CENVAT Credit Available On Depot Clearing And Forwarding Services: CESTAT Hyderabad

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 provided at an assessee's depots.

This includes receipt, unloading, storage, handling and loading of cement at depots from where the goods were subsequently sold.

The tribunal observed, “Such services have a direct nexus with the appellant's business of manufacture and sale of cement and are eligible input services.”

It held that a depot from where cement is sold after clearance from the factory falls within the statutory definition of “place of removal”.

A bench of Judicial Member Angad Prasad and Technical Member A.K. Jyotishi partly allowed Madras Cements Ltd.'s appeal. The appeal challenged the disallowance of CENVAT credit of ₹52,44,388 on C&F services used between March 2008 and March 2011.

Madras Cements manufactured cement and cleared it directly from its factory. It also stock-transferred cement to depots and warehouses in different States. C&F agents at these locations handled receipt, unloading, storage, handling and loading of the cement. In some cases, they also unloaded it at customers' premises.

The cement company contended that its sales were on FOR-destination basis. It argued 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.

The Department argued that after the April 1, 2008 amendment to Rule 2(l) of the CENVAT Credit Rules, credit was available only for services used up to the place of removal. It also contended that FOR-destination wording alone could not make the customer's premises the place of removal.

For services provided after clearance from a depot, the tribunal held that eligibility depended on whether the customer's premises constituted the place of removal in the particular transaction.

Relevant factors include when title passed, who bore transit risk, who paid freight and insurance, how freight was treated in the assessable value, and whether delivery at the customer's premises was an essential condition of sale.

For context, the “place of removal” is the point recognised under the excise law from which the goods are treated as sold or otherwise removed for determining the scope of credit.

For depot sales, the law specifically includes a depot or other premises from where the goods are sold after clearance from the factory.

The tribunal found that the adjudicating authority had not examined the relevant factors. It had instead proceeded on the general assumption that the factory or depot was necessarily the place of removal. The matter was therefore remanded for limited factual verification and re-quantification of credit, if any, falling within the normal limitation period.

The tribunal also set aside the demand falling beyond the normal limitation period. It found no evidence of fraud, collusion, wilful misstatement or suppression of facts with intent to evade duty. The equivalent ₹52,44,388 penalty was set aside in full.

The adjudicating authority must now re-quantify the credit, if any, falling within the normal period. It must examine the relevant contracts, invoices and other documents to determine the actual place of removal. The assessee must also be given an opportunity to produce contracts, purchase orders, freight and insurance records and an effective opportunity of personal hearing.

The authority has been directed to pass a speaking order without reopening the issues of extended limitation and penalty already decided by the tribunal.

For Appellant: R. Parthasarathy, Consultant

For Respondent: V. Srikanth Rao, Authorised Representative