Determining when it's a shift in title

The Central Board of Excise and Customs (CBEC) has issued a clarification on "place of removal". Suggesting, in effect, that Cenvat credit for the service tax paid on outward freight for transportation beyond a factory gate or depot would not be available where the buyer takes over title to the goods from the seller at the factory or depot.

Section 4 of the Central Excise Act, 1944, requires determination of assessable value at the "place of removal". That Section and the Cenvat Credit Rules, 2004, define this as a factory or warehouse from where the goods are removed or a depot, premises of a consignment agent or any other place or premises from where excisable goods are to be sold after clearance from the factory. The Cenvat Credit Rules allow credit of service tax on outward transportation up to the "place of removal".

Based on the judgments in the cases of Escorts JCB Ltd. [2002 (146)Error! Bookmark not defined. 31 (SC)], Prabhat Zarda Factory Ltd [2002 (146) ELT 497 (SC)] and Associated Strips Ltd [[2002 (143) ELT 131 (Tri-Del)], the Central Board of Excise and Customs issued an order, 59/1/2003-CX dated March 3, 2003, stating that in each case of removal of excisable goods, the "point of sale" will depend on the terms and conditions of the sale contract.

Later, its circular Error! Bookmark not defined., dated July 23, 2007, clarified that if the ownership of goods and property remained with the seller till the delivery in acceptable condition to the purchaser at his doorstep, the seller bore the risk of loss of or damage to the goods during transit to the destination and the freight charges were an integral part of the price of goods.

And, the credit for the service tax paid on the transportation up to such place of sale would be admissible if it could be established by the claimant of such credit that the sale and transfer of property in the goods occurred at the said place.

CBEC now says the payment of transport, inclusion of transport charges in value, payment of insurance or who bears the risk are not relevant considerations to ascertain the "place of removal". The place where sale takes place or when the property in goods passes from seller to buyer is the only relevant consideration to determine the "place of removal". This can be determined in accordance with the Sale of Goods Act, 1930. This ordains that the property passes from seller to buyer when the goods are unconditionally appropriated to the contract, says CBEC.

Since such appropriation happens invariably at the factory or depot, the "place of removal" in most cases would be the factory gate or the depot. So, the inference is that in such cases, Cenvat credit of the service tax paid on outward freight for transportation beyond the factory gate or depot would not be available.

It would be better if the central excise law is amended to clearly state that outward freight is not to be included in assessable value. And, that credit will not be allowed for service tax on outward freight beyond a factory gate or depot, rather than expect CBEC's field formations and the assessees to determine the "place of removal" in each case, in accordance with Sale of Goods Act, 1930, read with the Central Excise Act, 1944.

email: tncrajagopalan@gmail.com