The Central Board of Excise and Customs (CBEC) has issued a useful circular (no. 97/8/2007-ST dated August 23, 2007) clarifying that Cenvat credit of service tax paid on outward freight can be taken in certain circumstances. Exporters might, however, like further clarification to avoid uncertainty and litigation.

The circular says that credit for service tax paid on transportation of goods beyond the place of removal (i.e. factory /dept of branches/C&F agents etc.) is not available. However, a manufacturer /consignor may claim that the sale has taken place at the destination point because in terms of the sale contract /agreement (i) the ownership of goods and the property in the goods remained with the seller of the goods till the delivery of the goods in acceptable condition to the purchaser at his doorstep; (ii) the seller bore the risk of loss of or damage to the goods during transit to the destination; and (iii) the freight charges were an integral part of the price of goods. In such cases, the credit of the service tax paid on the transportation up to such place of sale would be admissible if it can be established by the claimant of such credit that the sale and the transfer of property in goods (in terms of the definition under Section 2 of the Central Excise Act, 1944, as also in terms of the provisions under the Sale of Goods Act, 1930) occurred at the said place, says the CBEC.

Most exporters use Incoterms 2000 to agree on the obligations of the buyer and seller, who bears what costs, how and when the property passes from seller to buyer and when the risks pass. For all such contracts, except those where the terms of delivery envisage ex-works (EX-W) terms, the property passes at a place away from the factory. For example, where FCA (free carrier) terms are used, the property passes upon delivery of the cargo to a carrier (named carrier or at a named place) and the risk passes simultaneously. In an air consignment, the exporter will usually have to take the goods to the airport and deliver to the carrier after customs clearance. The terms “carriage paid to” and “carriage insurance paid” cast additional obligations to pay freight and insurance.In such cases, the ownership remains with the seller till the goods are delivered to the carrier; the seller bears the risk of loss till then and the freight charges till then is integral part of the price of the goods. In such contracts, the delivery to the carrier is constructive delivery to the buyer according to the Sale of Goods Act, 1930. Thus, the place of sale is at the place where the cargo is delivered to the carrier.

The CBEC should assure that it is the place of sale that is pertinent and not ownership till the goods reaches the buyer.

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