CESTAT- Mumbai : Where assessee was engaged in exporting goods to foreign customers and for that purpose it availed services of warehousing logistic in foreign country and paid service tax on reverse charge basis under category of ‘storage and warehousing services’, it was entitled to credit of service tax paid

CESTAT, Mumbai Bench

Eaton Industrial Systems (P.) Ltd. vs. Commissioner of Central Excise, Aurangabad

Section 16

Period August, 2008 to November, 2012

Raju, Technical Member

Order No. A/89796/17/SMB

Appeal No.E/89454/14

September  28, 2017 


1. The appellant, M/s. Eaton Industrial Systems Pvt. Ltd. are in demand against denial of Cenvat Credit on certain services received by them outside India.

2. Ld. Counsel for the appellant argued that they are engaged in exporting engine valves to foreign customers. The appellants are maintaining an inventory of their material abroad to supplied the material to their customers there and for that purposes they are availing certain services, which are of the following nature.

S. No. Service provider Name of Service Amount of service tax
1. Eaton Industries (Wuxi) C. Ltd. China Cost allocation for shared or corporate support services relating to Accounting/Finance, HR, General and operation management, SCM (Service Classified by EISPL under Business Support Services) 14,8,948
2. Integrale Marketing Consulting, SL, Spain Liaisoning and Technical Representation Services for supplying valves (such as regular monitoring with Warehouse and Ford Plant to ensure smooth transactions, identification and resolving of quality issues, providing weekly reports to EISPL on delivery and quality performance, coordinating with EISPL for various Ford system, liaise with logistic operator, Ford Customs, Warehousing Service provider and Ford MP&L, inspection of parts (Service Classified by EISPL under Business Support Services) 14,37,124
3. Eaton Sri, Italy Consultancy and Technical Shared Services (such as manufacturing support, testing and analysis in laboratory, support, testing and analysis in laboratory, support relating to quality such as quality training, fresh-eyes audit, information and best practice sharing etc, material management, prototyping and machine building, strategic product management, general management support in the area of finance, IT, HR, SCM and sales) (Service classified by EISPL under business support services) 15,27,012
Total… 44,53,084


2.1 The appellant have paid service tax on reverse charge basis under the category of storage and warehousing services and claimed the credit of the same. Ld. Counsel argued that since the sales are made from the warehouse located abroad, the warehouse becomes the place of removal and therefore, the credit of services availed at the warehouse abroad would be admissible. Ld. Counsel further argued that till the period of 31/03/2011, the definition of input services include the services availed in relation to the “activities related to business”. He argued that all these activities are clearly related to business and therefore the credit of the same should be admissible. He further argued that if the activities are deemed to perform outside India then no service tax is payable in terms of Rule 3 (ii) of Taxation of Services (Provided from outside India and received in India) Rules, 2006. In terms of said Rule, the said services would be taxable only if it is performed in India and therefore, they are not taxable. For this assertion, he relied on the decision of the Tribunal in the case of Bajaj Allianz General Insurance Co. Ltd. v. CCE [Final order No. A/1255/2014-WZB/C-1 (CSTB) dated, 23-7- 2014]. He also relied on the Rule 5 of the Place of Provision of Rules, 2012 which relates to these services related to immovable property. He further argued that Notification No. 41/2007 as amended gives refund of service tax paid of services used for export. In the instant case since the appellants are exporting the goods they are also entitled to the refund of the said service tax paid by them. He further argued that extended period of limitation has been invoked in this case and the show-cause notice has been issued on 06/06/2013 for the period August 2008 to November 2012. Ld. Counsel argued that there are no malafide intention as various avenues were available to them to avail the refund of the said service tax paid by them. The said service tax paid would also have been available as credit to them. He further pointed out that on 14/10/2008 an interview of their Senior Manager Shri Hariparasad Patodia was conducted by Shri S.G. Pradhan, Superintendent (Audit), wherein he had specifically clarified as follows:

“We are exporting the Engine Valves o foreign customer and we are availing the services warehousing logistic in the foreign country, being recipients we have obtain service tax registration for business support service and Text inspection Certification service. We are paying the service tax on the said service after making the payment to the foreign customer and we are availing service tax credit on the said service”.

2.2 Ld. Counsel argued that in view of the above, it is apparent that they are not hiding any fact from the Revenue and there is no malafide intention and therefore, extended period of limitation cannot be invoked.

3. Ld. AR relies on the impugned order. He argued that the said services have been availed after the goods have been removed from the factory. He further argued that the said services are not used in or in relation to the manufacture. Ld. AR further argued that the point regarding limitation on the ground of interview of the Senior Manager was not raised before the Commissioner (Appeals) and therefore, it is not open to raise this issue before the Tribunal.

4. I have gone through the rival submissions. I find that the impugned order holds that the factory gate is the place of removal and warehousing located in foreign country cannot be the place of removal. The sole ground for reaching this conclusion is that the Central Excise Act, 1944 is applicable within the territory of India and not abroad. The Ld. Counsel for the appellant relied on the decision of the Tribunal in the case of CCE v. Imperial Auto Industries [Appeal No. E/60536/2016-SM, dated 17-4-2017], wherein the issue involved is related to credit of services of courier from the port of export to the foreign clients. In the said decision, the Tribunal has observed as follows:

6. The Revenue has filed this appeal on the ground that in the case of export of the goods, place of removal is port of export and to that extent, they have relied on para 4 of the circular dated 28.2.2015. which reads as under:

4. In most of the cases, therefore, it would appear that handing over of the goods to the carrier/transporter for further delivery of the goods to the buyer, with the seller not reserving the right of disposal of the goods, would lead to passing on of the property in goods from the seller to the buyer and it is the factory gate or the warehouse or the depot of the manufacturer which would be the place of removal since it is here that the goods are handed over to the transporter for the purpose of transmission to the buyer. It is in this backdrop that the eligibility to Cenvat Credit on related input services has to be determined.

7. It is clarified in the above circular that if the seller does not reserve its right for delivery of the goods then destination in the case is the port of export is place of removal of the goods. The same is not in the case in hand. In fact, the respondent has sold the goods on Delivered Duty Paid basis which means that the seller bear all the cost and risks involved in bringing the goods to the place of destination and has an obligation to clear the goods not only for export but also for import, to pay any duty for both export and import and to carry out all Customs formalities. The ownership right of the goods remains with the respondent. Therefore, CBEC circular is not relevant to the facts and decision in the case of Khanna Industrial Pipes Pvt. Ltd. is no relevant to the facts of the present case.

8. Further, in the case of Ambuja Cements (Supra), the Hon’ble Punjab & Haryana High Court has examined the issue and held that the circular No. 97/6/2007-ST dated 23.8.2007 lays down three condition, namely, (a) the ownership of goods and the property of the goods remained with the seller of the goods till the delivery of goods in acceptable condition to the purchaser at his door step (b) the seller bore the risk of loss or damage to the goods during transit to the destination and (c) the freight charges were integral part of the price of goods.

4.1 In the instant case, the ownership of the goods remain with the appellant, and some are sold to abroad from their warehouse. The appellants bore the risk of loss or damage to the goods during the transit to the warehouse and obviously the charges of freight are borne by the appellants. In these circumstances, it cannot be said that warehouse abroad is not the place of removal. Ld. Counsel for the appellant has also relied on the decision of the Tribunal in the case of Sundaram Clayton Ltd. v. CCE [Final order No. 1238 of 2011, dated 4-11-2011], wherein following has been observed:

2. I find, in the first place, that since the warehouses were hired in the USA beyond the jurisdiction of the Indian authorities, no service tax can be levied and collected on such services rendered and received abroad. Since tax was not, in the first instance, payable and the appellants merely have taken credit of what was not payable by them, the impugned demand cannot be justified. For the same reason, there is no justification for imposition of penalty and recovery of the interest amount. As such, the impugned order is set aside and the appeal, is allowed. It is noted in passing the order that the appellants are not paying service tax on such services availed for the subsequent period and the learned consultant states that the impugned amount in this case was paid out of confusion at the initial stage itself.

5. In view of the above, the demand of Cenvat Credit is not sustainable and I do not find any merit in the impugned order and the same is set aside and the appeal is consequently allowed.

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