PLACE OF REMOVAL

[Dr. Sanjiv Agarwal]

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 Bench of 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.

Place of Removal [Rule 2(qa)]

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.

Under these rules, there are provisions that the credit of input services is available upto the place of removal. As the definition is now provided in the CCR, wherever Cenvat credit is available upto the place of removal, this definition of place of removal would apply, irrespective of the nature of assessment of duty.

However, how to ascertain 'place of removal' is an issue. There are two Circulars issued by CBEC on this, i.e., section 37B Order No. 59/1/2003 dated 03.03.2003 and Circular No. 97/8/2007 dated 23.08.2007. The operative portion of these Circulars is extracted below:

 (i) Circular dated 3-3-2003

"Thus, it would be essential in each case of removal of excisable goods to determine the point of “sale”. As per the above two Apex Court decisions this will depend on the terms (or conditions of contract) of the sale. The ‘insurance’ of the goods during transit will, however, not be the sole consideration to decide the ownership or the point of sale of the goods. ”

 (ii) Circular dated 23-8-2007

"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.”

Both these Circulars seek to convey that the place where sales take 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.

Recently, CBEC has issued yet another Circular No. 988/12/2014-CX dated 20.10.2014. Accordingly, 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 v. Commissioner of Central Excise , New Delhi [2002 (3) TMI 96 - CEGAT, COURT NO. I, NEW DELHI] . This principle was upheld by the Hon’ble Supreme Court in case of M/s. Escorts JCB Limited v. CCE, New Delhi [2002 (10) TMI 96 - SUPREME COURT OF INDIA ] .

It further says 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 ).

It has been reiterated 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 .