05 November 2014
Circular No. 988/12/2014-CX dated 20.10.2014 created some ambiguity and my doubts/views are as under. Valuable guidance/comment/views are welcomed.
2. The said Circular is issued regarding Place of Removal. Its first Para intimate insertion of definition of Place of Removal in CCR’2004 and Second Para refers Circular dated 03.03.2003 issued for valuation and circular dated 23.08.2007(Para 8.2) reg. Cenvat Credit of input service of transportation upto place of sale. Though, Para No. 3 to 6, which also refer Place of Removal, it is not clear whether the same related to Cenvat Credit or Valuation. In this situation, it gives wrong impression that Cenvat Credit of all the input service is eligible till Place of Sale, which may open Pandora Box for the revenue.
3. “Valuation” and “Cenvat Credit” are Independent & totally Different: While understanding the terms “Valuation” and “Cenvat Credit”, it is clear that both are totally distinct and having different delegated legislation viz. Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, and Cenvat Credit Rules,2004 respectively, which have no interconnection except and only connection of Section 37 of the Central Excise.
Valuation is meant for levy of duty on manufactured good and covers all the value additions in assessable value for delivery at the time and Place of Removal in terms of Section 4(1)(a) of CEA’1944 read with Valuation Rules and “Sale” means transfer of possession of goods from seller to buyer as per Section 2(h) of CEA’1944. Whereas Cenvat Credit is a relief given to manufacturer to avoid cascading effect of double taxation and only legislation is empower to decide how and upto what extent relief to be given/expand/restrict. Though, valuation provisions were remained same since last decade, provisions of Cenvat Credit were different therefrom, which were created/expanded/curtailed time to time. Even though, cost of various input/Capital goods/Input service is covered in sale value, credit is not allowed/restricted/allowed considering prevailing definition of input/capital goods/input services as given in CCR’2004. Thus, Cenvat Credit has no relevancy with the place of sale, but with & restricted upto “Place of Removal” only as defined in Section 4(3)(c) of CEA’1944, without considering its scope expanded for valuation purpose.
Now, since 11.07.2014, same provision is inserted in CCR’2004, the same must be strictly adopted “word to word” and without considering its scope stretched upto place of removal in the cases of Valuation.
4. All the relevant provisions are required to be interpreted for Cenvat Credit purpose and are reproduced as under. (For the sake of brevity only relevant portion is reproduced)
(a) Input Service Definition- Rule 2(l) of CCR as on 31.03.11:
Main part cover services used for “clearance of final products upto the place of removal” (word “upto” substituted for word “from” since 01.04.08)
Inclusive Part covers services used in relation to ….., storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, ……and outward transportation upto the place of removal; (Phrase “activities relating to business, such as” omitted w.e.f. 04.04.2011). “Place of Removal” is not defined in CCR’2004 but in terms of Rule 2(t) of CCR’2004, definition thereof as given at Section 4(3)(c) of CER’1944 to be referred.
(b) Notification No. 41/2012-ST- Rebate of Service Tax paid for services used for Export:
As per definition of Specified Service given in Notification 41/2012-ST, “specified services” means in the case of excisable goods, taxable services that have been used beyond the place of removal, for the export of said goods and ) and that “Place Of Removal” shall have the meaning assigned to it in section 4 of the Central Excise Act,1944.
(c)“Place of Removal” as defined at Section 4(3)(c ) of CER’1944: There is no ambiguity in sub-clause (i) & (ii) when goods is removed from factory/warehouse but for sub-clause (iii) wherein it is defined that “Place of Removal” means – a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory; from where such goods are removed; For the purpose
(d) Rule 5 of valuation Rules: Where any excisable goods are sold in the circumstances specified in clause (a) of sub Section (1) of Section 4 of the Act except the circumstances in which the excisable goods are sold for delivery at a place other than the place of removal, then the value of such excisable goods shall be deemed to be the transaction value excluding the cost of transportation from the place of removal up to the place of delivery of such excisable goods.”
(e) Some Words which are not defined in relevant provisions:
(i) Clearance: As per dictionary meaning, clearance means permission, allowance, removal, disposal, sale etc. In departmental terminology, clearance means removal of goods on payment of duties (or claiming exemption) from factory/Customs area (or any other approved place non-duty paid goods are allowed to be stored before clearance) followed by subsequent removal.
(ii) Upto: In general terms, meaning of Upto (up to) is “to” but not covers “at”.
As per http://www.yourdictionary.com/up-to “An example of up to used as an adverb is in the sentence "Add all the items up to the next to last item," which means that all items except the last two items should be added together.”
5. Interpretation of meaning of Place of Removal for Cenvat Credit Purpose:
Before analyzing various provisions, it is required to ensure that a statute is to he read as a whole and words used interpreted taking into account the context in which they are used. Definitions are to be looked at as a whole. Clauses of a definition are not to be read disjunctively.
(a) Various judgments and circulars based on those judgments, wherein it is held that Cenvat credit of service used at Port is admissible:
It is evident that, till 31.03.2008, service used for “clearance of final products from the place of removal” was eligible but since 01.04.2008, the phrase is like “clearance of final products Upto the place of removal”. Further till 31.03.2011, the phrase “activities relating to business, such as” was covered in inclusive part having extensive scope for inclusion of various services, but from 01.04.2011 the same phrase is omitted from the definition and hence inclusive part covers limited services referred therein.
It is fact that some of judgments viz. Prabhat Zarda, Associated Strip (as mentioned in the subject circular) and circular dated 03.03.2003 were issued for valuation purpose and not for Cenvat Credit, hence the same are not relevant for Cenvat credit purpose. Further, various judgments/circulars are there wherein Cenvat credit allowed for services upto and at place of export, but they considering erstwhile definition of input service which are already modified/omitted and hence no relevance with the present definition of “Input Service”.
(b)Section 4 of CEA’1944: Section 4(3) starts with words “for the purpose of this section” which indicate that definitions given are for the purpose of valuation only. Hence, in terms of Rule 2(t) of CER’2004, it must referred be used “word to word” for but without its scope expanded for valuation.
Section 4(3)(c)(iii) of CEA’1944: “Place of Removal” (other than a factory/warehouse) is a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory; from where such goods are removed; (for delivery at other place of sale).
On harmonious reading of definition, specifically considering two phrases viz. “or any other place or premises from where the excisable goods are to be sold” and “from where such goods are removed” it refer place where, after clearance, goods are stored normally for sale therefrom but not indicate any other place of delivery to effect sale at another place.
Otherwise, the definition would be end with the phrase “or any other place or premises from where the excisable goods are to be sold” and phrase at the end of the definition “from where such goods are removed” would not be required to be mentioned. Thus, this section doesn’t indicate that Place of Delivery would be the place of sale for all cases.
(c)Rule 5 of Valuation Rule: From phrase “the place of removal up to the place of delivery” as used in the definition of Rule 5, it is clear that Place of Removal & Place of Delivery both are distinct. Also, it is held that Place of removal cannot be stretched to cover actual place of delivery in case of Amalgamations Repco Ltd Vs. CCE, Chennai [2013 (31) S.T.R. 370 (Tri. - Chennai)]. (d) Notification 41/2012-ST: Specified service means taxable services that have been used beyond the place of removal. Once for a while, considering expanded scope for place of removal (valuation) that for export on FOB/C&F/CIF term, place of removal would be Place of Export where Export takes place, the place would be Vessel/Port and beyond that there is no service for use in export. Hence, ‘place of removal’ referred in the Notification is place from where the goods is removed for further delivery to effect export and not particular vessel/port.
(e) Place of Removal – Twice reference in the definition of Input service: It is significant that phrase “Place of Removal” is used twice in main part as well as in inclusive part of the definition. Main part covers services used for “clearance” of final products upto “Place of Removal”. Also inclusive part covers services used for transportation/storage upto “Place of Removal” which indicate that transportation/storage is not part of “clearance” as referred in main part.
In main part “Place of Removal” used for clearance and clearance is point of time of clearing the goods by duty payment (or claiming exemption) followed by subsequent removal. Again in inclusive part, “Place of Removal” used with storage/transportation which indicate that activity of storage/transportation is not a part of “clearance” as referred in main part. After omission of phrase “activities relating to business, such as” from inclusive part w.e.f. 01.04.2011, its scope is limited to service referred therein without extending its scope.
Hence harmonious reading of whole definition indicate that “Place of Removal” in main part is factory gate, and in inclusive part a place where duty-paid goods are stored after clearance for the purpose of further delivery to effect sale, as referred in Section 4(3)(c) of Valuation Rules.
(f) Meaning of term “Upto”: As referred in earlier Para 4(e)(ii), that term “Upto” when used with reference to a place, it cover distance stretched from starting point to that place but not cover that place itself. Accordingly, considering interpretation for place of removal as given in input service definition, Section 4(3)(c) of CEA, Valuation Rules, Notification 41/2012-ST, some judgments/circulars etc., and for a while considering port as place of removal, the phrase “Upto Place of Removal” covers distances till goods reaches Port but not covers “Area of Port” itself. However, storage/transportation upto place of removal is already covered in inclusive part of definition of “input service”. Hence any service received in the Port Area can not be considered as “input service”.
(g) Signification of non-incorporation of phrase “Place of Sale” in definition of input service: If the intention of legislation is to give Cenvat Credit for all the service used to effect export at port, the definition of “input service” and “Place of Removal” would have been incorporated with phrase “Place of Sale/Export”, which has not been so incorporated. So, intention of legislation is clear and any service used in Port Area is not eligible.
6. As explained above, any service services received/used in port area is not covered in definition of “input service” and hence not eligible for Cenvat Credit. Accordingly clarification as given in Circular No. 988/12/2014-CX dated 20.10.2014 need to be examined, further clarified or reviewed by the competent authority in the interest of Govt. revenue.
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