2019 (10) TMI 5 - AT - Central Excise

Valuation - freight/transportation charges - relevant Place of Removal - in cases where the goods are sold on FOR basis whether the place of removal shifts to the buyer s premises or it will continue to be at the seller s premises? HELD THAT - The assessable value of goods under section 4 must include the costs of transportation and transit insurance if the place of removal shifts to the buyer s premises. Also, the assessee will be eligible for Cenvat credit of the costs of the transport incurred in transporting the goods from their premises to the buyer s premises - On the other hand, if the place of removal continues to be the seller s premises then the value cannot include the cost of transportation and transit insurance incurred for transporting the goods from the seller s premises (factory, depot, place of consignment, etc.) to the buyer s premises. Conversely, the assessee will also not be entitled to Cenvat credit of the transport of goods from their factory to the buyer s premises. Both valuation under Section 4 and eligibility of Cenvat credit under CCR, 2004 depend on this key question. In the case of COMMISSIONER, CUSTOMS AND CENTRAL EXCISE, AURANGABAD VERSUS M/S ROOFIT INDUSTRIES LTD. 2015 (4) TMI 857 - SUPREME COURT the Hon ble Apex Court had held that since the sale takes place when the ownership shifts to the buyer, where the sale is on FOR basis, the place of removal shifts to the buyer s premises - In the subsequent judgment of the Hon ble Apex Court in the case of COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE, NAGPUR VERSUS M/S ISPAT INDUSTRIES LTD. 2015 (10) TMI 613 - SUPREME COURT categorically held that the buyer s premises can never be the place of removal because the expression is the place from where the goods have to be sold and not from where the goods have been sold. Secondly, it has been held that once the goods reach the buyer s premises, there is no question of removal thereafter as they have already reached the destination. Thirdly, it was being held that the places indicated in the clause such as depot, consignment agent etc., are all places which belong to the seller and not to the buyer. Therefore, the place of removal has to be seller s premises and cannot be buyer s premises. This definition of place of removal in both Section 4 and Cenvat Credit Rules does not change depending upon any facts or circumstances of the case. Whether the sale is on FOR buyer s premises basis or otherwise, the judgment of the Hon ble Apex Court in the case of Ispat Industries Ltd (supra) applies. The demand of differential duty in this case which is based on premise that the place of removal shifts to the buyer s premises in case of FOR basis does not sustain - appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Determination of the "place of removal" under Section 4 of the Central Excise Act, 1944.
2. Inclusion of freight and transit insurance charges in the assessable value.
3. Eligibility for Cenvat credit on transportation charges from the seller’s premises to the buyer’s premises.

Detailed Analysis:

1. Determination of the "Place of Removal":
The primary issue revolves around the interpretation of the "place of removal" as per Section 4 of the Central Excise Act, 1944. The department contended that for goods sold on an FOR (Free on Rail) basis, the place of removal should be the buyer's premises. This interpretation is based on Section 4(3)(c)(iii), which includes a depot, premises of a consignment agent, or any other place from where the excisable goods are to be sold after their clearance from the factory. The department argued that the sale is complete only when goods are delivered to the buyer, making the buyer’s premises the place of removal.

2. Inclusion of Freight and Transit Insurance Charges:
The revenue issued a show cause notice alleging undervaluation of goods by not including freight and transit insurance charges in the assessable value. They demanded differential duty under Section 11A(4) of the Central Excise Act, 1944, along with interest and proposed penalties under Section 11AC. The original authority confirmed these demands, but the first appellate authority set aside the order, stating that the control of goods ceased once dispatched from the factory, making the factory gate the place of removal.

3. Eligibility for Cenvat Credit:
The eligibility for Cenvat credit on transportation charges hinges on the determination of the place of removal. If the place of removal is the buyer’s premises, then transportation costs to the buyer’s premises must be included in the assessable value, and the assessee would be eligible for Cenvat credit on these costs. Conversely, if the place of removal is the seller's premises, these costs are excluded from the assessable value, and Cenvat credit on transportation charges is not available.

Judicial Precedents:
- Roofit Industries Ltd Case: The Supreme Court held that for goods sold on an FOR basis, the place of removal is the buyer’s premises, as the sale is complete upon delivery to the buyer.
- Ispat Industries Ltd Case: The Supreme Court clarified that the buyer’s premises cannot be considered the place of removal as the place of removal refers to the manufacturer’s premises or places related to the manufacturer, not the buyer.

Tribunal’s Findings:
- The Tribunal examined whether the place of removal shifts to the buyer’s premises in FOR sales. They noted that the Supreme Court in Ispat Industries Ltd held that the place of removal is always the seller’s premises, regardless of the sale terms.
- The Tribunal disagreed with the CESTAT-Ahmedabad’s decision in Sanghi Industries Ltd, which allowed Cenvat credit on transportation charges for FOR sales, based on CBEC circulars.
- The Tribunal upheld the first appellate authority’s decision, stating that the place of removal remains the seller’s premises. Consequently, the differential duty demand based on the premise that the place of removal shifts to the buyer’s premises was not sustainable.

Conclusion:
The Tribunal concluded that the place of removal is the seller’s premises, irrespective of the FOR basis of sale. Therefore, the demand for differential duty and associated penalties were not justified, and the appeal by the revenue was dismissed. The impugned order setting aside the lower authority’s order was upheld.