availment of service tax credit for GTA out ward services, Service Tax

[ramswaroop vyas]

Dear Experts,

My queries relates to take credit of the service tax paid on out ward freight. below is brief of my sales patterns

1. We are a manufacturing unit,

2. We pay the freight on outward transportation ( dispatches made) and our delivery terms are door delivery therefore place of removal is customer gate.

3. We are showing Freight separately in invoices ...invoice pattern is as below.

Sale value for say 100 Rs.

inovices

Assessable value Rs. 98

Excise 12.5% : 12.25

Total : 110.25

Freight : 2

Cst : 2.5

Grand total _- : 114.5

We are paying service tax on ₹ 2 @14.5 % after availing of abetment of 70% in GTA.

Now my query is are we eligiable to take credit of service tax paid by company.

Regards

ram

Posts / Replies

[MUKUND THAKKAR]

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 ".

[Rajagopalan Ranganathan]

Sir,

Please refer to answer given by CBEC vide para 8 (c) of its Circular No. 97/8/2007 dated27.8.2007 regarding your query

ISSUE: Up to what stage a manufacturer/consignor can take credit on the service tax paid on goods transport by road?

COMMENTS: This issue has been examined in great detail by the CESTAT in the case of M/s Gujarat Ambuja Cements Ltd. vs CCE, Ludhiana [2007 (006) STR 0249 Tri-D] = 2007 (3) TMI 1 - CESTAT,NEW DELHI. In this case, CESTAT has made the following observations:-

"the post sale transport of manufactured goods is not an input for the manufacturer/consignor. The two clauses in the definition of 'input services' take care to circumscribe input credit by stating that service used in relation to the clearance from the place of removal and service used for outward transportation upto the place of removal are to be treated as input service. The first clause does not mention transport service in particular. The second clause restricts transport service credit upto the place of removal. When these two clauses are read together, it becomes clear that transport service credit cannot go beyond transport upto the place of removal. The two clauses, the one dealing with general provision and other dealing with a specific item, are not to be read disjunctively so as to bring about conflict to defeat the laws' scheme. The purpose of interpretation is to find harmony and reconciliation among the various provisions".

Similarly, in the case of M/s Ultratech Cements Ltd vs CCE Bhavnagar 2007 (3) TMI 738 - CESTAT AHMEDABAD, it was held that after the final products are cleared from the place of removal, there will be no scope of subsequent use of service to be treated as input. The above observations and views explain the scope of the relevant provisions clearly, correctly and in accordance with the legal provisions. In conclusion, a manufacturer / consignor can take credit on the service tax paid on outward transport of goods up to the place of removal and not beyond that.

8.2 In this connection, the phrase 'place of removal' needs determination taking into account the facts of an individual case and the applicable provisions. The phrase 'place of removal' has not been defined in CENVAT Credit Rules. In terms of sub-rule (t) of rule 2 of the said rules, if any words or expressions are used in the CENVAT Credit Rules, 2004 and are not defined therein but are defined in the Central Excise Act, 1944 or the Finance Act, 1994, they shall have the same meaning for the CENVAT Credit Rules as assigned to them in those Acts. The phrase 'place of removal' is defined under section 4 of the Central Excise Act, 1944. It states that,-

"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 stored 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."

It is, therefore, clear that for a manufacturer /consignor, the eligibility to avail credit of the service tax paid on the transportation during removal of excisable goods would depend upon the place of removal as per the definition. In case of a factory gate sale, sale from a non-duty paid warehouse, or from a duty paid depot (from where the excisable goods are sold, after their clearance from the factory), the determination of the 'place of removal' does not pose much problem. However, there may be situations where the manufacturer /consignor may claim that the sale has taken place at the destination point because in terms of the sale contract /agreement (i) the ownership of goods and the property in the goods remained with the seller of the goods till the delivery of the goods in acceptable condition to the purchaser at his door step; (ii) the seller bore the risk of loss of or damage to the goods during transit to the destination; and (iii) the freight charges were an integral part of the price of goods. In such cases, the credit of the service tax paid on the transportation up to such place of sale would be admissible if it can be established by the claimant of such credit that the sale and the transfer of property in goods (in terms of the definition as under section 2 of the Central Excise Act, 1944 as also in terms of the provisions under the Sale of Goods Act, 1930) occurred at the said place.

This circular is still in force and is binding on the Department and assessees

[KASTURI SETHI]

Sh. Ramswaroop Vyas Ji,

In a nutshell, since in this case the place of removal is at the buyer's doorstep, you can take input service credit of ST paid on outward freight. You must have documentary evidence to the effect that ownership of the goods remained with your factory till delivery of the goods. Transit insurance is to be borne by you. The essence of the message is same as conveyed by both the experts i.e. Sh.Mukund Thakkar Sir and Sh.Rajagopalan Ranganathan, Sir.

[KASTURI SETHI]

Latest judgement on this is appended below:-

2016 (2) TMI 20 - GUJARAT HIGH COURT

The Commissioner Of Central Excise & Customs, Bharuch Versus Philips Carbon Black Ltd.

[CS RAHUL AGARWAL]

To add on to the views of learned members here, In the case of

LAFARGE INDIA LTD. Vs.COMMISSIONER OF CENTRAL EXCISE, RAIPUR 2014 (307) E.L.T. 7 (Chhattisgarh) = 2014 (10) TMI 297 - CHHATTISGARH HIGH COURT on the similar footing it was ordered that

the conclusion is irrestible that sales by the assessee were on FOR basis and therefore, the assessee had legitimately availed Cenvat credit on the Service Tax paid on the freight charges borne for its FOR sales.

It was further held that where the terms between the parties provides for and where the sale was made on FOR basis after including the service of GTA in the invoice, the same shall be admissible till the buyers place being the place of removal i.e place of destination. Moreover reliance was place don similar issue which was decided by P&H HC in the case of Ambuja Cements Ltd. v. Union of India - 2009 (14) S.T.R. 3 (P&H) = 2009 (2) TMI 50 - PUNJAB & HARYANA HIGH COURT wherein the same issue was raised and decided in favor of assessee that FOR delivery of goods shall be meant to place of delivery at the buyers place and GTA service used till shall be admissible for credit as input service included in the cost upto place of removal being place of destination in this case.

[Ganeshan Kalyani]

The query is nicely explained and have covered all the aspects without being by the querist the case laws and explanation has been provided. Thanks to all the experts for sharing your valuable knowledge. I have experienced even after paying money getting such clear answer becomes a question mark sometimes. Thanks to all.

[Adarsh Sharma]

Circular ref given by my friend is amended, amended Circular No. 999/6/2015-CX, dated 28-2-2015

[KASTURI SETHI]

Sh.Adarsh Sharma Ji,

Thanks for latest information. But here the question pertains to applicability of Service Tax on freight for home consumption only.

[RAJESH MANGAL AGRAWAL]

Dear All Experts,

Thanks for the reply in a Lucid manner.

Here I am of the View that Central Excise Department will take a stand that The Assessable value will be ₹ 100/- (in place of ₹ 98) and Excise duty @ 12.5% i.e. ₹ 12.50 should be paid as against ₹ 12.25 as shown in the query.

Pl. Highlight Your expert Opinion.

For Your ready reference the query raised is also appended below.

We are showing Freight separately in invoices ...invoice pattern is as below.

Sale value for say 100 Rs.

inovices

Assessable value ₹ 98

Excise 12.5% : 12.25

Total : 110.25

Freight : 2

Cst : 2.5

Grand total _- : 114.5

[GOKARNESAN.S SUBRAMANIAN]

Friends

With due respect to all experts , I wish to differ from all for the following reason:

I wish to bring it to your attention the recent decision of Hon'ble Supreme Court in the case of 'Ispat Industries', reported in 2015-10-TMI - 613 (Suprme Court) on the issue of place of removal and the duty on freight considering the place of removal (i.e. whether place of removal is factory OR it is the destination of the buyer).

Issue in the above case is:

• Ispat clears the goods from factory on payment of duty treating the place of removal as ‘factory’ and deliver the goods to the premises of customer. No duty is paid on the freight and insurance amount and claimed the same as abatement from the total price.
• Department wanted to demand duty even on the freight value on the ground that (a) Ispat has taken an insurance policy to cover the risk on transport, (b)because of this factor, Ispat is having right on the goods till it is delivered to customers, (c) customers also make payment only after delivery of goods at his place and (d) agreement with transporters also by Ispat and the risk is not passed on to the transporter and hence, the sale is completed in all respect at the customer end and as such, freight also to be included in the value for payment of duty.

The Court held that “the buyers premises / place cannot be considered as ‘ place of removal’ in terms of Section 4 read with other valuation rules, place of removal is factory only and freight is not includible in assessable value and hence, department appeal is dismissed.”

Since SC has specifically stated that ‘at any point customer premises cannot be considered as place of Removal’, the issue of ‘input service tax credit on outward freight’ may arise, particularly on the eligibility of cenvat credit on outward freight

Further, consequent to inclusion of ‘definition of place of removal’ in the Cenvat Credit Rules in July 2014 Budget, the department may allow the credit on outward freight taking into account the definition of place of removal given in the Cenvat Credit Rules.

In view of the latest development, the Department may also change their stand not to follow the circulars issued earlier and also quote the comment by Supreme Court in the above decision.

I request all the experts to give their valuable inputs as to how to overcome the situation.

S. Gokarnesan

Advocate, Chennai

[ramswaroop vyas]

Respected All,

Thanks for all your wonderful replies i would have not got such details even after paying...but my query still remains open....As nobody has covered that if i am showing freight separately and not paying excise on the same........

so can you please expert throw light in this...can i still take service tax credit as i am charging freight separately in invoice.

regards

ramswaroop

[Mahir S]

Please refer my reply under query no. 109831 dated 05.02.2016.

[GOKARNESAN.S SUBRAMANIAN]

Sir

Irrespective of the fact whether you charge freight separately in the invoice or not, the activity is 'freight on outward transportation' and you pay service tax on the same under reverse charge and the same is relating to outward transportation of finished goods.

Considering the definition of place of removal given in the Cenvat Credit Rules read with the recent Supreme Court Decision on the interpretation of place of removal, you are not eligible for the service tax credit.

This is applicable even if you pay excise duty on freight.

As a consolation , you may claim abatement of freight value including service tax to arrive at the Transaction Value for excise duty computation since excise valuation rules allow abatement on the cost of transportation. Here service tax also along with freight to be considered as cost of transportation in as much as no credit is eligible on GTA service tax

For example: your total price amount comes to ₹ 200/- inclusive of freight and the freight amount is ₹ 24/- and service tax paid on the freight is ( 24 x 30% x 14%) ₹ 1/-. The Place of removal is Factory Gate and delivery at customer destination.

In the said example, you need to pay excise duty only on ₹ 200/- and you can charge cost of freight separately in the invoice. i.e. Price ₹ 200 + cost of transportation (freight + Service Tax) ₹ 25/-

Gokarnesan

Advocate

9840087349

[KASTURI SETHI]

SH.GOKARNESAN.S SUBRAMANIAN Ji, Thanks a lot for posting latest judgement of the Apex Court. The issue is worth discussion and decision by the Larger Bench of the Honourable Supreme Court.

[KASTURI SETHI]

In my view Sale of Goods Act has overlapped Central Excise Act and Central Excise Rules.

[KASTURI SETHI]

Just for information on this issue

Three judgments have been passed by the Supreme Court. These are dated 23.4.15, 31.7.15 and 7.10.15 in the cases of ROOFIT INDUSTRIES LTD.= 2015 (4) TMI 857 - SUPREME COURT, EMCO LTD.= 2015 (8) TMI 200 - SUPREME COURT, ISPAT INDUSTRIES LTD.= 2015 (10) TMI 613 - SUPREME COURT respectively whereas Board's circular was issued on 28.2.15 which is appended below:-

Place of removal in terms of provisions of Central Excise Act, 1944 - Clarification

Circular No. 999/6/2015-CX, dated 28-2-2015

Subject : Clarification regarding place of removal - Reg.

[KASTURI SETHI]

Sale of Goods Act, 1930 has not taken birth in the year 2015. Suddenly the wisdom has dawned and Board has taken u-turn by issuance of Circular No. 999/6/2015-CX, dated 28-2-2015. The department has been raising and confirming the demands on the ground that the place of removal is buyer's premises inasmuch as the amount of freight and transit insurance were borne by the manufacturer from factory to the depot or buyer's premises.Hence ownership remained with the owner up to the buyer's premises.(in addition to the point of payment).This has been happening for about 15 years. Now the payment of sale-tax has has become the basis for determination of place of removal at factory gate in terms of Sale of Goods Act.

The latest judgment of Hon'ble Supreme Court has proved that till now all the officers of the department were wrongly interpreting the definition of 'Place of removal' !!

[Srikanthan S]

Dear learned friends,

There is yet another angle to this. This determination of "place of removal" and hence eligibility of outward freight, also has a bearing on the "Revenue Recognition" principle.

A.S.9 - Sale of Goods 6.1 A key criterion for determining when to recognise revenue from a transaction involving the sale of goods is that the seller has transferred the property in the goodsto the buyer for a consideration. The transfer of property in goods, in most cases, results in or coincides with the transfer of significant risks and rewards of ownership to the buyer. However, there may be situations where transfer of property in goods does not coincide with the transfer of significant risks and rewards of ownership. Revenue in such situations is recognised at the time of transfer of significant risks and rewards of ownership to the buyer. Such cases may arise where delivery has been delayed through the fault of either the buyer or the seller and the goods are at the risk of the party at fault as regards any loss which might not have occurred but for such fault. Further, sometimes the parties may agree that the risk will pass at a time different from the time when ownership passes.

Therefore, if the corporate says that the terms of the contract of sale are F.O.R. destination, property in goods passes at the time of delivery to the customer (i.e significant risks are transferred to the buyer) and therefore, it is eligible for credit of outward transportation charges, it has to be careful while recognizing the revenue arising out of such sale contracts. Under these circumstances, the enterprise has to ensure that the revenue is recognized in its books only upon proof of delivery at the customer's place (meaning thereby that it cannot recognize the sale/revenue in such cases soon after billing happens).

Request experts opinion on this view point please.