Rishi Chanan, B.A., LL.B, Advocate
The divisions falling under Central Excise Commissionerate, Ludhiana (Punjab) has started issuing show cause notices to the exporters who are claiming refund claim under Para 3 of Notification No. 41/2012 ST dated 29.06.2012 in respect of services utilized used in the export of excisable goods. The said notification provides refund of service tax paid on specified services used in exports of goods beyond place of removal.
The department is alleging that in case of export transaction where FOB price is the consideration the goods have to be delivered on the vessel which means the place of delivery is the port of shipment. Therefore, the services availed upto that point would become service availed upto the place of removal and not service availed beyond place of removal. As per Section 4(3)(c)(iii) stipulates the “any other place or premises from where excisable goods are to be sold after their clearance from the factory” assumes importance in the instant case. Hence, the services availed by the assessee are upto place of removal (i.e port of export) and not beyond the place of removal and refund not admissible.
The pleas taken by the exporters are that the prices charged by them are ex-factory. The place of removal is factory gate since the transaction of sale, payment of price and handling over possession of the goods to the carrier after clearance is at the factory and falls under the Section 4(3)(c)(i) of the Central Excise Act, 1944 which reads as under:
(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;
The reading of above Section clearly stipulates that place of removal is the factory gate in the case of excisable goods manufactured. Mere fact that transportation has been arranged by the seller does not mean it has changed the place of removal. It is emphasis that a place from goods is sold and an invoice issued is the place of removal & not the place where the property in goods delivers from buyer to seller. The goods are removed for sale from the factory of manufacture or place of production so the ‘place of removal’ in the instant case has to be the factory gate.
Also, in terms of Section 23(2) of the Sale of Goods Act which stated that ‘where, in pursuance of the contract the seller delivers the goods to the buyer or to a carrier or other bailee (whether named by the buyer or not) for the purpose of transmission to the buyer and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract.’ The sale is completed on delivery of goods and documents to the transporter. Therefore, in terms of this section, the goods are deemed to have been delivered to the customer when the goods were handed over to the transporter. Even in terms of Section 2(b) of the Central Excise Act, the transfer of the possession of goods by one person to another in the ordinary course of trade or business in cash or deferred payment and other valuable consideration is deemed to be sale and purchase.
The goods handed over to carrier/transporter are as good as delivery to the buyer in terms of Section 39 of the Sale of Goods Act, apart from the terms and conditions of sale.
The possession of the sold goods is handed over to the buyer at the factory gate. The transaction is full and complete and nothing remains to be done after the goods leave the factory premises. It is stated that place of removal depends upon circumstance of each and particular case. It varies from case to case.
The Hon’ble Supreme Court in the case of CCE vs. M/s Accurate Meters – 2009(235) ELT 581 (SC) has held that delivery to transporter is prima facie is delivery of goods, though the freight has been arranged by the seller.
The Hon’ble Supreme Court in the case of Escorts JCB Ltd. Vs CCE- 2002 (146) ELT 31(SC) has held that as per Section 39 of the Sale of Goods Act, delivery of goods to carrier is delivery to buyer. The ownership in the property has not any relevance in so far as insurance and freight of goods sold during the sale is concerned. It is not the necessary that insurance of the goods and ownership of goods must go together. The sales are ex-factory and place of removal is the factory premises.
In the instant situation, the removal of the final product takes place at the factory gate and the liability to duty arises at the time and place of removal. There is no legal requirement that the exporter should undertake transportation and transit insurance cover and deliver at the port except as part of the contract between the exporter and the foreign buyer. The excise invoices and the commercial invoices are raised with reference to removal from the factory gate of the exporter. The liability to duty is at the place of removal and the value for excise purposes clearly excludes cost of transportation and cost of transit insurance whether the removal is for domestic consumption or for export. The goods are cleared on the basis of invoices prepared from the place of removal namely, the factory and no sale invoice is prepared from the port area which is claimed to be place of removal.
Supposing, the goods meant for export have to be move under bond without payment of duty. In such a situation, the exporter is required to execute bond and the value for the purpose of bond has to be determined under Section 4 of the Central Excise Act and the same does not include transport cost. In case the goods cleared for export under bond is not actually exported then, the duty becomes payable on value not including cost of transportation from the factory to the port area. If the goods cleared from the factory on payment of duty on FOB basis get destroyed after clearance, the question of seeking remission of duty involved does not arise as liability to duty is not dependent on any event after clearance from the place of removal which is the factory in such a situation.
The Central Excise Valuation Law is common for goods cleared for export and goods cleared for domestic consumption. In either case the transport charges incurred for transport of the goods from the place of removal is to be excluded. The ownership of the goods is not the relevant criteria for determining the liability to duty which is at the time and place of removal. The claim that the port area is the place of removal and from the said point sales takes place is contrary to the facts and legal positions involved in sales activity. The commercial invoices are also issued with reference to “place of removal” and not at port area.
It is emphasized that, in varied facts and circumstances and subject to the statutory provisions of contract, it is possible to ensure the interest of another. In 1947 K.B 685- Prudential Staff Union V. Hall, it is observed that a seller in possession of the goods when the property and risks have passed may insure its buyer’s interest.
It is also worthwhile to mention here that prior to insertion of Negative based Service Tax regime department is of the view that place is removal is the factory gate and service used from place of removal to place of delivery cannot be considered as input credit and eligible for refund. In earlier Notification No. 18/2009 ST dated 07.07.2009 the factory gate had been considered as place of removal for the purpose of refund.
Therefore, to resolve the issue of place of removal and to reduce the litigation for eligibility of input credit. The Central Board of Excise & Customs issued the notification under reference to made available the drawback/rebate of services used after factory gate used services. It is stated that if refunds are not allowed then the intention behind the issuance of notification become redundant and infructious. If the port of export is to be considered as place of removal, then there is no service used between ports of shipment to destination. Moreover, the Notification No. 41/2012 also provides drawback as per specified rates of service tax components. It has been learnt that there is no show cause has been issued to that exporters who are availing drawback of service tax.
Alias! The litigation is increasing day by day.
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