INPUT SERVICES, PLACE OF REMOVAL AND CENVAT CREDIT FOR EXPORTS

[Dr. Sanjiv Agarwal]

W.e.f. 1.7.2012, as per rule 2 (l) of  Cenvat Credit Rules, 2004, 'input service' means as under:

     Input service means any service -

1. used by a provider of output service for providing an output service; or
2. used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, and includes services used in relation to –

• modernization,
• renovation or
• repairs of a factory, premises of provider of output service or an office relating to such factory or premises,
• advertisement or sales promotion,
• market research,
• storage up to the place of removal,
• procurement of inputs,
• accounting,
• auditing,
• financing,
• recruitment and quality control,
• coaching and training,
• computer networking,
• credit rating,
• share registry,
• security,
• business exhibition,
• legal services,
• inward  transportation of inputs or capital goods and
• outward transportation up to the place of removal,

but with some specified exclusions.

According to Rule 2(l) of Cenvat Credit Rules, 2004, in case of manufacturer, input services means any services used by a manufacturer, whether directly or indirectly, in or in relation to manufacture of final products and clearance of final products upto the place of removal.  This definition includes those services in the scope of input service which are indirectly related to manufacturing of final product. In business, there are many services which are essential for smooth running and production of goods in the business even though these are not directly linked with production of goods. The intention of this definition includes these services also in its scope.

Place of  Removal 

It is stated in Rule 2(l) of Cenvat Credit Rules, 2004 that output transportation of goods upto place of removal is covered under the definition of input service. The term "place of removal" is not defined in the Cenvat Credit Rules, 2004, and as such, section 4(3)(c) of the Central Excise Act, 1944 has to be referred which defines ‘place of removal’  as follows:

“ “Place of removal” means –

(i)  factory or any other place or premises of production or manufacture of the excisable goods;

(ii)  warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty;

(iii) 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 ’’

Place of Removal in case of Exports

Broadly, place where property in goods is transferred to buyer is the place of removal.  Generally, factory gate is considered as 'place of removal' if goods are handed over to transporter and transporter is considered as agent of buyer. However, if ownership in goods gets transferred only on delivery to buyer on sale on Free on Railways (FOR) basis the place of buyer can be place of removal. In case of exports, port is considered to be the place of removal.

Where the title of goods is transferred at the place of buyer and the responsibility of damages during the transits of goods remains on the seller. Therefore, the place of removal in such case shall be at the place of buyer. 

In case of exports, the place of removal is port of export and not at the factory gate of the Assessee. This view is confirmed by the various Courts and benches of Tribunals in their pronouncements. Reliance can be sought on the following judicial pronouncements for this purpose -

a)         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 ].

b)         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

 c)        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; ADANI PHARMACHEM (P) LTD. Versus COMMISSIONER OF C. EX., RAJKOT 2008 (8) TMI 307 - 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 (2013) 38 STT 218; 29 taxmann.com 203 (Cestat, Mumbai)].

d)         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.

e)         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.

f)          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'.

g)         In Datafield India Pvt. Ltd. v. CCE, Coimbatore 2008 (9) TMI 94 - CESTAT, CHENNAI, assessee had uniform CIF price all over India. The ownership of goods was transferred to buyer only at buyer's premises. It was held that if excisable goods after removal from factory remain property of manufacturer and are transported on own risk upto premises of buyer, outward freight is 'input service' and is eligible for Cenvat credit.

h)         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, Ahmedabad 2011 (8) TMI 88 - CESTAT, AHMEDABAD]

i)          In Oriental Containers Ltd v. CCE, Thane 2012 (12) TMI 177 - CESTAT, MUMBAI in case of export, place of removal automatically extends up to port of shipment when goods are to be delivered on board and cost of transportation from factory to port of shipment forms part of value of goods. It was held that service tax on outward freight from factory to port of export was input service and eligible for Cenvat credit.

j)          In kuntal Granites Ltd. v CCE, Bangalore 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”.

k)         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'

              It can, therefore, be said that 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 case of exports, the expenditure incurred at custom port is also an essential and integral part of input services for exports and as clarified in above case laws, services provided by custom house agent or courier or other services are also input services. Therefore, such services used by the exporter are very much input services and as such eligible for Cenvat Credit.