consignment notes were raised upon the Appellant and they did not charge any amount except price of the goods from the customers. Thus in the light of above circular we find that as the ownership of the goods remained with the Appellants till the goods reached to the customer’s doorstep and the freight charges as well as damage to the goods till destination were borne by the Appellants, hence they are eligible for the credit of service tax paid by them on outward freight. In case of CCE & CU Vs. Roofit Industries Ltd. 2015 (319) ELT 221 (SC) the Hon’ble Apex Court held as under :

12. The principle of law, thus, is crystal clear. It is to be seen as to whether as to at what point of time sale is effected namely whether it is on factory gate or at a later point of time, i.e., when the delivery of the goods is effected to the buyer at his premises. This aspect is to be seen in the light of provisions of the Sale of Goods Act by applying the same to the facts of each case to determine as to when the ownership in the goods is transferred from the seller to the buyer. The charges which are to be added have put up to the stage of the transfer of that ownership inasmuch as once the ownership in goods stands transferred to the buyer, any expenditure incurred thereafter has to be on buyer’s account and cannot be a component which would be included while ascertaining the valuation of the goods manufactured by the buyer. That is the plain meaning which has to be assigned to Section 4 read with Valuation Rules.

13. In the present case, we find that most of the orders placed with the respondent assessee were by the various Government authorities. One such order, i.e., order dated 24-6-1996 placed by Kerala Water Authority is on record. On going through the terms and conditions of the said order, it becomes clear that the goods were to be delivered at the place of the buyer and it is only at that place where the acceptance of supplies was to be effected. Price of the goods was inclusive of cost of material, Central Excise duty, loading, transportation, transit risk and unloading charges, etc. Even transit damage/breakage on the assessee account which would clearly imply that till the goods reach the destination, ownership in the goods remain with the supplier namely the assessee. As per the ‘terms of payment’ clause contained in the procurement order, 100% payment for the supplies was to be made by the purchaser after the receipt and verification of material. Thus, there was no money given earlier by the buyer to the assessee and the consideration was to pass on only after the receipt of the goods which was at the premises of the buyer. From the aforesaid, it would be manifest that the sale of goods did not take place at the factory gate of the assessee but at the place of the buyer on the delivery of the goods in question.

14. The clear intent of the aforesaid purchase order was to transfer the property in goods to the buyer at the premises of the buyer when the goods are delivered and by virtue of Section 19 of Sale of Goods Act, the property in goods was transferred at that time only. Section 19 reads as under :

“19. Property passed when intended to pass. – (1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.

(2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the

(3) Unless a different intention appears, the rules contained in Sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer.”

15. These are clear finding of facts on the aforesaid lines recorded by the Adjudicating Authority. However, the CESTAT did not take into consideration all these aspects and allowed the appeal of the assessee by merely referring to the judgment in the case of Escorts JCB Ltd. Obviously the exact principle laid down in the judgment has not been appreciated by the CESTAT.

16. As a result, order of the CESTAT is set aside and present appeal is allowed restoring the order passed by the Adjudicating Authority.

From the above judgment it is thus clear that till the goods are handed over to the buyer, the cost is borne by the assessee or in other words where the goods are cleared on FOR basis the freight paid on outward transportation would qualify as “Input Service”. As regard reliance placed upon by the revenue on the judgment of the Apex Court in case of Ultratech supra, we find that the Hon’ble Supreme Court was concerned only with the “place of removal” but did not go into the aspect of “Point of sale” or the FOR price destination issue. Hence the said judgment is not applicable in the facts of the present case.

6. As regards other judgments cited by rivals, though we have considered the same, but since, we have discussed above the most relevant apex court judgments, we need not to discuss each and every judgment.

7. As regard the issue raised by the appellant that the excise duty paid on the element of freight being more than the element of cenvat credit on the outward GTA, therefore, there should not be any demand. We find force in the argument of the appellant however, since we are deciding the issue on merit, the admissibility of the Cenvat Credit on outward GTA on the basis of provision under Cenvat Credit Rules itself, we need not to deal this aspect hence, the issue related to this fact left open. As regard the submission made by Ld. Counsel that they have been operating as per the guideline given in the Circular dated 22.12.20 14 and 23.08.2007 which was operative at the relevant time, therefore, even though the same were withdrawn w.e.f. 08.06.2018, but at the relevant time the benefit of said Circular shall be available. We find force in the argument of the Ld. Counsel as the law on this issue has been settled time and again by the Hon’ble Supreme Court as per the judgment cited by the Ld. Counsel and on various other judgments that beneficial Circular cannot be withdrawn retrospectively. Consequently, the benefit of the said Circulars shall be available to the appellant during the material period of this case. As regard limitation, we find that the issue was not free from doubt and right from introduction of Cenvat Scheme under Cenvat Credit Rules, the outward GTA was the matter under litigation and for that reason the Government has to come out with clarification thereafter the matter was subject to various litigation before Tribunal, Hon’ble High Courts and Hon’ble Supreme Court, therefore no malafide intention can be attributed to the appellant, therefore, wherever the demand is for extended period, the same will also not be sustainable on the ground of time bar also.

8. In view of our above findings we hold that the Appellants are eligible for the credit of service tax paid on outward freight. Accordingly, the impugned order is set aside. We allow the appeals with consequential reliefs, if any. MA(ORS) also stand disposed of.