PLACE OF REMOVAL ¬--- hard to place

by

 

K. VIJAY KUMAR¹

MA, BL, B.Ed, MBA

Superintendent of Central Excise, Hyderabad

 

As per Section 4(3)(c), Place of removal means

1. a factory or any other place or premises of production or manufacture of the excisable goods;
   
2. a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty;
   

   from where such goods are removed.
   

 

This raises certain basic questions.

1. Factory is defined under section 2(e) as any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured, or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on;
   

   So any place or premises where excisable goods are manufactured is a factory. The definition of factory is wide enough to include any premises where manufacture or manufacturing activity takes place. Then what is this other place of production or manufacture that is specified in section 4(3)(c)(i) above? In effect it would mean Place of removal means (i) a factory or a factory! Of course this anomaly has been there for far too long for any one to question now.
   

   
    

2. Similarly clause (ii) speaks of a warehouse or any other place wherein excisable goods have been permitted to be deposited without payment. A warehouse is a place where non-duty paid goods are stored. There is no separate permission for this. Other than the warehouse, what are the premises where excisable goods are permitted to be stored without payment of duty? None, I believe. Of course there is a provision under Rule 47(5) to permit storage of non duty paid goods outside his factory, but subject to the condition that rules 47(2) to (4) regarding storage clearance etc. will apply to such other premises also.
   

 

So the actual definition of Place of Removal is and should be " A factory or warehouse from where such goods are removed. I think this is an anomaly, which needs correction. And how simple easy and comfortable it would have been to everybody! But I have more objections regarding place of removal.

 

The definition of place of removal was the same as the present one prior to 1996. In the Finance Act 1996, enacted on 28.9.96, a third clause was added as below.

(iii) a depot, premises of a consignment agent or any other place or premises from where excisable goods are to be sold after their clearance from the factory.

 

This was added to make the sale price from the depot also the normal price. In the new definition as per the Finance Act 2000, this third clause was removed, of course providing some other statutory provisions for depot sales in the Valuation rules. Refer Rule 7 of valuation rules. Apart from some problems created by this new rule which we shall presently see, the Hon'ble CEGAT has added a new dimension to it.

The Hon'ble CEGAT in Commissioner v Prabhat Zarda Factory Ltd, 2000 (119) ELT 191 held that where the ownership of the goods remained with the manufacturer upto the place of the buyer, the place of removal would be the place of delivery. The Tribunal in an earlier decision in Escorts JCB Ltd v Commissioner had taken a similar view. On an appeal by Prabhat Zarda before the Tribunal on the ground that the law as stated in the Escorts JCB case required re consideration, the matter was referred to a larger bench and in the present case the larger bench consisting of the President and four honourable members, upheld the Escorts judgement. This case had some interesting sidelights. The learned JDR appearing for revenue argued that the correct law has been laid down in the Escorts JCB case. An advocate intervening brought to the notice of the tribunal that Section 4(2) has not changed even after the definition of "Place of Removal" has been changed. Taking all these into consideration, the larger bench of the Hon'ble Tribunal held that where the ownership of the goods remained with the manufacturer till the buyer's premises, the place of removal would be the buyer's premises with or without the amendment to the definition of Place of removal in Section 4.

 

The question now is how do we reconcile with the position of place of removal as stated in the Act and the position as clarified by the Hon'ble CEGAT which the department argued before the Tribunal to be the correct position of law. The new valuation rule 5 deals with the value when goods are sold at a place other than the place of removal, where the actual cost of transportation is deductible. But according to CEGAT,(and supported by the Government before CEGAT) the place of removal is the place of sale in such cases and so no deduction can be allowed. There appears to be a conflict between the law framers and the legal counsels of the department. What do the poor officers in the field do? Yet another round of disputes to be settled by the Supreme Court?

 

The problem does not end here. Regarding cost of transport. Where the goods are sold for delivery at a place other than the place of removal, as per Rule 5 of the valuation rules, the actual cost of transportation from the place of removal to the place of delivery is excluded provided the cost of transportation is charged to the buyer in addition to the price for the goods and shown separately in the invoice for such goods.

 

Now this raises several questions.

1. How is the actual cost determined? Is the assessee supposed to keep proof of how much he actually spent on transport and show it to his range officers and the audit officers visiting him?
   
2. How is the cost to be determined if the assessee himself is the transporter i.e. he maintains a fleet of trucks and is normally engaged in transport of goods(also). If the department finds that the assessee is charging a little extra for transport, what is the action that can be taken? Is the department to close its eyes if the difference between the actual transport as shown by the assessee and the actual worked out by the department is not substantial? If so to what extent can the department condone such discrepancies?
   
3. How can the actual transport cost be worked out when, in the same truck (belonging to the assessee) goods meant for different customers are loaded or in the same truck excisable goods and other goods are loaded and the assessee shows in the invoice actual transport costs?
   
4. When is the assessee to show to the department what the actual cost of transport was? If the actual cost of transport is not included at the time of removal and later it is found that the actual cost was less than charged, how will the assessee pay the differential duty? Or should the assessments be provisional?
   

This actual transport costs are bound to be future litigation points. Now as per the law, the assessee is not required to maintain any records to show to the department how much is the actual transport costs and if the assessee himself is the transporter, he may not have any records to prove the actual costs, especially transport being a frequently fluctuating field. In this connection it will be interesting to note that as per the American Law, which also allows deduction of actual cost of transport, the assessee is required to maintain records for this purpose. Let's see what the American Law says on this. "(4) Records in support of exclusion. Every manufacturer, producer, or importer making sales of taxable articles shall keep records which will disclose the amount of transportation, delivery, insurance, installation or other expense actually incurred by it in connection with the delivery of a taxable article to a purchaser pursuant to a bona fide sale." (Section 53.92 of Code of Federal Regulations, Title 27) The same section of the US law also covers cases where the assessee is himself the transporter. The sections states "Transportation, delivery, or installation services performed by manufacturer. For purposes of computing the taxable sale price of articles, it is immaterial whether the transportation, delivery, or other services of the type to which this paragraph has application are performed by a common carrier or independent agency for or on behalf of the manufacturer or are performed by the manufacturer with the use of its own vehicles or other facilities. Thus, where a manufacturer performs the transportation, delivery, or other services with its equipment, tools, employees, etc., the cost of such services allocable to the sale of the taxable article shall be excluded. In determining whether an expense is an excludable transportation or delivery expense, only those expenses incurred by reason of the fact that the purchaser accepts delivery at some point other than the manufacturer's place of business shall be considered excludable transportation or delivery expenses. All expenses incurred in placing an article packed, ready for shipment on the loading dock at the manufacturer's factory are not excludable transportation or delivery expenses. An allowance granted by the manufacturer, producer, or importer to the purchaser for transportation, delivery, or other expenses incurred or to be incurred by the purchaser in connection with the sale shall be excluded in computing the taxable sale price, if charges for similar expenses would be excludable if incurred by the manufacturer.

 

While the American law appear to be more detailed and in understandable language, our law has left a lot to imagination and we being a very imaginative country, wings will be given to our imagination and litigation follows.

 

 

 

EXCISE LAW TIMES – 01.12.2000– A84