Assessee Can't Claim ITC For Transportation If Costs Aren't Included In Assessable Value Of Goods For Payment Of Central Excise Duty: Kerala HC

The Division Bench of Justices A.K. Jayasankaran Nambiar and Syam Kumar V.M. observed that “………the assessee did not include the transportation costs in the assessable value of the goods for the purposes of payment of Central Excise duty. Under such circumstances, the assessee cannot claim input tax credit in respect of the transportation services availed by it for the purposes of transporting the goods from the place of removal to the buyer's premises.”

The assessee/appellant, engaged in the manufacture and sale of electrical transformers, entered into contracts for the supply, installation, and commissioning of transformers. The contracts, based on FOR (Free on Road) terms, required the assessee to transport the goods from the manufacturing site to the buyer's premises.

The assessee argued that sales under the contracts were concluded at the buyer's premises, as the buyer had to inspect and accept the goods upon satisfaction. Therefore, the assessee excluded freight and insurance charges from the assessable value for Central Excise duty.

The assessee contended that since the sale was completed at the buyer's location, these transportation services qualified as input services under the CENVAT Credit Rules.

The bench examined the case of Commissioner of Customs and Central Excise, Aurangabad v. Roofit Industries Ltd. [2015 (319) E.L.T. 221 (SC)], which was relied upon by the assessee, where it was stated that “in circumstances where a manufacturer enters into a contract with his buyer on FOR basis, the place of removal for the purposes of payment of Central Excise duty has to be seen as the buyer's premises and not the manufacturer's factory, the upshot of the said finding was that the manufacturer, in that case, was legally obligated to include the cost of transportation of the goods from his factory to the premises of the buyer in the assessable value of the goods for the purposes of payment of Central Excise duty.”

The bench, referring to the case of Commissioner of Customs and Central Excise, Aurangabad v. Roofit Industries Ltd. (supra), opined that may be in a factual situation similar to that, the assessee would be justified in contending that on the cost of transportation being included in the assessable value of the goods for the purposes of Central Excise duty, the amount paid to the goods transport agencies, who carried out the transportation, has to be seen as incurred in connection with an input service, for the purposes of claiming input tax credit of the tax paid in relation to the said services.

The bench further stated that “………..it is the admitted case that the assessee did not include the transportation costs in the assessable value of the goods for the purposes of payment of Central Excise duty. Under such circumstances, the assessee cannot claim input tax credit in respect of the transportation services availed by it for the purposes of transporting the goods from the place of removal to the buyer's premises………..”

The bench concluded that permitting the assessee to avail input tax credit in such circumstances would militate against the very Scheme of CENVAT credit, which is designed to avoid the cascading effect of tax and an ultimate burden on a consumer.

In view of the above, the bench dismissed the appeal.

Counsel for Appellant/ Assessee: Joseph Kodianthara, V. Abraham Markos, Abraham Joseph Markos, Isaac Thomas, Alexander Joseph Markos and Sharad Joseph Kodanthara

Counsel for Respondent/ Department: Sreelal N. Warrior

Case Title: Transformers And Electricals Kerala Ltd. v. The Commissioner Of Central Tax And Central Excise Central Revenue Building

Case Number: C.E. APPEAL.NO.17 OF 2019

Citation: 2024 LiveLaw (Ker) 636