Cenvat credit on outward freight in case of FOR sales

In reference to our earlier update dated June 18, 2018 on the referred issue, we would like to apprise you regarding recent decisions of CESTAT, Ahmedabad in the cases of Ultratech Cement Limited vs. CCE and Sanghi Industries Limited v. CCE on identical issue. The Tribunal has held that cenvat credit on outward freight is eligible.

Facts of the cases

The taxpayers were engaged in manufacture and sale of cement which was sold on transaction value as well as on MRP basis. The taxpayers availed services of Goods Transportation Agency (GTA) for transportation of goods from its factory / depot to customer’s premises on FOR basis.

The taxpayers relied upon copies of excise invoices and Chartered Accountant / Cost Accountant certificate to evidence that it was their responsibility to transport the goods till customer’s premises as well as bore the risk of damages in transit. Further, the price charged by the taxpayers was inclusive of cost of freight and transit insurance.

Tribunal’s findings

The Tribunal held that cenvat credit on outward freight shall be available in case of FOR sales for the following reasons:

  • The taxpayers had evidenced that the goods were sold on FOR basis and the cost of freight as well as insurance was included in the price of goods.
  • The Tribunal relied upon Circular 2018 (as referred in trailing mail) and held that service of outward transportation till customer’s premises will qualify as an input service.
  • The Tribunal distinguished the Supreme Court’s decision in case of Ultratech Cement Limited (as referred in trailing mail) on the ground that the Court was only concerned with the ‘place of removal’ and did not discuss the issues of ‘point of sale’ or ‘FOR price destination’. 
  • The Tribunal also observed that Circular 2007 and Circular 2014 (as referred in trailing mail) were beneficial to the taxpayers and will be applicable on such facts of the case. The Tribunal held that Circular 2018 cannot withdraw the said Circulars retrospectively.
  • Lastly, the Tribunal held that as the matter was under litigation and several clarifications were issued on the issue, extended period of limitation cannot be invoked in such cases.

NITYA Comments:

The above-mentioned rulings are significant decisions on the contentious issue of cenvat credit on outward freight in case of FOR sales and the Tribunal has laid the correct position in law. These are first set of decisions which have distinguished decision (as referred in trail mail) and brings ray of hope for taxpayer’s facing litigation on this issue.

Having said that, it will be interesting to see whether the Department, Appellate Authorities, Tribunals and Courts will concur with this view or continue to rely upon Supreme Court’s decision in the case of Ultratech Cement Limited.

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