JULY 27, 2015

By Nirav S Karia, CA

THE CBEC had issued Circular No. 988/12/2014-CX, dated 20.10.2014 issued clarifying determination of place of removal under Central Excise law including Cenvat credit. In the said Circular, the CBEC had clarified that the place of removal needs to be ascertained in terms of provisions of Central Excise Act, 1944 read with provisions of the Sale of Goods Act, 1930. The said Circular clarified that payment of transport, inclusion of transport charges in value, payment of insurance or who bears the risk, etc., are not the relevant considerations to ascertain the place of removal.It concluded that the place where sale takes place or when the property in goods passes from the seller to the buyer is the relevant consideration to determine the place of removal. Subsequently, CBEC issued another Circular bearing No. 999/6/2015-CX, dated 28.2.2015, with particular reference to determining the place of removal in respect of export goods for the purpose of Cenvat credit.

The CBEC notes the provisions of Sections 23 and Section 39 of the Sale of Goods Act, in terms of which property in the goods passes to the buyer when the goods are handed over to the carrier for transmission to the buyer and observes that the "place of removal" for Cenvat credit has to be determined in these terms. Applying these provisions, CBEC clarified that when a manufacturer-exporter hands over the goods to the shipping line at the port, for transmission to the foreign buyer, such port is the place of removal. However, in cases where export is made through merchant exporter, in most such cases, first sale takes place at the factory gate to the said merchant exporter, and that is the place of removal.

Recently, the question of determination of ‘place of removal' for the purpose of Central Excise Act, 1944 was considered by the Supreme Court in the case of CCE vs. Roofit Industries Limited - 2015-TIOL-87-SC-CX. In this case, the Supreme Court was considering the issue as to whether the goods were sold at the factory gate or at the premises of the buyer where the seller had arranged for transportation and insurance of the goods during transit. The Supreme Court, setting aside the order of CESTAT, confirmed inclusion of freight, insurance and unloading charges in the assessable value for excise duty under Section 4 of the Central Excise Act, 1944.

The Supreme Court relied upon the purchase orders placed by the buyers (government authorities) on the respondent-manufacturer and held that as per the terms of the order, the goods were to be delivered at the place of the buyer and it was only at that place where the acceptance of supplies was to be effected. Further, as per the 'terms of payment' clause, it was mentioned that 100% payment for the supplies was to be made by the purchaser after the receipt and verification of material. The Apex Court observed that the intention of the parties was to transfer the ownership in the goods at the buyer's premises and hence the acceptance of the goods was to be effected at the buyer's premises. T here was no money given earlier by the buyer to the assessee and the consideration was to pass on only after the receipt of the goods which was at the premises of the buyer. Accordingly, the Court held that ownership of the goods vested with the respondent-manufacturer till the same was delivered at the buyer's place and, therefore, the sale took place at the buyer's premises and not at the factory gate.

While deciding the place of removal of removal the Supreme Court has taken into account the intention between the parties to transfer the goods at the premises of the buyers where the goods were to be delivered by the seller and it placed reliance on Section 19 of the Sales of Goods Act, 1930 according to which property in goods is passed when the same is intended to pass.

The said order of the Supreme Court was passed on 23 rd April 2015. On this date, there are two Circulars issued by CBEC on the same question but it appears they were not cited before the Court and therefore, such circulars did not undergo the scrutiny of the Apex Court. Unfortunately, in case of Roofit Industries, the assessee did not appear and was not represented before the Supreme Court.

The decision of Supreme Court in case of Roofit Industries strengthens the importance of determination of place of removal for the purpose of levy of excise duty on goods manufactured. The intention of the parties acts as a key determinant to decide if the ‘place of removal' is factory premise or the customer premises. Thus, the contracts should be appropriately worded to define the situs of transfer of ownership.

The said order being favourable to the Central Excise department, it may probe the assessees who have entered into contracts with Government Authorities or others to check the situs of ownership for the purpose of Central Excise Act, 1944. It can also invoke extended period of limitation so as to check the computation of transaction value by the assessees in respect of goods cleared to such parties. In other words, the department can inquire and seek to re-assess freight element deducted by the assessees from the transaction value for determining the assessable value for the purpose of payment of excise duty.