Obligations for exporters in credit claims

EXIM MATTERS

In response to the last week's column regarding credit of service tax on outward freight for exporters, many readers have sent in questions. I answer some of them here.

Under Section 39 (1) of the Sale of Goods Act, 1930, "where in pursuance of a contract of sale, the seller is authorised or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer, or delivery of the goods to a wharfinger for safe custody, is prima facie deemed to be a delivery of the goods to the buyer." This was the basis for my statement that in an FCA (Free Carrier) contract, delivery to the carrier is constructive delivery to the buyer. In an FOB (Free on Board) contract, the seller has the additional obligation to obtain a bill of lading and deliver the same to the buyer duly endorsed, transferring the title to the goods.

As per Section 39 (3) of the Sale of Goods Act, 1930, "Unless otherwise agreed, where the goods are sent by the seller to the buyer by a route involving sea transit in circumstances in which it is usual to insure, the seller shall give such notice to the buyer as may enable him to insure them during their sea transit and if the seller fails to do so, the goods shall be deemed to be at his risk during such sea transit." This aspect has to be borne in mind even in FCA contracts, where the buyer has to cover the insurance.

As per Cenvat Credit Rules, 2004, for a manufacturer /consignor, the eligibility to avail credit of the service tax paid on the transportation during removal of excisable goods would depend upon the place of removal. A manufacturer/consignor can take credit on the service tax paid on outward transport of goods up to the place of removal and not beyond that.

As per CBEC Circular no. 97/08/2007-ST dated Aug 23, the definition given in the Central Excise Act, 1944 can be resorted to for determining the 'place of removal'. The relevant extract from the definition of 'place of removal' at clause (e) (iii) of sub-section (3) Section 4 of Central Excise Act, 1944 covers 'any other places or premises from where the excisable goods are to be sold after their clearance from the factory."

This clause would justify the proposition that in an FCA or FOB contract, the place of removal is the place where the goods are delivered to a carrier. The inference, therefore, follows that outward transportation from the factory to the place where the goods are delivered to a carrier, usually at the port or airport is covered within the expression 'up to the place of removal'. Accordingly, the eligibility for credit of service tax on outward freight from the factory to the port or airport would be a logical consequence.

In a CIF (Cost, Insurance and Freight) contract, the seller has the additional obligation to pay freight and insurance and deliver the endorsed bill of lading and insurance policy. The risk passes immediately after shipment and not when the goods arrive at the destination, even if the Incoterms 2000 require mention of CIF as a named destination.

tncr@sify.com