CESTAT Hyderabad Says Buyer's Premises Can Be 'Place of Removal', Upholds GTA Credit In FOR Sales

The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 7 May held that in FOR destination sales, where freight and insurance form part of the assessable value and the seller retains risk and ownership till delivery, the buyer's premises can qualify as the “place of removal”. Consequently, Service Tax paid on outward GTA services is eligible for CENVAT Credit.

A Bench comprising Technical Member A.K. Jyotishi and Judicial Member Angad Prasad observed that the Department cannot adopt inconsistent positions by accepting excise duty on a value inclusive of freight and insurance while denying CENVAT Credit on the corresponding transportation services. The Tribunal observed:

“Once the Department accepts the transaction value is inclusive of freight and insurance and collects duty thereon, it cannot simultaneously contend, for the purpose of CENVAT Credit, that the place of removal was only the factory gate. Such an approach would amount to adopting inconsistent positions: one for valuation and another for credit.”

The dispute concerned whether Gloster Cables Ltd. was entitled to CENVAT Credit on Service Tax paid under reverse charge on GTA services used for outward transportation of goods cleared on FOR destination basis. The Department contended that post-amendment of Rule 2(l), only the factory gate could be treated as the place of removal, relying on the Supreme Court decision in Ultra Tech Cement Ltd.

The respondent-manufacturer, engaged in producing industrial cables, effected both ex-factory and FOR destination clearances. In FOR transactions, it included freight and insurance in the transaction value and discharged excise duty accordingly. It also paid Service Tax on GTA services and availed credit.

The Department denied credit on the ground that outward transportation beyond the factory gate did not constitute an input service. However, the Commissioner (Appeals) allowed the credit, holding that in FOR destination sales, ownership and risk remained with the seller until delivery at the buyer's premises.

Upholding this view, the Tribunal noted that the Department had not disputed the assessable value or sought exclusion of freight from valuation. It held that once duty is accepted on a freight-inclusive value, denial of credit on the same component was unsustainable.

Distinguishing Ultra Tech Cement Ltd., the Bench clarified that it does not lay down an absolute rule that the factory gate is always the place of removal. It reiterated that in FOR destination contracts, where risk and ownership continue till delivery, the buyer's premises may constitute the place of removal.

The Tribunal held that determination of “place of removal” must turn on the contractual terms and factual matrix, including transfer of title, risk in transit, and responsibility for freight and insurance. It further held that where sale concludes only upon delivery at the buyer's premises, outward transportation up to that point qualifies as an input service under Rule 2(l) of the CENVAT Credit Rules, 2004.

In support of this position, the Tribunal relied on CBIC Circular No. 1065/4/2018-CX dated 8 June 2018, which clarifies that eligibility of credit on outward freight depends on the facts of each case and determination of the place of removal.

It also referred to earlier rulings including Schneider Electric India Pvt. Ltd. and Pawan Power and Telecom Ltd., which recognise that where sale is concluded at the buyer's premises under FOR contracts, outward freight forms part of assessable value and corresponding GTA credit cannot be denied.

Accordingly, the CESTAT held that the buyer's premises in the present case constituted the “place of removal” and upheld the admissibility of CENVAT Credit on outward GTA services, dismissing the Revenue's appeal.

Appearance for the Appellants: Shri B. Sangameshwar Rao, Authorized Representative

Appearance for the Respondent: Shri P. Rosi Reddy, Advocate