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[2016]70taxmann.com105/[2015]52GST27(Article)

[2016]70taxmann.com105(Article)

CentralExcisePlaceofRemovalPresentunderstandingrelatingtoPlaceof
RemovalTurnedupsidedownbySupremeCourt

V.S.DATEY

An analysis of the judgments rendered by the Supreme Court in CCE v. Ispat Industries Ltd. [2015] 62
taxmann.com97(SC)andCCEv.RoofitIndustries[2015]57taxmann.com363(SC)

Background

1.Theterm'placeofremoval'ishighlyrelevantinCentralExcise.Thetermhasbeenusedattwoplaces
(a)Section4(1)ofCentralExciseActrelatingtovaluationinCentralExciseonbasisofassessablevalue(b)
Rule2(l)ofCenvatCreditRuleswhichdefines'inputservice'.

So far, the understanding of both department and assessees was that 'place of removal' is the place where
property in goods passes to the buyer. Thus, place of removal can be factory, depot, place of consignment
agent,port(incaseofexports)andevenplaceofbuyerwherethepropertyingoodspassestothebuyer.

ThisunderstandinghasreceivedaseriousjoltintherecentdecisionofSupremeCourt.

InCCEv.IspatIndustriesLtd.[2015]62taxmann.com97(SC),ithasbeenheldthattheplaceorpremises
fromwhereexcisablegoodsaretobesoldcanonlybethemanufacturer'spremisesorpremisesreferableto
themanufacturer.Premisesofbuyercanneverbe'placeofremoval'.

Ithasbeenobservedasfollows

Subclause(b)(iii)[ofsection4(3)(c)ofCentralExciseAct]isveryimportantandmakesitclearthata
depot, the premises of a consignment agent, or any other place or premises from where the excisable
goodsaretobesoldaftertheirclearancefromthefactoryareallplacesofremoval.Whatisimportant
to note is that each of these premises is referable only to the manufacturer and not to the buyer of
excisablegoods.Thedepot,orthepremisesofaconsignmentagentofthemanufacturerareobviously
placeswhicharereferableonlytothemanufacturer.Eventheexpression"anyotherplaceorpremises"
refersonlytoamanufacturer'splaceorpremisesbecausesuchplaceorpremisesisstatedtobewhere
excisablegoods"aretobesold".Thesearethekeywordsofthesubsection.Theplaceorpremisesfrom
whereexcisable goods are to be sold can only be the manufacturer's premises or premises referable to
the manufacturer. If we are to accept the contention of the revenue, then these words will have to be
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substituted by the words "have been sold" which would then possibly have reference to the buyer's
premises.

Thisdecisionhasvastimplicationsinrespectof(i)valuationofexcisablegoodsand(ii)eligibilityofCenvat
Credit of service tax paid on outward freight, insurance of final product from factory of manufacturer to
placeofbuyerandotherexpensesincurredfortransportationoffinalproductfromfactoryofmanufacturer
toplaceofbuyer.

IssuesarisingoutofthisdecisionarediscussedinthisArticle.

PlaceofRemoval

2.Section4(3)(c)ofCentralExciseActdefines'placeofremoval'asfollows'Placeofremoval'means(i)a
factoryoranyotherplaceorpremisesofproductionormanufactureoftheexcisablegoodsfromwheresuch
goodsareremoved(ii)Awarehouseoranyotherplaceorpremiseswhereintheexcisablegoodshavebeen
permitted to be deposited without payment of duty from where such goods are removed (iii) A depot,
premisesofaconsignmentagentoranyotherplaceorpremisesfromwhereexcisablegoodsaretobesold
after their clearance from factory from where such goods are removed. Definition in Cenvat Credit Rules,
inserted by rule 2(qa) of Cenvat Credit Rules, w.e.f. 1172014 is same as per section 4(3)(c) of Central
ExciseAct.

2.1CulpritinthedefinitionThemostcrucialandlitigationpronewordsareinsection4(3)(c)(iii) of
CentralExciseAct,whichreadasfollowsPlaceofremovalAdepot,premisesofaconsignmentagentor
any other place or premises from where excisable goods are to be sold after their clearance from factory
fromwheresuchgoodsareremoved.Theterm'oranyotherplaceorpremisesfromwhereexcisablegoods
aretobesold'ispronetodifferentinterpretations.Sofar,theunderstandingwasthat'anyotherplace'can
beplaceofbuyerifpropertyingoodspassesattheplaceofbuyer.

2.2 Definition of 'sale' As per section 2(h) of Central Excise Act, 'sale' and 'purchase' with their
grammaticalvariationsandcognateexpressions,meansanytransferofpossessionofgoodsbyonepersonto
another in the ordinary course of trade or business for cash or deferred payment or other valuation
consideration.

Interestingly, this definition merely refers to 'transfer of possession' and not 'transfer of property'. It seems
thisdefinitionwasnotbroughttonoticeofSupremeCourtatallincaseof'IspatIndustries'.

2.3Judicial interpretation of the term 'place of removal' InEscorts JCB Ltd. v. CCE [2003] 1
SCC281=53RLT1=(146)ELT31(SC),thecontractwasforsaleexfactory.Goodswerehandedoverto
the carrier/transporter. However, insurance was arranged by assessee, though charged separately. It was
contended by department that since insurance is arranged by seller, the property in goods passes to buyer
only when goods reach the destination. Hence, buyer's place will be the 'place of removal' and hence
insurance and freight will be includible in the price. This view was rejected by SC. It was held that as per
section 39 of Sale of Goods Act, delivery of goods to carrier is prima facie delivery of goods to buyer.
Ownershipinthepropertymaynothaverelevanceinsofarasinsuranceofgoodssoldduringthetransitis
concerned.Itisnotnecessarythatinsuranceofthegoodsandownershipofgoodsmustalwaysgotogether.

InCCEv.AccurateMeters[2009]6SCC52=(235)ELT581(SC),theassesseehadtwoseparatecontracts
with Electricity Board one for supply of meters at exworks price and other for freight and insurance
charges, which were to be charged on average basis and not on actual basis. It was held that delivery to
transporter is primafacie delivery of goods to buyer. Hence, sale takes place at factory gate. Freight and
insurancechargesarenotincludible(thoughchargedonaveragebasisonly).
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ThisviewwasreiteratedinCCEv.PrabhatZardaFactoryLtd.2000(119)ELT191=38RLT637(CEGAT5
member bench), where it was held that as per definition of 'sale' under section 2(h) of Central Excise Act,
transferofpossessionofgoodsistheessenceofsale.

InCCEv.RoofitIndustries[2015]8SCC229=51GST350=57taxmann.com363=(319)ELT221(SC),it
hasbeenspecificallynotedthat'placeofremoval'canbeplaceofbuyer.Infollowingwords

The clear intent of the aforesaid purchase order was to transfer the property in goods to the buyer at the
premisesofthebuyerwhenthegoodsaredeliveredandbyvirtueofsection19oftheSaleofGoodsAct,the
propertyingoodswastransferredatthattimeonly.Section19readsasunder:

"19. Property passes when intended to pass (1) 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 (2) For the purpose of ascertaining the intention of the parties
regardshallbehadtothetermsofthecontract,theconductofthepartiesandthecircumstancesofthe
case (3) Unless a different intention appears, the rules contained in sections 20 to 24 are rules for
ascertainingtheintentionofthepartiesastothetimeatwhichthepropertyinthegoodsistopassto
thebuyer.
This decision has been specifically noted by Supreme Court in case of 'IspatIndustres'. However, the
casewasdistinguishedonbasisoffactsofthecase,observingasfollows'Also,thisCourt'sattention
was not drawn to section 4 as originally enacted and as amended to demonstrate that the buyer's
premisescannot,inlaw,be"aplaceofremoval"underthesaidsection'.

2.4ViewofCBE&C:

CBE&C videcircular No. 97/8/2007, dated 2382007 has clarified that sale can take place at
destination,if(i)ownershipofgoodsisretainedbysellertilldeliveryofgoods(ii)sellerbearsrisk
oflossordamageduringtransitand(iii)freightchargesareintegralpartofthepriceofgoods
Insuchcase,servicetaxpaidontransportationofgoodsuptodestinationwillbeavailable.
In further circular No. 988/12/2014CX, dated 20102014, it has been clarified that place of
removalistobedecidedintermsofprovisionsofCentralExciseAct,readwithprovisionsofSale
ofGoodsAct.Paymentoftransport,inclusionoftransportchargesinvalue,paymentofinsurance
orwhoisbearingriskarenotrelevantconsiderationstoascertaintheplaceofremoval..Theplace
where 'sale' has taken place or when the property in goods passes from seller to the buyer is the
relevant consideration to determine the 'place of removal'. This has to be determined on basis of
decisioninAssociatedEnterprises.

Thesecircularshavenowbecomeofdoubtfulvalidity.

2.5SCdecisionbindingtillreviewedordefinitionamendedThereisnodoubtthatjudgmentof
Supreme Court is in very clear terms and delivered after noting and analysing the earlier decisions of
SupremeCourt.Thedecisioncannotbetermedas'perincuriam'.Thus,asontoday,thedecisionis'lawof
theland',unlessGovernmentdecidestomakesomechangesinthedefinitionortogivesomeadministrative
relief.However,tillthen,thedecisionisbindingandhastobefollowed.

EffectofSCdecisionontheValuationunderCentralExcise

3.IfassesseewaspayingexcisedutyonFORpriceincludingoutwardfreight,insuranceonoutwardfreight
etc,.hecanstartpayingexcisedutyonexworksprice,ifeasilyascertainable.

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Assessee may claim refund for past one year, but chances of getting refund are negligible, in view of
provisionsrelatingtounjustenrichment.

If the value of outward freight and insurance cannot be easily ascertained, it is advisable to continue pay
excise duty on FOR price, particularly where the buyer is in position to avail Cenvat credit of excise duty
paidbymanufacturer.

IncasewhereexcisedutyispaidonbasisofMRPoronbasisofproductioncapacity,assesseehasnochoice
asfreightelementhasnorelationwiththeexcisedutypayablebyhim.

If assessee pays excise duty on higher value, it is possible that department may take a view that Cenvat
credit is not available to the buyer, of the excess excise duty paid. This objection is not likely to sustain in
viewoffollowingcaselaw.

InCCEv.MDSSwitchgearLtd.2008(229)ELT485(SC),excisedutywaspaidbysupplieronhigherside.
Tribunalfoundthattherewasnorevenueloss.Tribunalheldthataquantumofdutyalreadydeterminedby
thejurisdictionalofficersofthesupplierunitcannotbecontestedorchallengedbytheofficersinchargeof
the recipient unit. Department filed appeal before Supreme Court. Tribunal's view was agreed with by
SupremeCourt.

InCCEv.CEGAT2006(202)ELT753(MadHCDB),itwasheldthatthewordsusedinrule3(1)ofCenvat
CreditRulesare'excisedutyandservicetaxpaid'andnot'payable'.Thus,oncedutyis'paid',Cenvatcredit
isavailable,whetherdutywaspayableornotsameviewinCCEv.RanbaxyLabsLtd.2006(203)ELT213
(P&HHCDB)*CCEv.KohinoorPrinters2015(321)ELT448(MadHCDB)*OboiLaboratories v. CCE
2015 (321) ELT 472 (CESTAT) * NeulandLaboratories v. CCE [2015] 51 GST 662 = 59 taxmann.com 18
(CESTAT).

InCCEv.PirityFlexpack2008(223)ELT361(GujHCDB),assesseepaidduty@24%againstactualrate
of 16%. It was held that buyer is eligible for entire Cenvat credit, as the payment of higher duty was not
disputedatsupplier'send.

CenvatCreditofServiceTaxpaidonexpensesuptoPort

4.Incaseofexports,theplaceofremovalisportwhereexportdocumentsarepresentedtocustomsoffice
Kuntal Granites v. CCE [2007] (215) ELT 515 = 2007 TIOL 930 (CESTAT) quoted and followed in
RajasthanSpg.&Wvg.MillsLtd.v.CCE[StayorderNo.671/2007SM(BR),dated2072007]*Oriental
Containersv.CCE[2012]37STT543=25taxmann.com516(CESTATSMB).

PortistheplaceofremovalinexportsaspropertygetstransferredtobuyeratportRSWMv.CCE[2008]
(223)ELT481(CESTATSMB)*CCEv.AdaniPharmachem[2009]19STT239=(238)ELT179(CESTAT
SMB)*HonestBioVetPLtd.v.CCE2014(310)ELT526(CESTATLB).

InCCEv.RolexRings2008(230)ELT569(CESTATSMB),ithasbeenheldthatincaseofexports,portis
the 'place of removal' as exporter continues to be owner of goods till the same are exported. Hence, CHA
andsurveyorserviceswhicharerelatingtoexportbusinessareeligibleforCenvatcredit.

Since port is place of removal for exports, any expenses or tax incurred till the goods reach the place of
exportareeligibleforCenvatCreditCCEv.HeubachColourPLtd.2013(288)ELT281(CESTATSMB)*
CentralExcisev.InductothermIndia[2014]44GST201=43taxmann.com34=76VST1(GujHCDB)*
Dynamic Industries v. CCE (2013) 39 STT 702 = 27 taxmann.com 290 (CESTAT) confirmed in

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Commissionerv.DynamicIndustries[2014](47)GST643=49taxmann.com240 = 307 ELT 15 (Guj HC

DB).

4.1 Departmental clarification regarding 'place of removal' in case of exports CBE&C,

videcircularNo.999/6/2015CX,dated2822015hasclarifiedasfollows

In case of goods cleared by manufacturer exporter, transfer of property takes place when goods
arehandedovertoshippingline.Inthatcase,port/ICD/CFSwillbetheplaceofremoval.
In case of export through merchant exporter, normally, property in goods passes to merchant
exporter at the factory gate. Hence, that will be normally place of removal. However, in isolated
cases,theport/ICD/CFScanbeplaceofremovaldependingonfactsofthecase.

4.2 Validity of case law and departmental circular, after decision of Supreme Court
Thoughissuehasbecomelitigationprone,itcanbearguedthatSupremeCourthasonlyheldthatplaceof
buyercannotbe'placeofremoval'.Portisnottheplaceofbuyer.Itcanalsobearguedthatportisaplace
'referable to manufacturer', as the manufacturer continues to be owner of goods till goods are loaded in
ship.

Itcanalsobearguedthatwhentwointerpretationsarepossible,aninterpretationwhichpromotesexports
andwhichisbeneficialtoassesseeshouldbeadopted.

Inanycase,whateverassesseedecides,itisadvisabletoinformdepartment.

CenvatCreditofServiceTaxonOutwardFreightandOutwardInsurance

5.InviewofcleardecisionofSupremeCourt,placeofbuyercannotbe'placeofremoval'ofgoods.Hence,
Cenvatcreditofservicetaxpaidonoutwardfreightandoutwardinsuranceoffinalproductsfromplaceof
factory of manufacturer to place of customer will not be available to manufacturer even if he pays excise
dutyonFORpriceincludingoutwardfreightandoutwardinsurance.

Even when manufacturer pays excise duty on basis of MRP valuation or production capacity, the Cenavt
creditofservicetaxpaidonoutwardfreightoroutwardinsurancewillnotbeavailable.

Itispossiblethatthedefinitionof'placeofremoval'maybesuitablyamendedorsomeadministrativerelief
maybegiven.

Asperthirdprovisotorule4(1)andfifthproviso to rule 4(7) of Cenvat Credit Rules, amended w.e.f. 13

2015,thedutypayingdocumentisvalidonlyforoneyearfromdateofdutypayingdocument.

Thus, if assessee wants to safeguard his eligibility of Cenvat credit, he may take Cenvat credit and
immediately reverse before utilisation. This should be done after informing department that he is doing so
onlytoensurethatCenvatcreditistakenwithinoneyearfromdateofdutypayingdocument.

DemandsforPastPeriod

6. Demands for past period from department (in case of Cenvat Credit of service tax paid on outward
freightandoutwardinsurance),demandsforpastperiodarepossible.Inmyview,demandsforperiodprior
tooneyearcannotsustainandwillbeheldastimebarred,thoughharassmentcannotberuledout.

Ifshowcausenoticeshavealreadybeenissued,thenthoseassesseesareunlucky.Demandwithinterestwill
becomepayable.Onlyrelieffrompenaltycanbeclaimedonbasisof'bonafide'belief.

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Inmyview,assesseemaynotpayamountsforpastperiodimmediately.LetushopeGovernmentwilltake
someactiontoavoidchaos.

Conclusion

7.Inviewofgraveimplicationsofthedecisionontradeandindustry,itishopedthatGovernmentwilltake
urgent steps like amending the definition of 'place of removal' or giving administrative relief under section
11C of Central Excise Act and also relief considering underlying principle behind section 5B of Central
ExciseAct[thoughsection5BoftheAct,assuch,isnotapplicableinthiscase].

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