Cenvat Credit : If sales are on FOR basis, with risk being borne by manufacturer till delivery to customer and composite value of sales includes value of freight involved in delivery at customer's premises, place of removal would be at customer's premises and transport upto customer's premises would be eligible for credit CESTAT, NEW DELHI BENCH Ultra Tech Cement Ltd. v. Commissioner of Central Excise & Service Tax, Rohtak JUSTICE G. RAGHURAM, PRESIDENT AND RAKESH KUMAR, TECHNICAL MEMBER FINAL ORDER NO. 53497/2014 APPEAL NO. E/58979 OF 2013 SEPTEMBER 3, 2014 Section 4 of the Central Excise Act, 1944 - Valuation under Central Excise - Transaction Value - Place of Removal - Place of removal would depend upon specific transaction in issue - Where removal is pursuant to sales on FOR basis, with risk in goods manufactured being borne by manufacturer till delivery to customer at its premises and where composite value of sales include value of freight involved in delivery at customer's premises, place of removal would not be at factory gate, but at customer's premises [Para 11] [In favour of assessee] Rule 2(l), read with of the Rule 2(t), of the Cenvat Credit Rules, 2004 and section 4 of the Central Excise Act, 1944 - CENVAT Credit - Input Service - Place of Removal - Assessee was liable to duty at specific rate based on weight - Since assessee's all sales were on FOR basis, with price inclusive of freight and ownership/risk getting transferred at customer's premises only, hence, assessee took credit of transportation services upto customer's premises, treating same as place of removal - Department argued that place of removal would be factory credit and transport beyond that was not eligible for credit - HELD : Since sales were on FOR basis, place of removal would be customer's premises - Hence, assessee had legitimately availed credit of service tax paid on freight charges borne for its FOR sales [Para 12] [In favour of assessee] Section 11A, read with of the 33A of the Central Excise Act, 1944, section 73 of the Finance Act, 1994 and Section 28 of the Customs Act, 1962 - Recovery - Of duty or tax not levied/paid or short-levied/paid or erroneously refunded -
Adjudication of Demand - Paras 1 to 29 of adjudication order recorded facts and pleadings and paras 30 to 32 recorded conclusions without any analysis of facts - Even binding precedents relied upon by assessee were brushed aside without any analysis - HELD : A more casual and negligent approach to adjudication and disregard for binding precedents is perhaps difficult to replicate - Contribution of Adjudicating Authority was confined to paras 30 to 32, without any material contribution, in terms of analyses or reasons - In an adjudication order, verbiage and prolixity is no substitute for quality - Impugned order was wholly perverse and a sub-standard exhibit of adjudication - There was not even a scintilla of reason by Adjudicating Authority, for predicating bald conclusions - Adjudication and drafting of adjudication orders requires training; and incompetent departmental adjudication ill serves interests of State - Apart from accentuating appellate docket load, such casual orders contribute to faith deficit in process of departmental education and imperils due process of law - Hence, impugned order was set aside with costs of Rs. 2,500 and a copy of present judgment was directed to be sent to CBEC/Ministry of Finance for consideration [Paras 7 to 15] [In favour of assessee] Circulars and Notifications : Board Circular No. 97/8/2007-ST dated 23-08-2007 FACTS Facts The assessee is a manufacturer of cement. The assessee sold its final products on FOR basis to all customers. The freight charges are included in the assessable value of the final product, excise duty was discharged on the assessable value inclusive of freight charges, the transit risk in transportation of the final products is borne by the assessee and property in the goods passes to the customers on delivery at the customer's premises. The assessee contended that place of removal under section 4(3)(c) of the Central Excise Act, 1944 was customer's premises; and, therefore outward transportation charges upto customer's premises were eligible for input service credit. The department denied credit of period May 2008 to January 2012, invoking extended period, on the ground that said services were availed after place of removal viz. factory gate and were ineligible for input service credit.
Issue Involved HELD Whether assessee was eligible for credit? The Adjudicating Authority viz. Commissioner stated that the assessee failed to fulfill the conditions delineated in the Board Circular, in particular condition No. (iii), regarding submission of proof of freight charges being an integral part of the price of the goods. Conveniently, either by design or default, the Commissioner failed to advert to the specific contentions and the material evidence submitted by the assessee, while recording this wholly perverse conclusion. In adjudication order, the reference and reliance placed by assessee on the several precedents including the judgment of the Punjab & Haryana High Court in Ambuja Cements Ltd. v. Union of India [2009] 20 STT 182 (Punj. & Har.) is brushed aside on the ground that these cases deal with a different matter and are not relevant to the instant case. A more casual and negligent approach to adjudication and disregard for binding precedents is perhaps difficult to replicate. [Para 7] Paras 1 to para 29 of the impugned order chronologically enumerate the facts relating to initiation of proceedings, contentions of the assessee, the case of the department and the defence by the assessee alongwith material marshaled and the precedents cited by the assessee, and reference to the Board Circular. The contribution of the learned Adjudicating Authority to the adjudication process is confined to paras 30 to 32. There is no material contribution, in terms of analyses or reasons. [Para 8] In an adjudication order, verbiage and prolixity is no substitute for quality. The conclusions recorded in paras 30 to 32 are bereft of any reasons. The impugned order is wholly perverse and a sub-standard exhibit of adjudication. Reasons are the links between the material on which conclusions are based and the conclusions. Mere recording of a conclusion in the impugned order, that the assessee had failed to fulfill the relevant conditions for treating its sales as on FOR basis and is consequently disentitled to claim Cenvat credit on the component of the freight charges incurred by treating the place of removal as the customer's premises, is a conclusion, as earlier noticed, wholly bereft of analysis and clearly contrary to the
material and evidence on record. [Para 9] The department's counsel was unable to identify even a scintilla of reason by the Adjudicating Authority, for predicating the bald conclusions set out in the impugned order. [Para 10] It was held in Ultratech Cement Ltd. v. CCE [2014] (Chhattisgarh) that there is no provision in the Central Excise Act, 1944 or its rules or in any Circular issued by the Board, that where Duty is charged on a specified rate, the place of removal would invariably be the factory gate. The place of removal would depend upon the specific transaction in issue and where the removal is pursuant to sales on FOR basis, with the risk in the goods manufactured being borne by the manufacturer till delivery to the customer at its premises and where the composite value of sales include the value of freight involved in delivery at the customer's premises, the place of removal would not be at the factory gate, but at the customer's premises, held the High Court. [Para 11] On the above premises and in the light of the judgment of the Punjab & Haryana High Court in Ambuja Cements Ltd. (supra) and the inter-partes judgment, of the Chhattisgarh High Court in Ultratech Cement Ltd. (supra), considered in the light of the clear and specific pleadings and the evidence marshaled by the assessee in support of its pleadings (to establish that the transactions of the assessee in the cement manufactured by it was all on FOR sales basis); the certificates issued by assessee's customers to this effect, the conclusion is irresistible that sales by the assessee were on FOR basis and, therefore, the assessee had legitimately availed Cenvat credit on the service tax paid on the freight charges borne for its FOR sales. [Para 12] Since the impugned order records conclusions without any analysis of the pleadings and the evidence on record, costs of Rs. 2,500/- were imposed to be remitted by revenue to the credit of the assessee, within 30 days from date of judgment. [Para 14] Adjudication and drafting of adjudication orders requires training; and incompetent departmental adjudication ill serves the interests of the State. Apart from accentuating the appellate docket load, such casual orders contribute to faith deficit in the process of departmental education and imperils the due process of law. The appropriate authorities may consider this pathology writ large in departmental adjudication. For this purpose, a copy of this judgment was marked to the Board of
Central Excise and Customs and to the Secretary (Revenue), Ministry of Finance, Department of Revenue, for consideration. [Para 15] CASE REVIEW Union of India v. Mohan Lal Capoor AIR 1974 S.C. 87 (para 9); Lafarge India Ltd. v. CCE 2014 (307) ELT 7 (Chhattisgarh) (para 11) and Ambuja Cements Ltd. v. Union of India [2009] (Punj. & Har.) (para 12) relied on. Ultratech Cement Ltd. v. CCE [2014] (Chhattisgarh) (para 11) followed. CASES REFERRED TO Ambuja Cements Ltd. v. Union of India [2009] 20 STT 182 (Punj. & Har.) (para 4), Gujarat Ambuja Cements Ltd. v. CCE [2007] 8 STT 122 (New Delhi - CESTAT) (para 4), Union of India v. Mohan Lal Capoor AIR 1974 SC 87 (para 9), Ultratech Cement Ltd. v. CCE [2014] 46 taxmann.com 304/46 GST 281 (New Delhi - CESTAT) (para 11), Ultratech Cement Ltd. v. CCE [2014] 49 taxmann.com 469 (Chhattisgarh) (para 11) and Lafarge India Ltd. v. CCE 2014 (307) ELT 7 (Chhattisgarh) (para 11). Hemant Bajaj and B.L. Narasimhan, Advocates Representative (DR) for the Respondent. for the Appellant. M.S. Negi Authorised ORDER Justice G. Raghuram, President - Heard the learned Counsel for the appellant/assessee and the learned AR for the respondent/revenue. With the consent of the parties, the appeal is disposed of after waiving pre-deposit, as the issue arising is covered by finding precedents. The appeal is preferred against the adjudication order dated 29/04/13 of the learned Commissioner, Central Excise, Rohtak. The order disallowed Cenvat credit of Rs. 3,19,79,457/- availed by the assessee on outward transportation charges besides confirming levy and collection of interest and penalty as specified in the impugned order. 2. Two show cause notices dated 12/12/11 and 05/03/12 covering the periods May 2008 to January 2011 and February 2011 to January 2012, respectively, triggered the proceedings. The first show cause notice dated 12/12/11 invoked the extended period of limitation; the normal period under this show cause notice being December 2010 to January 2011, the prior period
being covered by the extended period. After due process the impugned adjudication order was passed. 3. The relevant facts :- The assessee is a manufacturer of cement, a commodity falling under Chapter 25 of the 1st Schedule of the Central Excise Tariff Act, 1985. In response to the show cause notices, assessee specifically pleaded [recorded at paragraphs G & H of the impugned order], that the assessee sells its final products on FOR basis to all customers; that freight charges are included in the assessable value of the final product; that excise duty was discharged on the assessable value, inclusive of freight charges; that the transit risk, in transportation of the final products is borne by the assessee; that property in the goods passes to the customers on delivery at the customer's premises; that on the basis of these transactional facts, the place of removal under Section 4 (3) (c) of the Central Excise Act, 1944 was the customer's premises; and therefore availment of Cenvat credit was legitimate and unassailable. As noticed and adverted to in the impugned order, assessee not only pleaded that all its sales are on FOR basis and that duty was also remitted treating the place of removal as the customer's premises but further, that terms of the contract between the assessee and its customers expressly refers to the FOR basis of the sales. Para H.13 of the impugned order clearly records the plea and adverts to the transactional and other documents furnished by the assessee, including sample copies of declarations issued by customers, in substantiation of this contention. (Annexure V to the reply, to the show cause notices). 4. The assessee also relied on the judgment of the Punjab & Haryana High Court in Ambuja Cements Ltd. v. Union of India [2009] 20 STT 182, which reversed a contrary view expounded by this Tribunal in Gujarat Ambuja Cements Ltd. v. CCE [2007] 8 STT 122 (New Delhi - CESTAT). The Punjab & Haryana High Court answered the questions of law in favour of the assessee by holding that in case of FOR destination sales where the entire cost of freight is paid and borne by the manufacturer, the same would be an input service with the meaning of Rule 2 (l) of the Cenvat Credit Rules, 2004. The High Court also referred to Board Circular No. 97/8/2007-ST dated 23/08/2007, which was issued subsequent to the Tribunal judgment in Gujarat Ambuja Cements Ltd. (supra). This Circular clarified [notwithstanding the Tribunal's view] as follows: It is, therefore, clear that for a manufacturer/consignor, the eligibility to avail credit of the service tax paid on the transportation during removal of excisable goods would depend upon the place of removal as per the definition. In case of a factory gate sale, sale from a non-duty paid warehouse, or from a duty paid depot (from where the excisable goods are sold, after their clearance from the factory), the determination of the 'place of removal' does not pose much problem. However, there may be situations where the manufacturer/consignor may claim that the sale has taken place at the destination point because in terms of the sale contract/agreement (i) the ownership of goods and the property in the goods remained with the seller of the goods till the delivery of the goods in acceptable condition to the purchaser at
his door step; (ii) the seller bore the risk of loss of or damage to the goods during transit to the destination ; and (iii) the freight charges were an integral part of the price of goods. In such cases, the credit of the service tax paid on the transportation up to such place of sale would be admissible if it can be established by the claimant of such credit that the sale and the transfer of property in goods (in terms of the definition as under Section 2 of the Central Excise Act, 1944 as also in terms of the provisions under the Sale of Goods Act, 1930) occurred at the said place (Emphasis Added). 5. Though the Tribunal view in Ambuja Cements Ltd. (supra) stood expressly over-ruled by the High Court [which is also the Jurisdictional High Court, within whose territorial limits the Commissioner, Rohtak operates], para 26 of the impugned order, extensively adverts to the Tribunal judgment despite being sensitized to the fact that this judgment stood expressly overruled by the High Court. The impugned order in para 27 adverts to relevant provisions of the Cenvat Credit Rules, 2004, Section 4 of the Central Excise Act, 1944; and in para 28 to the Board Circular dated 23rd August 2007 as well. 6. Paras 30 to 32 purport to set out the analyses and conclusions recorded by the learned Commissioner. Since, we find no analysis (of the material on record, furnished by the assessee in support of its contentions, adverted to in paragraphs G & H of the impugned order) except mere ipse-dixit conclusions recorded bereft of any reasons, we extract paragraphs 30 to 32 in full : "30. From the foregoing facts, it has been clearly proved that the party has failed to fulfill the conditions as enshrined under Section 4 of the Central Excise Act, 1944, i.e., regarding the place of removal. The above said Act nowhere mentions the consignee's doorstep as the place of removal and the fulfillment of the conditions of the Section 4 of the above said Act is sine qua non for being eligible for taking the Service Tax Credit on Outward GTA Services. Furthermore, the CBEC, vide their above said Circular No. 97/8/2007 dated 23/08/2007, has also explicitly laid down the following conditions for availment of the Service Tax CENVAT Credit on outward GTA Services : (i) (ii) (iii) the ownership of goods and the property in the goods remained with the seller of the goods till the delivery of the goods in acceptable condition to the purchaser at his doorstep ; The seller bore the risk of or damage to the goods during transit to the destination and ; the freight charges were an integral part of the price of goods.
31. In such cases, the credit of the service tax paid on the transportation upto such place of sale would be admissible if it can be established by the claimant of such credit that the sale and transfer of property in goods (in terms of the definition as under Section 2 of the Central Excise Act, 1944, as also in terms of the provisions under the Sales of Goods Act, 1930), occurred at the said place. The party has also failed to fulfill the above said conditions, particularly; they have failed to fulfill the conditions no. (iii) Regarding the submission of the proof of the freight charges being an integral part of the price of the goods. In this way, the party has rendered themselves ineligible for taking the CENVAT Credit and the CENVAT Credit already taken by them, was inadmissible to them. 32. It has been clearly established from the foregoing facts that the party has violated the provisions of Section 4 of the Central Excise Act, 1944, Rule 4 of the CENVAT Credit Rules, 2004, and para 8.2 of the Circular No. 97/8/2007 dated 23/08/2007. The cases cited by the party, deal with a different matter and are not relevant to the instant case. The credit of Service Tax was not admissible to the party and they have taken the same illegally and clandestinely as the same was taken in violation of the above said Rules. I find that the party never disclosed to the Department the fact of availing CENVAT credit of service tax paid on outward freight. Had the audit party not visited the factory for audit of records this would never have come to the notice of the Department. As such extended period of five years is invokable under the provisions of Section 11A of Central Excise Act, 1944 for suppression the facts from the Department with intent to evade payment of duty. Further, I hold that wrongly availed CENVAT credit of Rs. 1,71,75,818/- and Rs. 1,48,03,639/- paid on goods for transportation of final product beyond the place of removal is recoverable from the party under the provisions of Rule 14 of CENVAT Credit Rules, 2004 readwith Section 11A of Central Excise Act, 1944 alongwith interest under Section 11AA of Central Excise Act, 1944 readwith Rule 14 of CENVAT Credit Rules, 2004. In view of above, the party is also liable to penal action under Rule 15 of CENVAT Credit Rules, 2004 readwith Section 11AC of Central Excise Act, 1944 for violating the provisions of CENVAT Credit Rules, 2004 and I hold accordingly." 7. In para 31, the order impugned states that the assessee failed to fulfill the conditions delineated in the Board Circular, in particular condition No. (iii), regarding submission of proof of freight charges being an integral part of the price of the goods. Conveniently, either by design or default, the learned Commissioner fails to advert to the specific contentions and the material evidence submitted by the assessee [noticed in paragraphs G & H earlier in the impugned order], while recording this wholly perverse conclusion. At para 32 of the order, the reference and reliance placed by assessee on the several precedents including the judgment of the Punjab & Haryana High Court in Ambuja Cements Ltd. (supra) is brushed aside on the ground that these cases deal with a different matter and are not relevant to the instant case. A
more casual and negligent approach to adjudication and disregard for binding precedents is perhaps difficult to replicate. The impugned order records the operative portion, disallowing Cenvat credit and directing its recovery alongwith interest and penalty, in para 33. 8. Paras 1 to para 29 of the impugned order chronologically enumerate the facts relating to initiation of proceedings, contentions of the assessee, the case of the Department and the defence by the assessee alongwith material marshaled and the precedents cited by the assessee, and reference to the Board Circular. The contribution of the learned Adjudicating Authority to the adjudication process is confined to paras 30 to 32. As earlier noticed, there is no material contribution, in terms of analyses or reasons. 9. In an adjudication order, verbiage and prolixity is no substitute for quality. The conclusions recorded in paras 30 to 32 are bereft of any reasons. We are thus constrained to record that the impugned order is wholly perverse and a sub-standard exhibit of adjudication. As pointed out by the Supreme Court in Union of India v. Mohan Lal Capoor AIR 1974 S.C. 87; Reasons are the links between the material on which conclusions are based and the conclusions. Mere recording of a conclusion in the impugned order, that the assessee had failed to fulfill the relevant conditions for treating its sales as on FOR basis and is consequently disentitled to claim Cenvat credit on the component of the freight charges incurred by treating the place of removal as the customer's premises, is a conclusion, as earlier noticed, wholly bereft of analysis and clearly contrary to the material and evidence on record. 10. Despite valiant efforts, learned AR was unable to identify even a scintilla of reason by the Adjudicating Authority, for predicating the bald conclusions set out in the impugned order. 11. In Ultratech Cement Ltd. v. CCE [2014] 46 taxmann.com 304/46 GST 281 (New Delhi - CESTAT) [a judgment inter-partes], this Tribunal, following earlier judgments including the judgment in Gujarat Ambuja Cements Ltd. (supra), ruled that in cases where the duty on the final product is levied at a specific rate or on ad-valorem rate but the value determined on the basis of MRP under Section 4A or on tariff value fixed under Section 3 (2), the place of removal would be the factory gate. This judgment was reversed by the Chhattisgarh High Court in Ultratech Cement Ltd. v. CCE [2014] 49 taxmann.com 469 (Chhattisgarh). The High Court followed its earlier decision in Lafarge India Ltd. v. CCE 2014 (307) E.L.T. 7 (Chhattisgarh). The High Court clearly ruled that there is no provision in the Central Excise Act, 1944 or its rules or in any Circular issued by the Board, that where Duty is charged on a specified rate, the place of removal would invariably be the factory gate. The place of removal would depend upon the specific transaction in issue and where the removal is pursuant to sales on FOR basis, with the risk in the goods manufactured being borne by the manufacturer till delivery to the customer at its premises and where the composite value of sales include the value of freight involved in
delivery at the customer s premises, the place of removal would not be at the factory gate, but at the customer s premises, held the High Court. 12. On the above premises and in the light of the judgment of the Punjab & Haryana High Court in Gujarat Ambuja Cements Ltd. (supra) and the inter-partes judgment, of the Chhattisgarh High Court in Ultratech Cement Ltd. (supra), considered in the light of the clear and specific pleadings and the evidence marshaled by the assessee in support of its pleadings (to establish that the transactions of the assessee in the cement manufactured by it was all on FOR sales basis); the certificates issued by assessee s customers to this effect and adverted to in paragraphs H.13 of the impugned order, the conclusion is irrestible that sales by the assessee were on FOR basis and therefore the assessee had legitimately availed Cenvat credit on the service tax paid on the freight charges borne for its FOR sales. 13. On the above analysis, the impugned order dated 29/04/13 passed by the learned Commissioner, Central Excise, Rohtak is unsustainable and is accordingly quashed. 14. Since the impugned order as analyzed by us in detail earlier, records conclusions without any analysis of the pleadings and the evidence on record, we consider it appropriate to impose costs of Rs. 2,500/- (Rupees Two Thousand Five Hundred), to be remitted by Revenue to the credit of the assessee, within 30 days from today. 15. We are also constrained to observe that adjudication and drafting of adjudication orders requires training; and incompetent departmental adjudication ill serves the interests of the State. Apart from accentuating the appellate docket load, such casual orders contribute to faith deficit in the process of departmental education and imperils the due process of law. The appropriate authorities may consider this pathology writ large in departmental adjudication. For this purpose, we direct that a copy of this judgment be marked to the Board of Central Excise and Customs and to the Secretary (Revenue), Ministry of Finance, Department of Revenue, for consideration. 16. The appeal is allowed as above, with costs as indicated.