Manufacturer entitled to CENVAT credit on service tax for outward transportation under FOR sales arrangement

CESTAT New Delhi held that a manufacturer is entitled to CENVAT credit on service tax paid for goods transport agency services for outward transportation on Free on Road destination basis from factory to customer premises. The tribunal determined that "place of removal" for FOR sales extends to buyer's premises, not just factory gate, based on definitions in Central Excise Act section 4(3)(c) and CENVAT Credit Rules 2004. The tribunal distinguished SC precedents, noting they addressed different aspects of place of removal. Commissioner (Appeals) order denying credit was set aside and appeal allowed.

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Issues Involved:
1. Admissibility of CENVAT credit on service tax paid on GTA services for outward transportation of goods on FOR destination basis.
2. Definition and interpretation of "place of removal" under the CENVAT Credit Rules, 2004.
3. Applicability of the Supreme Court judgment in Ultratech Cement Ltd. case.
4. Legality of penalty and interest imposed by the Commissioner (Appeals).

Summary:

Issue 1: Admissibility of CENVAT Credit on GTA Services
The appellant, engaged in manufacturing Zinc, lead ingots, and sulphuric acid, claimed CENVAT credit on service tax paid on GTA services for outward transportation of goods on FOR destination basis. The appellant argued that since they bore the risk during transit and the property in goods passed at the buyer's premises, they were entitled to CENVAT credit. The department issued show cause notices and confirmed the demand, denying the credit based on the interpretation that the "place of removal" was the factory gate, not the buyer's premises.

Issue 2: Definition and Interpretation of "Place of Removal"
The definition of "place of removal" under rule 2(l) of the 2004 Rules was crucial. Before 01.03.2008, the term "from the place of removal" was used, which was amended to "upto the place of removal" effective 01.03.2008. The appellant contended that the buyer's premises should be considered the "place of removal" for FOR sales, while the department maintained it was the factory gate. The Tribunal referred to the definition in section 4(3)(c) of the Central Excise Act and rule 2(t) of the 2004 Rules, which included a factory, warehouse, or depot as the "place of removal."

Issue 3: Applicability of Supreme Court Judgment in Ultratech Cement Ltd.
The Commissioner (Appeals) relied on the Supreme Court's judgment in Ultratech Cement Ltd., which held that post-01.03.2008, CENVAT credit on GTA services for transportation from the "place of removal" to the buyer's premises was not admissible. However, the Tribunal noted that the Supreme Court did not lay down principles for ascertaining the "place of removal" in the context of CENVAT credit on GTA services. The Tribunal cited subsequent judgments and the CBIC Circular dated 08.06.2018, which clarified that in FOR sales, the buyer's premises could be considered the "place of removal."

Issue 4: Legality of Penalty and Interest
The appellant argued against the imposition of penalty and interest. The Tribunal, considering the judgments and circulars, found that the appellant was entitled to CENVAT credit on GTA services for FOR sales. Consequently, the penalties and interest imposed by the Commissioner (Appeals) were not justified.

Conclusion:
The Tribunal set aside the order dated 14.06.2019 passed by the Commissioner (Appeals) and allowed the appellant to avail CENVAT credit on service tax paid on GTA services for transportation from the factory or depot to the buyer's premises for FOR sales. The appeals were accordingly allowed.

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