The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that CENVAT credit is admissible on clearing and forwarding services involving the receipt, unloading, storage, handling and loading of cement at depots or warehouses from where the goods are subsequently sold.
The bench of Angad Prasad (Judicial Member) and A.K. Jyotishi (Technical Member) clarified that credit relating to transportation, delivery and unloading at a customer’s premises would depend on whether the customer’s premises qualified as the “place of removal” under the particular sale contract.
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The appeal arose from an order dated January 15, 2013, passed by the Commissioner of Central Excise, Guntur. The Commissioner had disallowed CENVAT credit of ₹52,44,388 availed on clearing and forwarding services between March 2008 and March 2011. Interest was demanded and an equivalent penalty was imposed under Rule 15(2) of the CENVAT Credit Rules, 2004.
The appellant/assessee was engaged in manufacturing cement falling under Chapter 25 of the Central Excise Tariff Act, 1985. The cement manufactured by the company was cleared directly from its factory and was also stock-transferred to depots and warehouses situated in different states.
These depots were managed by clearing and forwarding agents. Their activities included receiving cement from railway stockyards or transporters’ godowns, unloading and storing the goods, handling the cement and loading it into transport vehicles. In certain transactions, the agents also undertook unloading at the customer’s premises.
The company availed CENVAT credit of the service tax paid on these C&F services. The department disputed the credit on the ground that the services were rendered beyond the factory or depot, which according to it was the relevant place of removal. Consequently, the services were treated as falling outside the definition of “input service” under Rule 2(l) of the CENVAT Credit Rules.
The company contended that its cement was sold on an FOR-destination basis and that its responsibility for the goods continued until delivery at the customer’s premises. It therefore claimed that the customer’s premises constituted the place of removal.
It was further submitted that the clearing and forwarding services were integrally connected with the storage, marketing, sale and delivery of cement. During the disputed period, these services were also covered by the expression “activities relating to business” appearing in the definition of input service.
The department maintained that following the amendment to Rule 2(l) with effect from April 1, 2008, credit was available only for services used “up to the place of removal.” It argued that merely describing a transaction as an FOR-destination sale would not automatically make the buyer’s premises the place of removal.
The Tribunal observed that Section 4(3)(c) of the Central Excise Act, 1944 specifically includes within the expression “place of removal” a depot, the premises of a consignment agent or any other premises from where excisable goods are sold after their clearance from the factory.
Accordingly, where cement was stock-transferred to depots and thereafter sold from those locations, services concerning the receipt, unloading, storage, handling and loading of cement at the depots could not be regarded as services rendered beyond the place of removal.
The Bench held that these services had a direct connection with the company’s business of manufacturing and selling cement and therefore qualified as eligible input services.
The Tribunal said that a different consideration would apply to services rendered after the cement was cleared from the depot, including transportation and unloading at the customer’s premises.
Eligibility for credit on such services would depend on whether the customer’s premises constituted the place of removal in the particular transaction.
Referring to the Larger Bench ruling in The Ramco Cements Ltd. v. CCE, the Tribunal observed that the place of removal in an FOR-destination transaction must be identified after examining the contractual terms and the applicable legal principles.
The mere use of the expression “FOR-destination” in an invoice or contract would not, by itself, conclusively establish the buyer’s premises as the place of removal.
The relevant considerations include the point at which ownership in the goods passed to the buyer, the party that bore the risk of loss or damage during transit, whether freight and insurance were borne by the manufacturer, whether freight formed part of the assessable value, and whether delivery at the buyer’s premises was an essential condition of the sale.
If ownership and risk remained with the manufacturer until delivery and the sale was completed only at the customer’s premises, that location would qualify as the place of removal. Services used up to the completion of delivery at that place, including unloading, would consequently be eligible for CENVAT credit.
Conversely, if title and risk passed at the factory or depot and subsequent transportation was provided merely as an additional facility, credit on services supplied beyond that point would not be admissible.
The Tribunal found that the Commissioner’s order proceeded on the general assumption that the factory or depot necessarily constituted the place of removal.
The adjudicating authority had not examined individual contracts, invoices, delivery terms, treatment of freight in the assessable value or the point at which ownership and risk were transferred.
The Bench consequently held that limited factual verification was required to determine the credit available on transportation, delivery and unloading services provided at the customer’s premises.
The Tribunal noted that the dispute involved the interpretation of the expressions “input service” and “place of removal.” The company had accounted for the disputed credit in its statutory records and disclosed it through its ER-1 returns.
The company’s records had also been examined during departmental audits conducted in September 2010 and January 2012. The department failed to establish any positive act of fraud, collusion, wilful misstatement or suppression of facts with an intention to evade duty.
The Tribunal reiterated that a mere omission or incorrect interpretation of law was insufficient to invoke the extended limitation period. Suppression must be deliberate and accompanied by an intention to evade duty.
It also noted that divergent judicial views existed on the determination of the place of removal in FOR-destination transactions. Accordingly, the demand falling beyond the normal limitation period was set aside.
For the same reasons, the Tribunal held that the statutory ingredients necessary to impose a penalty under Rule 15(2) of the CENVAT Credit Rules read with Section 11AC of the Central Excise Act had not been established.
The equivalent penalty of ₹52,44,388 was therefore set aside in its entirety.
The Tribunal remanded the matter solely for determining whether any inadmissible credit fell within the normal limitation period and for verifying the actual place of removal in transactions involving transportation, delivery and unloading at the customer’s premises.
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