Rule 2 (l) of the CENVAT Credit Rules, 2004 (CCR) prescribes the
definition of 'input service'. Since the inception of this
definition, the term "Place of removal" has been used and
same has assumed great significance because the CENVAT Credit of
input services is available up to the place of removal. The term
"Place of removal" was not defined in CCR and the
definition was being borrowed from Section 4 of Central Excise Act
for the purpose of looking into eligibility of availing CENVAT
credit of service tax paid on inputs services.
However, on 11th July 2014, Ministry of Finance vide. Finance
Bill (No. 2), 2014 introduced the definition of "Place of
Removal" for the first time in CENVAT Credit Rules by
inserting Rule 2(qa) of CCR, 2014. As a result, different attempts
were made to interpret the term 'Place of Removal'
Definition of 'Place of Removal' under Rule 2(qa) is as
"Place of removal" means- (i) a factory or any
other place or premises of production or manufacture of the
excisable goods; (ii) a warehouse or any other place or premises
wherein the excisable goods have been permitted to be deposited
without payment of duty; (iii) 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;"
It can be seen that this newly introduced definition of
"Place of Removal" is identically worded as given in
Section 4, ibid. The purpose of insertion of definition in CENVAT
Credit Rules is perhaps to delink it from the assessment of duty.
Earlier, the eligibility was sometimes compared with the nature of
assessment done under section 4 of the Act. The issue of CENVAT is
now to be seen independently.
Adding more ambiguity to this, Finance Ministry, on 20th October
2014, issued a clarification (Circular No. 988/12/2014–CX) in
respect of determination of "Place of removal" for CENVAT
Para 6 of Circular No. 988/12/2014–CX reads as
"It is reiterated that the place of removal needs to be
ascertained in term of provisions of Central Excise Act, 1944 read
with provisions of the Sale of Goods Act, 1930. Payment of
transport, inclusion of transport charges in value, payment of
insurance or who bears the risk are not the relevant considerations
to ascertain the place of removal. The place where sale has taken
place or when the property in goods passes from the seller to the
buyer is the relevant consideration to determine the place of
The circular refers to Section 23 of the Sale of Goods Act, 1930
and clarifies that the transfer of property in goods from the
seller to the buyer would be the relevant factor to determine the
"Place of Removal". The inclusion of transport charges in
value is said to be not the relevant consideration and that is how
assessment u/s 4 of the Central Excise Act, 1944 is being delinked
from the eligibility of credit availment.
So, according to the Circular, the "Place of Removal'
is the "Place of Sale" and 'Place of Sale' is the
time at which the property in the goods is to pass the buyer. In
plain language, when the goods are handed over to the buyer /
transporter, the property is deemed to have been passed and that is
the place of removal. In other words, it means that the service tax
paid on services like transportation, insurance etc. are not the
input services and would not be eligible for CENVAT credit.
However, a contrary interpretation can be inferred on deep
analysis of this Circular. It is important to consider all the
sections of Sales of Goods Act while interpreting the term
'Place of Removal'. Thus, on a careful perusal of Section
24 of Sales of Goods Act, it can be seen that property in goods
passes to buyer, when:- i)He signifies his approval as acceptance;
and (ii)He retains the goods without giving notice (when approval
was to be considered), then; (a)When time fixed for return of goods
has expired or (ii) or expiration of reasonable time.
Therefore, this means, if a manufacturer has a
clause of 'goods on approval basis' in the
contract, the 'place of removal' automatically becomes the
buyer's end. This would enlarge the scope of definition of
'input services' so as to make transportation / insurance
services, eligible for CENVAT credit purposes.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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