2021 (8) TMI 1116 - AT - Central Excise

Wrongful availment of CENVAT Credit - outward freight - sale on FOR basis - place of removal - extended period of limitation - HELD THAT - As far as interpretation under the Central Excise laws is concerned, the transfer of possession with title of goods by one person to another is the crux of the sale transaction. Therefore, until and unless the goods are delivered to the buyer, and the possession with title of goods is transferred unto the buyer, the sale does not take place and it cannot be said that goods have been sold. Though it may not always be the physical delivery and physical possession. Present is the case of F.O.R. destination sales. It therefore becomes important to understand its meaning. Section 19 of the Sale of Goods Act, 1930 explains as to when property in goods passes. F.O.R. destination means the seller retains the risk of loss until the goods reach the buyer. Historically this term was used only to refer goods transported by ships to U.K. but it has since been expanded to include all types of transportations. F.O.R. destination as different from FOB origin means that the seller retains the risk of goods until the goods reach the buyer - The possession in the goods remain with the seller during the transit, and the possession is transferred to the purchaser only when the goods reach him. Since the buyer had a right to reject the goods after receiving them at his place and he was supposed to make the payment at his place, that too after inspecting the goods also. Also since the appellant had a right to sell the goods to someone else, before the goods reach to the buyer at his destination, it become ample clear that the control and possession of propriety in the goods remained with the appellant till they reach the place of his buyer. Hence when appellant engaged the transporter, he instead of his buyer becomes the service recipient of freight / transport service, and the same, becomes his input. The circular dated 08.06.2018 also cannot be made retrospectively applicable to the period in question (April 2015 to June, 2017). At the relevant time, circular No. 988/12/2014 CX dated 20.10.2014 / Circular No. 97/8/2007-CX dated 23.8.2007 were applicable. It has been time and again been settled by the Hon ble Supreme Court that the beneficial circular cannot be retrospectively withdrawn. Consequently benefit of the said circular shall continue to be available to the appellant. Extended period of limitation - HELD THAT - It is apparent on record that credit has been shown in the ER-1 returns filed by the appellant from time to time. Neither suppression nor misrepresentation of facts can be alleged against the appellant. The alleged suppression of facts on part of the appellant that too with an intent to evade payment of duty is therefore not sustainable. It is accordingly held that the Department was not entitled to invoke the extended period of limitation. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Wrongful availing of CENVAT Credit on Service Tax on outward freight.
2. Applicability of extended period of limitation for demand recovery.

Issue-wise Detailed Analysis:

1. Wrongful Availing of CENVAT Credit on Service Tax on Outward Freight:

The appellant, engaged in the manufacture of HDPE/PP Woven fabrics and sacks, was accused of wrongly availing CENVAT Credit on Service Tax on outward freight amounting to ?6,26,073/- for the period April 2015 to June 2017, in contravention of Rule 2(l) and Rule 3 of CENVAT Credit Rules, 2004. The appellant contended that the goods were sold on FOB (Free on Board) basis to the buyer's location, with the purchase order stipulating that the goods were subject to inspection at the buyer's place, and payment was made only after inspection and acceptance. The appellant argued that the transit risk and insurance were borne by them, and thus, the place of removal should be considered the buyer's location, making the GTA service received a valid input for CENVAT Credit.

The Department, however, emphasized the amended definition of inputs eligible for CENVAT Credit, stating that services taken "upto the place of removal" are eligible, contrasting the earlier situation where inputs "from place of removal" were eligible. The Department argued that the goods were cleared from the factory gate, making the GTA services obtained from there invalid for CENVAT Credit under Rule 2(l)(i) of the CENVAT Credit Rules, 2004, as amended from 01.03.2008.

Upon examination, the Tribunal noted that the appellant was responsible for engaging transporters and bore the risk until the goods were delivered and accepted by the buyer. The Tribunal held that under the provisions of Rule 3 of the CENVAT Credit Rules, 2004, CENVAT Credit is admissible for service tax paid on "input service" received by the manufacturer. The definition of "input service" includes services used in relation to the clearance of final products "upto the place of removal." The Tribunal adopted the definition of "place of removal" from Section 4 of the Central Excise Act, 1944, which includes any place from where excisable goods are sold after their clearance from the factory.

In this case, the Tribunal found that the control and possession of the goods remained with the appellant until they reached the buyer's place, making the outward freight a valid input for availing CENVAT Credit. The Tribunal also referenced the Supreme Court decision in Commissioner of Customs and Central Excise Aurangabad vs. Roofit Industries Ltd., supporting the appellant's position.

2. Applicability of Extended Period of Limitation for Demand Recovery:

The Department invoked the extended period of limitation, alleging suppression of facts by the appellant. The appellant countered that they regularly submitted returns mentioning the payment of service tax and availing of CENVAT Credit, and there was no suppression of facts. The appellant also pointed out the prevalent confusion due to various decisions and circulars regarding the liability of GTA services from the place of removal, especially following the amendment of the definition of 'input' in 2008.

The Tribunal observed that the Circular No. 1065/4/2018-CX dated 08.06.2018, relied upon by the Department, clarified that the extended period should not be invoked in cases where an alternate interpretation was taken by the assessee before the Supreme Court judgment in Ultratech Cement. The Tribunal found that the appellant had disclosed the credit in their ER-1 returns, and there was no suppression or misrepresentation of facts. Therefore, the invocation of the extended period of limitation by the Department was deemed unsustainable.

Conclusion:

The Tribunal set aside the order under challenge and allowed the appeal, concluding that the appellant was entitled to avail CENVAT Credit on outward freight services and that the extended period of limitation was not applicable in this case. The judgment emphasized the importance of the definitions of "input service" and "place of removal" under the CENVAT Credit Rules and the Central Excise Act, respectively, in determining the eligibility for CENVAT Credit.