Brief Facts of the Case
The appellant 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.
Initially, the period in dispute was from August 2006 to October2007 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 for the period upto 31.03.2008 but has denied the same from 01.04.2008 to 31.07.2008, which is the relevant period in question in this appeal.
Held by Hon’ble High Court of Karnataka
The Hon’ble High Court referred to the definition of “input service” as provided under Rule 2(l) of CENVAT Credit Rules, 2004, which stood prior to 01.04.2008 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 01.04.2008, 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 01.04.2008 (vide Notification from the Ministry of Finance, Government of India, Department of Revenue dated 01.03.2008) in Clause (l) 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 11.07.2014 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 11.07.2014, 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 specific case of the appellant is that the sale of cement was completed only after delivery was made to the buyer. The Hon’ble Court referred to the invoices submitted by the appellant. In the said invoices, 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 Hon’ble Court stated that as long as the sale of the goods is finalized at the destination, which is at the door step of the buyer, the change in definition of ‘input service’ which came into effect from 01.04.2008 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 has 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. The Hon’ble Court pointed out that, 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.
In view of 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.
Since 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 would be entitled to the benefit of CENVAT credit on Service Tax paid on outward transportation of goods by the assessee even after 01.04.2008. The appellant would thus be entitled to such benefit for the period 01.04.2008 to 31.07.2008 which has been denied to it by the authorities.
In view of the above the appeal is allowed.