2022 (10) TMI 1213 - AT - Central Excise

Recovery of CENVAT Credit alongwith interest and penalty - input services - outward freight charges in case where the goods are removed from the factory for delivery on for destination basis - place of removal - failure to discharge burden of proof on the part of assessee - HELD THAT - In terms of the decision in COMMISSIONER, CUSTOMS AND CENTRAL EXCISE, AURANGABAD VERSUS M/S ROOFIT INDUSTRIES LTD. 2015 (4) TMI 857 - SUPREME COURT the point where transfer of ownership in goods from seller to buyer occurs is the place of removal for the purpose of Section 4 of the Central Excise Act, 1944 and all the expenses incurred upto that point become the part of the transaction/ assessable value for the purpose of levy of cenvat duty. In case of the FOR destination sale admittedly the transfer in property in the goods would happen at the point of the delivery of the goods and all expenses till that point would be includible in the transaction value, i.e. freight charges upto that point are includible in the assessable value determined under Section 4 - Admittedly appellant had paid duty including the freight charges upto the point of delivery at the destination. That being so the point of delivery is the place of removal for the purpose of determination of eligibility to CENVAT Credit in respect of the GTA Services received by the appellant. From the question framed itself it is quite evident that bench has referred the matter without considering the clarification issued by the Board in 2018. Since the clarification issued by the Board goes to the root of the matter and clarifies the conditions wherein the benefit of credit needs to be allowed following the decision of the Apex Court in the case of Roofit Cement, the decision is sub-silentio and cannot be treated as binding precedent. Appeal allowed.

Issues Involved:
1. Admissibility of CENVAT credit on service tax paid for outward transportation beyond the place of removal.
2. Determination of the "place of removal" for the purpose of CENVAT credit eligibility.
3. Application of judicial precedents and circulars in determining the place of removal and admissibility of credit.
4. Validity of penalties and interest imposed on the appellant.

Detailed Analysis:

1. Admissibility of CENVAT Credit on Outward Transportation:
The appellant, engaged in the manufacture of goods under Chapter 40 of the Central Excise Tariff Act, 1985, availed CENVAT credit on service tax paid for outward transportation of goods from the factory to customers' premises. The Principal Commissioner held that such credit is inadmissible as the "place of removal" is the factory gate or depot, not the customer's premises. Therefore, the service tax paid on outward freight does not qualify as "input service" under Rule 2(1) of the CENVAT Credit Rules, 2004. The Commissioner confirmed the demand of Rs. 1,18,78,786/- along with interest and imposed an equivalent penalty.

2. Determination of the "Place of Removal":
The core issue is whether the transportation of goods to the customer's premises constitutes an activity beyond the place of removal. The Principal Commissioner relied on the Calcutta High Court's decision in Vesuvious India Limited, which held that "input service" does not include post-manufacturing expenses except for transportation between places of removal. The Commissioner concluded that the place of removal is the factory gate or depot, not the customer's premises, based on Section 4 of the Central Excise Act, 1944, and Rule 2(1) of the CENVAT Credit Rules, 2004.

3. Application of Judicial Precedents and Circulars:
The appellant argued that the issue is no longer res integra, citing several decisions where CENVAT credit on outward transportation was allowed:
- UltraTech Cement Ltd. [2019 (2) TMI 1487 - CESTAT AHMEDABAD]
- Sanghi Industries Ltd. [2019 (369) ELT 1424 (T)]
- Banco Products Ltd. [2021 (7) TMI 662 - CESTAT-AHM]
- Polyplex Corporation Ltd. [2019-TIOL-1906-CESTAT-ALL]
- Chittor Polyfab Ltd. [2021 (8) TMI 1116 - CESTAT NEW DELHI]
- Harita Fehrer Ltd. [2019 (7) TMI 625 CESTAT CHENNAI]
- GKN Driveline India (Pvt) Ltd. [2019 (9) TMI 466 - CESTAT]
- Rane Brake India Ltd. [2019 (7) TMI 1167 - CESTAT CHENNAI]
- AK Automatics [2018 (11) TMI 1603 - CESTAT CHANDIGARH]
- Hindustan Zinc Ltd. [2021 (9) TMI 692 - CESTAT NEW DELHI]
- Jayant Agro Organics Ltd. [2019 (11) TMI 1123 - CESTAT]
- MRF LTD. [2019 (7) TMI 1166 - CESTAT CHENNAI]
- Venkateshwara Power Projects Ltd. [2019 (12) TMI 551 - CESTAT]
- Salasar Copper [2019 (4) TMI 11 - CESTAT AHMEDABAD]
- Ramco Cements Ltd. 2020 (6) TMI 794 - CESTAT CHENNAI
- Shri Khemisati Polusacks Pvt. Ltd. [2021-TIOL-810- CESTAT]
- Hindustan Zinc Ltd. 2022-TIOL-161-CESTAT-DEL

The appellant also referred to CBIC Circular No. 1065/4/2018-CX dated 08.06.2018, which clarified that in FOR destination sales, where ownership and risk remain with the seller until delivery, the customer's premises can be considered the place of removal. This circular rescinded previous circulars and aligned with the Supreme Court's decision in Roofit Industries Ltd. [2015 (319) ELT 221 (SC)], which held that the place of removal is where the transfer of ownership occurs.

4. Validity of Penalties and Interest:
The Principal Commissioner imposed penalties and interest under Rule 14 and Rule 15(1) of the CENVAT Credit Rules, 2004, read with Section 11A and Section 11AB/11AA of the Central Excise Act, 1944. The appellant contested these on the grounds that the credit availed was based on a reasonable interpretation of the law and supported by judicial precedents and circulars.

Conclusion:
The Tribunal considered the appellant's arguments, judicial precedents, and CBIC circulars. It noted that the issue of the place of removal and admissibility of CENVAT credit on outward transportation had been settled in favor of the assessee in several cases. The Tribunal found that the Principal Commissioner's reliance on the Calcutta High Court's decision and the 2007 circular was misplaced, as the 2018 circular clarified the correct legal position. Therefore, the Tribunal allowed the appeal, setting aside the demand, interest, and penalties imposed by the Principal Commissioner.

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