The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad, has clarified a critical principle in indirect tax jurisprudence: when goods are sold on a Free On Route (FOR) basis with freight and insurance included in the assessable value, and risk remains with the seller until delivery, the buyer’s premises constitutes the place of removal. This renders outward transportation services eligible for CENVAT credit under the CENVAT Credit Rules, 2004.
Background & Facts
The Dispute
The dispute arose over whether the respondent, M/s Gloster Cables Ltd., was entitled to avail CENVAT credit on Service Tax paid on Goods Transport Agency (GTA) services used for outward transportation of industrial cables to buyers’ premises under FOR sales terms. The Department denied the credit, asserting that the factory gate was the sole place of removal, irrespective of contractual terms.
Key Facts
- The respondent manufactures industrial cables falling under Chapter 85 of the Central Excise Tariff.
- Goods were cleared on three bases: ex-factory, FOR destination, and through depots.
- For FOR sales, the respondent included freight and insurance charges in the transaction value and discharged Central Excise Duty on the inclusive value.
- Service Tax was paid under the Reverse Charge Mechanism on GTA services used for such transportation.
- The respondent claimed CENVAT credit on this Service Tax.
- The Department denied the credit, contending that only transportation up to the factory gate qualifies as input service.
- The Department did not reassess or dispute the transaction value adopted by the respondent, despite including freight and insurance.
- The respondent’s sales contracts stipulated that risk in transit remained with the seller until delivery at the buyer’s premises.
- Title to goods passed only upon delivery at the buyer’s location.
- The respondent furnished detailed records of outward freight to depots and customers.
Procedural History
- 27.05.2019: Commissioner of GST & Central Excise (Appeals-II), Hyderabad, passed Order-in-Appeal No. HYD-EXCUS-MD-AP2-0015-19-20-ST allowing CENVAT credit on outward GTA services.
- 15.04.2026: Hearing held before CESTAT Hyderabad.
- 07.05.2026: Final Order passed by CESTAT Hyderabad dismissing the revenue’s appeal.
The Parties' Positions
For the Appellant (Revenue)
- Relied on CCE v. Ultra Tech Cement Ltd. [2018 (9) GSTL 337 (SC)] to argue that the factory gate is the only permissible place of removal.
- Contended that outward freight beyond the factory gate is not an input service under Rule 2(l) of the CENVAT Credit Rules, 2004.
- Asserted that the amendment to the definition of input service barred credit for transportation to buyer’s premises.
- Argued that the Department’s acceptance of transaction value inclusive of freight was merely for valuation purposes and did not bind it on credit eligibility.
For the Respondent (M/s Gloster Cables Ltd.)
- Distinguished Ultra Tech Cement on factual grounds, emphasizing that the case involved ex-factory sales, not FOR contracts.
- Highlighted that freight and insurance were included in assessable value, duty was paid on that value, and risk/title remained with the seller until delivery.
- Cited multiple tribunal decisions: Inox Air Products Pvt. Ltd., Bharat Frit Werner Ltd., Hindustan Zinc Ltd., Sanghi Industries Ltd., Schneider Electric India Pvt. Ltd., and Pawan Power and Telecom Ltd.
- Relied on Board Circular No. 1065/4/2018-CX dated 08.06.2018, which states eligibility of credit depends on facts of each case.
- Argued that denying credit while accepting duty on inclusive value amounts to an inconsistent and artificial bifurcation of the same transaction.
Relief Sought
The revenue sought to set aside the Commissioner (Appeals)’s order and disallow CENVAT credit on GTA services used for outward transportation to buyer’s premises and depots.
The Legal Issue
The central question was whether, under Rule 2(l) of the CENVAT Credit Rules, 2004, outward transportation services to the buyer’s premises qualify as input service when the sale is on FOR basis, freight and insurance are included in assessable value, risk remains with the seller until delivery, and title passes only upon delivery.
Arguments Presented
For the Appellant
The revenue contended that Ultra Tech Cement established a blanket rule that the factory gate is the only place of removal, irrespective of contractual terms. It argued that the amendment to Rule 2(l) narrowed the scope of input services to exclude transportation beyond the factory gate. The Department maintained that its acceptance of transaction value inclusive of freight was a concession for valuation purposes only and did not constitute an admission that the buyer’s premises was the place of removal. It further argued that allowing credit in such cases would create a loophole enabling manufacturers to claim credit for logistics costs unrelated to production.
For the Respondent
The respondent countered that Ultra Tech Cement was factually distinguishable, as it involved ex-factory sales where risk and title passed at the factory gate. In contrast, the present case involved FOR contracts where the seller bore all risks and costs until delivery. The respondent emphasized that the statutory definition of place of removal under Section 4(c) of the Central Excise Act, 1944, is fact-specific and includes depots and buyer’s premises where goods are sold after clearance. It cited binding circulars and multiple tribunal rulings affirming that the place of removal must be determined by the terms of sale, transfer of risk, and point of completion of sale. The respondent argued that denying credit after accepting duty on inclusive value violates the principle of consistency and amounts to double taxation.
The Court's Analysis
The Tribunal undertook a detailed analysis of the statutory framework under Section 4(c) of the Central Excise Act, 1944, and Rule 2(l) of the CENVAT Credit Rules, 2004. It observed that the definition of place of removal is not static but depends on the factual matrix of each transaction, including terms of sale, transfer of title, risk, and point of completion of sale.
"Once the Department accepts the transaction value is inclusive of freight and insurance and collects duty thereon, it cannot simultaneously contend, for the purpose of CENVAT Credit, that the place of removal was only the factory gate. Such an approach would amount to adopting inconsistent positions: one for valuation and another for credit. The law does not permit such artificial splitting of the same transaction."
The Court distinguished Ultra Tech Cement on the ground that it concerned ex-factory sales with no inclusion of freight in assessable value. In contrast, the present case involved FOR contracts where the seller bore all transportation costs, included them in the transaction value, and retained risk until delivery. The Tribunal held that such facts squarely satisfy the conditions under which the buyer’s premises becomes the place of removal.
The Court also relied on Board Circular No. 1065/4/2018-CX, which explicitly states that eligibility for CENVAT credit on outward freight is fact-specific and binding on departmental officers. It further affirmed the precedents set by multiple tribunals, including Pawan Power and Telecom Ltd., which held that the point of sale is where ownership transfers to the buyer.
Regarding depot clearances, the Court noted that depots are expressly included within the statutory definition of place of removal under Section 4(c)(iii). Therefore, transportation up to such depots also qualifies for credit.
The Tribunal rejected the revenue’s argument that the Department’s acceptance of transaction value was merely procedural. It held that such acceptance constitutes a factual admission that the transaction value includes all costs up to delivery, thereby validating the nexus between the input service and the final product.
The Verdict
The appeal filed by the revenue was dismissed. The order of the Commissioner (Appeals) dated 27.05.2019 was upheld. The respondent is entitled to CENVAT credit on Service Tax paid on GTA services used for outward transportation to buyer’s premises and depots, provided the sale was on FOR basis, freight and insurance were included in assessable value, and risk/title remained with the respondent until delivery. No monetary relief was directed as the issue was one of credit eligibility, not refund.
What This Means For Similar Cases
Place of Removal Is Fact-Specific, Not Presumptive
- Practitioners must now analyze sales contracts, risk allocation, and pricing terms to determine the place of removal - not assume it is always the factory gate.
- In FOR sales, inclusion of freight in assessable value and retention of risk until delivery are decisive factors.
- Tax authorities cannot unilaterally override contractual terms to deny credit after accepting duty on inclusive value.
CENVAT Credit on Outward Logistics Is Validated
- CENVAT credit on GTA services for transportation to buyer’s premises is now legally sustainable where the above conditions are met.
- Companies using FOR, CIF, or similar terms should maintain clear documentation of freight inclusion, risk transfer clauses, and delivery acknowledgments.
- Depots used for storage and sale after factory clearance are explicitly covered under the statutory definition and qualify for credit.
Department Cannot Adopt Inconsistent Positions
- The principle of estoppel applies: if the Department accepts a transaction value inclusive of freight for duty purposes, it cannot later deny the same freight as ineligible for input credit.
- Any attempt to reassess value post-facto without prior notice or opportunity to respond may be challenged as arbitrary.
- Circulars and tribunal precedents are binding on departmental officers and must be followed unless overruled by higher courts.
