Introduction 

It has been two years since the GST Act has been enacted and businesses are finally settling down in this regime and getting comfortable with the law. While most of the interpretational issues under the old regime have already attained finality, few complicated issues refuse to die down and keep the industry and consultant guessing.  One such issue which the subject matter of this article is the Credit eligibility on ‘Outward Transport of goods services’.  In this Article, the authors would wish to travel across a convoluted spectrum of circulars and judicial pronouncements and would thereafter provide their opinion on the way forward for the industry.     

Legal position 

The present Article involves the interpretation of the definition of input service and more specifically of the phrase ‘place of removal’.  While credit was available on the services on the clearance of final products ‘from the place of removal’, an amendment in 2008[1] substituted this phrase as “upto the place of removal” which lead to opening up of the pandora’s box.  

The succinct point of dispute lay on what constitutes ‘place of removal’ in the absence of a specific definition in CENVAT Credit Rules (till 2014) and different interpretations of this phrase flowing from the definition under the Central Excise Act, 1944 and under the Board Circular No. 97/8/2007 ST dated 23.8.2007[2].  

Supreme Court cases 

The Hon’ble Supreme Court in multiple occasions had gone into the interpretation of what is place of removal. For this Article, we would resume our discussion with the decision of the Hon’ble Supreme Court in the case Roofit Industries Limited[3]. 

This was a case of determining whether the transportation cost was to be included while arriving at the value of goods for the purposes of the Central Excise Act, 1944. The Hon’ble Supreme Court held that if goods were transported to the buyer’s premises and all the costs incurred up to the buyer’s premises were included in the transaction value, the customer premises can be considered as a place of removal.  

This decision of the Supreme Court was distinguished in around six months’ time in another landmark decision of the Supreme Court in Ispat Industries Ltd.[4].

In Ispat Industries, the question of law posted before the Hon’ble Supreme Court was whether freight charges incurred from the factory gate to the buyer’s premises would be includable while computing the transaction value when the clearance of goods were made on ex-works basis.

The Hon’ble Supreme Court categorically held that under no circumstances would the buyer’s premises be the “place of removal” for Section 4 of the Central Excise Act.  While deciding so, the Court relied on the definition of ‘Place of removal” provided under Explanation VI (c) to Section 4 of the Central Excise Act, 1944.

It is pertinent to note that while in Roofit’s case, the terms of delivery of the goods were on FOR basis, in Ispat’s case it was decided that the goods were cleared on ex-works basis. 

It is also to be noted that the cases were rendered in the context of valuation of goods under the Excise Act and the provisions of the Cenvat Rules were never in consideration before the Court.  

After the Supreme Court ruling of Ispat also, questions relating to eligibility of credit continued to come up before various Tribunals. While the Department relied on the findings in Ispat, the decisions were ruled favouring the assessee[5] distinguishing Ispat on the ground that the judgments were rendered in the context of  valuation of goods under the Excise Act and the provisions of the Cenvat Rules were never in consideration before the Court 

Subsequently, the aspect relating to eligibility of credit on GTA services was decided by the Hon’ble Supreme Court in case of two cement manufacturers viz Vasavadatta Cements Limited. and Ultratech Cement[TS-19-SC-2018-EXC][6].

The Court, in both these cases, noted that the amendment to the definition of input services in 2008 and observed that ‘from’ was the indicator of starting point, and ‘upto’ signifies terminating point. Thus, the court held that after 2008, credit would not be available on transportation services beyond the place of removal.

It is interesting here to note that both these cases did not analyse in detail as to what actually would constitute the ‘place of removal’

To get a panoramic view of the issue in hand, a table highlighting the differences in facts and law in Roofit Industries, Ispat Industries and Vasadetta and Ultratech is captured below

Considering the number of circulars and different interpretations flowing from various Supreme Court decisions and the Tribunal decisions, the Board again thought it fit to clarify the position of law in Circular No. 1065/4/2018-CX  dated 08^th June 2018. The circular in brief states as under: -  

1. As a general principle, the decision laid down by the Apex Court in the case of Ispat Industries Ltd. may be applied in order to determine the place of removal.
2. Where the sale is on FOR contract, an exception in created. In such circumstances, the place of removal shall be the buyer’s premises as laid down by the Apex Court in Roofit Industries supra.
3. In respect of CENVAT credit of outward transportation beyond the place of removal, it has been clarified that the decision laid down by the Hon’ble Supreme Court in the case of Ultratech Cement Ltd shall be followed. 

Subsequent to the circular, the Hon’ble CESTAT Ahmedabad in the cases of Ultratech Cement[7] and Sanghi Industries Limited[8] took note of the above cases and the recent Board Circular and held that for FOR transactions, the credit of service tax paid on outward freight would be eligible.

The Hon’ble Tribunal further held that Hon’ble Supreme Court in Ultratech did not go into the aspect of “Point of sale” or the FOR-price destination issue. Hence the decision of Hon’ble Supreme Court in Ultratech would not apply. 

A similar stand was adopted by the Hon’ble Tribunal, Chennai, in Mahle Engine Components Private Limited.[9] The Tribunal took note of the latest Board Circular and remanded the matter to the adjudicating authority to grant opportunity to the assessee to establish the place of removal and pass orders based on the 2018 circular. It can be noted that post the judgments of the Hon’ble Ahmedabad tribunal, various tribunals[10] have passed orders allowing credit on outward transportation. 

However, the Hon’ble CESTAT Hyderabad in NCL Industries Limited[11] denied the credit on the transportation services and followed the decision of the Supreme Court in Ultratech Cement. The Tribunal observed that Hon’ble Apex Court was not oblivious of the facts that the sale was alleged to have taken place at the buyer’s door step and the cost and risk of the transport being borne by the seller.

In our view, after the clarification issued by the Board in their Circular of 2018, it is settled that the transport services upto the place of removal would be creditable and the transport service beyond the place of removal would not be creditable. Hence, the moot question which would require analysis in each case would be what would constitute the ‘place of removal’. 

In our notion, if the goods are sold on FOR-destination basis to a customer, the customer’s premise would qualify to be the place of removal and credit of outward transportation would be available upto such place.

The assessee intending to litigate the matter would have to carry out a threadbare analysis of the contract and other supporting documents such as purchase order, invoice and the transporters receipt to establish that the contract entered with the customer was on FOR-destination basis.

In the alternative, assessee who are not able to prove this fact or are not intending to litigate the matter can avail the benefit of “Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 after taking into consideration the demands involved and the cost of litigation considering the unsettling nature of the issue.