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Outward Freight up to Buyer’s Premises Eligible for CENVAT Credit When Sale is on FOR Basis: CESTAT [Read Order]

CESTAT ruled that CENVAT credit is admissible on outward freight up to the buyer’s premises when the sale is on an FOR basis and freight charges are included in the transaction value.

Kavi Priya
CENVAT Credit - Taxscan
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CENVAT Credit - Taxscan

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that CENVAT credit is admissible on outward transportation up to the buyer’s premises when the sale is on an FOR basis and freight charges are included in the transaction value.

Sri Poovathal Polymers, the appellant, is engaged in the manufacture of plastic products and availed CENVAT credit on input services, including Goods Transport Agency (GTA) services used for delivering finished goods to customers.

The department issued a show cause notice alleging that the appellant wrongly availed credit on outward freight beyond the place of removal, which, according to the department, should be limited to the factory gate.

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The adjudicating authority confirmed the demand along with interest and penalty, and the Commissioner (Appeals) upheld the decision. Aggrieved by the order, the appellant approached the CESTAT.

The appellant’s counsel argued that the sales were made on an FOR destination basis, meaning ownership and risk in the goods remained with the seller until the goods were delivered to the buyer’s premises.

The appellant’s counsel further argued that freight charges were included in the assessable value for payment of excise duty, and hence, the buyer’s premises should be treated as the place of removal. They relied on CBEC Circular No. 97/8/2007-ST and judicial precedents supporting their claim for credit on outward transportation.

The revenue counsel argued that the definition of "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004, allows credit only up to the place of removal. They argued that once the goods leave the factory gate, outward freight cannot be considered an eligible input service.

The department further argued that the appellant was not entitled to credit as the place of removal remained the factory gate, not the buyer’s premises.

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The two-member bench observed that when sales are made on an FOR destination basis and the freight charges form part of the assessable value, the buyer’s premises can be treated as the place of removal.

The tribunal explained that in such cases, the transportation service used for delivery up to the buyer’s location has a direct nexus with the sale and qualifies as an input service.

The tribunal pointed out that the department had not produced evidence to show that ownership and risk transferred at the factory gate. It also observed that the issue was interpretational and the appellant had availed the credit under a bona fide belief supported by circulars and case law.

The tribunal set aside the demand, interest, and penalty, holding that the appellant was entitled to CENVAT credit on outward freight up to the buyer’s premises. The appeal was allowed in favor of Sri Poovathal Polymers.

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M/s. Sri Poovathal Polymers vs Commissioner of GST and Central Excise
CITATION :  2025 TAXSCAN (CESTAT) 1069Case Number :  1. Excise Appeal No. 40326 of 2023Date of Judgement :  30 September 2025Coram :  P. DINESHA and VASA SESHAGIRI RAOCounsel of Appellant :  S. JaikumarCounsel Of Respondent :  Anandalakshmi Ganeshram

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