PLACE OF REMOVAL UNDER CENVAT CREDIT

[Dr. Sanjiv Agarwal]

Place of Removal [Rule 2(qa)]

Cenvat credit of input services upto the ‘place of removal’ is allowed. The term ‘place of removal’ was earlier not defined in Cenvat Credit Rules 2004. However, the said term was defined in section 4(3)(c) of Central Excise Act, 1944. The Hon’ble Delhi CESTAT in the case of M/s Ultratech Cement Ltd. 2014 (3) TMI 159 - CESTAT NEW DELHI held that the definition of the term ‘place of removal’ as appearing under Central Excise Act cannot be applied under Cenvat Credit Rules, 2004. The said term is now defined under rule 2(qa) of Cenvat Credit Rules, 2004 vide Notification No. 21/2014-CE (NT) dated 11.07.2014 which read as follows-

“place of removal” w.e.f. 11.07.2014 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.

The definition is similar to that in Central Excise Act, 1944. The definition of place of removal is used in the definition of input service as defined under rule 2(l) of the Cenvat Credit Rules, 2004 and is effective from 11.07.2014.

In Stovec Industries Ltd v. CCE, Ahmedabad 2011 (3) TMI 1099 - CESTAT, AHEMDABAD, where assessee took Cenvat credit in respect of service tax paid on customs house agent service availed at port for export of their goods, the same was denied by the Department on the ground that said services were post-removal activity, in view of the judgment in case of CCE, Rajkot v. Adani Pharmachem P Ltd [2008 (7) TMI 102 - CESTAT AHMEDABAD] and Circular dated 23-8-2007 clarifying about ‘place of removal’, it was held that assessee was eligible to take Cenvat credit on the same. [Case Maintained in CCE & C v. Stovec Industries Ltd 2013 (1) TMI 72 - GUJARAT HIGH COURT] [Case relied : CCE, Ahmedabad v. Fine Care Biosystems 2009 (7) TMI 226 - CESTAT, AHMEDABAD].

In CCE, Panchkula v. Jamuna Auto Industries Ltd 2014 (4) TMI 4 - CESTAT NEW DELHI, where assessee had taken GTA services for outward transportation of goods beyond place of removal, it was held that as freight was part of the price on which duty had been discharged, Cenvat credit on the same could not be denied to the assessee.

In Lumax Automotives Systems Ltd v. CCE, Delhi-IV 2013 (1) TMI 471 - CESTAT New Delhi, where service tax was paid inclusive of godown rental and outward freight for transportation of goods upto customer’s premises and sale was made on FOR destination basis satisfied prescribed criteria and excise duty paid including freight charges, it was held as per CBEC Circular dated 23-8-2007 that freight upto customer’s premises were integral part of price of goods and as such place of removal was customer’s premises and non-insurance of goods does not mean risk of loss of goods during transit not that of assessee. Accordingly, Cenvat credit of service tax paid on outward freight could not be denied and service of godown rental availed prior to removal of goods to customer’s premises, held as ‘place of removal’, and for storage of raw material, therefore, Cenvat credit of godown rental was admissible.

In CCE, Surat-II v. Gujarat Reclaim & Rubber Products Ltd 2013 (6) TMI 642 - CESTAT AHMEDABAD, where assessee took credit of service tax paid on goods transport services which was availed for outward transportation for export, in view of decisions in cases of CCE, Rajkot v. Adani Pharmachem P Ltd [ 2008 (7) TMI 102 - CESTAT AHMEDABAD]; CCE, Rajkot v. Rolex Rings (P) Ltd [2008 (2) TMI 770 - CESTAT, AHMEDABAD]; Meghachem Industries v. CCE, Ahmedabad [2011 (4) TMI 221 - CESTAT, AHMEDABAD] and Heera Overseas (P) Ltd v. CCE, Bangalore [2011 (8) TMI 953 - CESTAT, BANGALORE], it was held that in case of export, place of removal was ‘place of loading at port of export’ and, therefore, outward transportation upto that place was eligible for input service credit.

In Ashirvad Pipes Pvt Ltd v. CCE, Bangalore-I 2013 (12) TMI 1268 - CESTAT BANGALORE, goods were transported from factory to port for export, while transaction of sale took place at port of shipment, it was held that port (place of export) was considered as place of removal ,which was thereby covered by definition of input service. Accordingly, without even an attempt to consider the merits, the lower authorities view that the factory gate was the “place of removal” of the goods and, therefore, any service availed for outward transportation of the goods would not qualify to be input service was wrong and the transfer of ownership was signified by Bill of Lading issued at port of export after loading of the goods on the ship. [Case relied: CCE, Madurai v. Stangl Pickles & Preserves 2011 (2) TMI 462 - CESTAT, CHENNAI]

In Arvee Chem Pharma Pvt Ltd v. CCE, Mysore 2013 (12) TMI 757 - CESTAT BANGALORE, it was held that where final products are exported, ‘place of removal’ was port of export, as such, courier service was qualified to be ‘input service’ in terms of Rule 2(l) of Cenvat Credit Rules, 2004, hence, Cenvat credit is admissible on the same and demand and penalty imposed was to be set aside.

In CCE v. Inductotherm India (P) Ltd 2014 (3) TMI 921 - GUJARAT HIGH COURT where services were utilized for purpose of export of final product, said services availed upto ‘ place of removal’ being ‘ port of export’ (i.e., until goods leave India from port), it was held that the service was used in relation to clearance of final products upto place of removal. Therefore, assessee was entitled to credit.

In DSCL Sugar v. CCE, Lucknow 2012 (12) TMI 830 - CESTAT NEW DELHI, it was held that place where goods were stored after clearance from the factory on payment of duty could be considered as ‘place of removal’ for the purpose of Rule 2(l) of Cenvat Credit Rules, 2004. Thus, godowns at Agra and Farrukhabad were to be considered as “place of removal” for the assessee, while notwithstanding the fact that sugar was an item subjected to specific rate of duty.

In Kohinoor Biscuits Products v. CCE  2014 (10) TMI 515 - ALLAHABAD HIGH COURT, assessee was a job-worker manufactured biscuits (liable to duty under section 4A) out of raw materials supplied by principal manufacturer Parle and cleared said biscuits to depots of Parle and took credit of transportation services upto depot. Department argued that place of removal was 'factory gate’ of assessee not 'depot' of Parle and credit could not be allowed beyond that. It was held by High Court that Cenvat Credit on Service Tax paid on GTA Service availed for transportation of goods from factory of assessee to Depot of Parle has been correctly denied by the Department.[Also see: Kohinoor Biscuits Products v. CCE, Noida 2015 (6) TMI 126 - CESTAT NEW DELHI]

In CCE, Raipur v. Surya Wires (P) Ltd 2015 (3) TMI 338 - CESTAT NEW DELHI, where assessee was manufacturer and availed Cenvat credit on GTA service in respect of delivery of goods with condition of FOR destination and Commissioner (Appeals) found that (a) goods were delivered at place of buyer, (b) ownership of goods was with Assessee till place of buyer, and (c) as per tenders, price was inclusive of FOR destination delivery at cost of assessee, it was held that place of removal was place of buyer and transportation upto place of buyer was eligible for credit.

In CCE, Kolkata-VI v. Vesuvious India Ltd 2013 (12) TMI 1025 - CALCUTTA HIGH COURT, it was held that 'input service' as defined in rule 2(l)(ii) does not include expenses with regard to post-manufacturing stage except for purpose of transportation of goods from one place of removal to another place of removal. Accordingly, definition in rule 2(l)(ii) of Cenvat Credit Rules, 2004 makes it clear that outward transportation charges or taxes paid in regard thereto were claimable only with regard to transports made from one place of removal to another place of removal [ Also see : CCE & ST , Haldia v. Lumino Industries Ltd 2014 (1) TMI 1424 - CALCUTTA HIGH COURT]

In PSG & Sons v. CCE, Coimbatore 2008 (5) TMI 243 - CESTAT, CHENNAI it was held that when ownership and property in goods remained with seller till delivery of goods to purchaser at his doorsteps, assessee can take credit of service tax paid on freight for transportation to such place of delivery. [Also relied on: Palco Metals v. CCE,  2011 (8) TMI 88 - CESTAT, AHMEDABAD]

In Radhe Renewable Energy Development Pvt. Ltd. v. C.C.E. & S.T., Rajkot 2014 (11) TMI 578 - CESTAT AHMEDABAD, it was held that it was well settled position of law that credit on input service was available if the same was availed beyond place of removal provided such service availed in relation to manufacture.

In Commissioner v. Dynamic Industries Ltd 2014 (8) TMI 713 - GUJARAT HIGH COURT, it was held that where exports were made on FOB basis, place of removal was the port and not factory gate, therefore, Service Tax paid on services availed till goods reached port, was admissible to the assessee.

In Saint Gobain Glass (I) Ltd. v. Commissioner 2015 (6) TMI 125 - MADRAS HIGH COURT, it was held that clearance of final products from place of removal to customer’s premises does not include outward transportation of goods which being an activity subsequent to clearance of goods and could not be said to be used directly or indirectly in relation to clearance of goods from place of removal as per Rules 2(l)(ii) and 14 of Cenvat Credit Rules, 2004.

In case of exports, the place of removal is port and not at factory gate of manufacturer because the legislative intention is to cover all the services which is in relation to such manufacture under the scope of input service.

In Kuntal Granites v. CCE 2007 (3) TMI 540 - CESTAT, BANGALORE,  it was held that in case of exports, the place of removal is port where export documents are presented to customs office. [Also relied upon: Rajasthan Spinning & Weaving Mills Ltd. v. CCE, Jaipur 2007 (7) TMI 100 - CESTAT, NEW DELHI; Oriental Containers v. CCE 2012 (12) TMI 177 - CESTAT, MUMBAI].

In Rajasthan Spinning & Weaving Mills Ltd. v. CCE, Jaipur 2007 (7) TMI 100 - CESTAT, NEW DELHI;, where the assessee availed Cenvat credit from factory to port in respect of goods exported, it was held that place of removal in respect of export of goods is the place where export documents are presented at port. As such availing credit of freight upto place of port was, prima facie, considered as allowable. The Tribunal relied upon Kuntal Granites v. CCE 2007 (3) TMI 540 - CESTAT, BANGALORE,; and Gujarat Ambuja Cements Ltd. v. CCE 2007 (3) TMI 1 - CESTAT,NEW DELHI.

In RSWM v. CCE 2007 (10) TMI 492 - CESTAT, NEW DELHI, it was held that port is the place of removal in exports as property gets transferred to buyer at port. [Also relied upon : CCE v. Adani Pharmachem 2008 (7) TMI 102 - CESTAT AHMEDABAD; Modern Petrofils v. CCE 2010 (2) TMI 328 - CESTAT, AHMEDABAD; Cauvery Stones v. CCE 2009 (11) TMI 167 - CESTAT, CHENNAI ; CCE v. Nahar Spinning Mills 2012 (7) TMI 412 - CESTAT, NEW DELHI ; CCE v. GMR Industries 2012 (8) TMI 24 - CESTAT, BANGAORE ; Agniplast P Ltd. v. CCE 2012 (9) TMI 735 - CESTAT, AHMEDABAD; Heera Overseas v. CCE  2011 (8) TMI 953 - CESTAT, BANGALORE; Larsen and Toubro v. CCE 2014 (5) TMI 558 - CESTAT MUMBAI].

In CCE v. Rolex Rings 2008 (2) TMI 770 - CESTAT, AHMEDABAD, it has been held that in case of exports, port is the ‘place of removal’ as exporter continues to be owner of goods till the same are exported. Hence, custom house agent (CHA) and surveyor services which are relating to export business are eligible for Cenvat credit.

In CCE v. Heubach Colour P. Ltd. 2014 (3) TMI 907 - CESTAT AHMEDABAD, since port is place of removal for exports, any expenses or tax incurred till the goods reach the place of export are eligible for Cenvat Credit.

In Ambuja Cements v. Union of India 2009 (2) TMI 50 - PUNJAB & HARYANA HIGH COURT , it has been held that if freight charges form part of assessable value, price is FOR destination, if ownership of goods remains with seller till delivery at customer’s doorstep, transit insurance is borne by assessee and property in goods is not transferred till delivery, outward transportation is ‘input service’ and is eligible for Cenvat credit. Thus, the customer’s place will be ‘place of removal’.

In Kuntal Granites v. CCE 2007 (3) TMI 540 - CESTAT, BANGALORE,  the relevant portion of the decision is reproduced below:

“We have considered the submissions and agree with Ld. Counsel on the legal point. The SMB in the case of Ginni Filaments has not examined the provisions of Section 4(3)(12) of Central Excise Act read with Rule 21 of Central Excise Rules and Section 5 of the Central Excise Act. When the goods are removed from the factory for export purposes and the goods are destroyed due to unavoidable reasons, accident caused to the lorry, then in such a circumstances the goods are not deemed to have been removed from the factory gate in terms of Section 5 of the Central Sales Tax Act as sale has not been completed. Section 4(3)(c) of CE Act clearly explains that the place of removal is the premises from where excisable goods are to be sold after their clearance from the factory. In the present case, the goods were exported and when export documents are presented to the Customs office, then that is the place of removal as per Section 5 of Central Excise Act (sic). The same finding has been rendered by this bench in the case of Koelemen India Pvt. Ltd. v. CC, Bangalore - 2005 (4) TMI 228 - CESTAT, BANGALORE. There is no reason to take a different view from the same. The finding recorded by SMB in Ginni Filaments Ltd., is sub-silentio without due consideration to the provisions of law. Hence both the orders are set aside by allowing the appeal with consequential relief if any”.

In CCE, C&ST, Belgaum v. Vasavadatta Cements Ltd. 2010 (9) TMI 865 - KARNATAKA HIGH COURT, it was held that since input services was to be interpreted in light of requirement of business and it cannot be read restrictively so as to confine only upto factory or upto depot of manufacture, it would also extends to stage of handling over goods to customers for whom it was meant; therefore assessee was allowed to avail Cenvat credit of service tax paid on freight charges incurred from its depot to customers as ‘input service’ in case of exports, the place of removal is port and not at factory gate of manufacturer because the legislative intention is to cover all the services which is in relation to such manufacture under the scope of input service.

CBEC Clarification on Place of Removal

Cenvat Credit of input services is available only upto the place of removal. What is 'place of removal' has since been defined in Rule 2(qa) of Cenvat Credit Rules, 2004 w.e.f. 11.07-2014. Wherever Cenvat Credit is available upto the place of removal, this definition of place of provision would apply, whatever be the nature of assessment of duty. The place of removal needs to be ascertained in terms of provisions of Central Excise Act, 1944 read with provisions of the Sale of Goods Act, 1930 and that payment of transport, payment of insurance etc are not the relevant considerations to ascertain the place of removal. The place where sale takes place or when the property in goods passes from the seller to the buyer is the relevant consideration to determine the place of removal. On how place of removal has to be determined, CBEC's two Circulars are already in vogue, viz section 37B Order No. 59/1/2013 dated 3.3.2003 and Circular No. 97/8/2007 dated 23.08.2007.

They commonly state that the place where sale takes place is the place of removal. The place where sale has taken place is the place where the transfer in property of goods takes place from the seller to the buyer. This can be decided as per the provisions of the Sale of Goods Act, 1930 as held by Hon’ble Tribunal in case of Associated Strips Ltd Vs Commissioner of Central Excise, New Delhi [2002 (143) ELT 131 ( Tri-Del )] . This principle was upheld by the Hon’ble Supreme Court in case of M/s. Escorts JCB Limited v. CCE, New Delhi [2002 (146) E.L.T. 31 (S.C.) ] .

It may be noted that there are very well laid rules regarding the time when property in goods is transferred from the buyer to the seller in the Sale of Goods Act , 1930 which has been referred at paragraph 17 of the Associated Strips Case (supra ) reproduced below for ease of reference–

“17. Now we are to consider the facts of the present case as to find out when did the transfer of possession of the goods to the buyer occur or when did the property in the goods pass from the seller to the buyer. Is it at the factory gate as claimed by the appellant or is it at the place of the buyer as alleged by the Revenue? In this connection it is necessary to refer to certain provisions of the Sale of Goods Act, 1930. Section 19 of the Sale of Goods Act provides that where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. Intention of the parties are to be ascertained with reference to the terms of the contract, the conduct of the parties and the circumstances of the case. Unless a different intention appears; the rules contained in Sections 20 to 24 are provisions for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. Section 23 provides that where there is a contract for the sale of unascertained or future goods by description and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be expressed or implied and may be given either before or after the appropriation is made. Sub-section (2) of Section 23 further provides 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 purposes 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."

CBEC has vide Circular No. 988/12/2014-CX dated 20.10.2014 clarified on determination of place of removal and stated 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 ".

In case of exports, it has been held in several judicial pronouncements that the place of removal is the port or the airport from where the goods are finally exported, i.e., port of export.

CBEC has vide Circular No. 999/2015-CX dated 28.02.2015 clarified on the place of removal in case of exports as follows –

1. Clearance of goods for export by manufacturer exporter – port / ICD / CF where shipping bill is filed
2. Export through merchant exporter – generally place where the property in goods passes from manufacturer to merchant exporter , i.e., factory gate; otherwise it can be the port / ICD / CF where shippers bill is filed by the merchant exporter but in no case beyond the port / ICD / CF

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Discussions to this article

[Mukund Nyalkalkar]

Even the recent decision of the Hon'ble Supreme Court in the case of Roofit Industries Ltd., 2014(4)TMI-857 = 2015 (4) TMI 857 - SUPREME COURT also held that when the transfer of property of goods takes place at the door of customer, the cost of freight, etc. incurred therefor, will form part of the assessable value, which otherwise means that place of removal in that situation will be the customer door.

[MAHESH MAIYA]

Dear Sir,

Thank you very much for good article.

We are selling goods on FOR basis which includes section 4 and 4A valuations. All the condition of board circular No. 97/8/2007 dated 23.08.2007 are met. Despite of many CESTAT decisions, the department is happily disallowing our credit of service tax on outward transportation. Department is issuing period SCN and commissioner is passing orders against the assessee. Our appeals are yet to be decided. Since 2-3 years, we had been taking credit of the same and not utilising the same by carrying forward the service tax credits on outward transportation. The accumulated amount has crossed Rs. one crore. To rub the salt on our wound, recently Rule 14 was amended. Fearing interest, we have reversed the service tax credits carried forward under PROTEST. We are keeping our fingers crossed and waiting for the outcome of our appeal.

Mahesh Maiya. P

[Dr. Sanjiv Agarwal]

Dear Mukund ji ,

The citation of soft case appears to be wrong. Kindly help us with correct citation for reference. Assessable value and Cenvat credit have to be understood in their context. Inclusion in assessable value does not mean that it automatically gets included in value of input for Cenvat purpose.

Thanks & Regards,

CA Neha Somani

[Dr. Sanjiv Agarwal]

Dear Mahesh ji ,

Outward transportation upto the place of removal is an input service which should ordinarily be allowed. You need to take a stand and contest the issue. Based on precedents, you perhaps have a strong case.

Thanks & Regards ,

CA Neha Somani

[Mukund Nyalkalkar]

Dear Agarwal ji,

The correct citation is 2015(4)TMI-857.

So far as other point is concerned, kindly refer to the decision in the case of Menon & Menon Ltd., 2011(9)TMI-129. Off course the said decision is challenged before the Hon'ble Mumbai High Court and is admitted and pending for decision.