Place of Removal - Hard to place
THE definition of "place of Removal” has perhaps contributed the maximum amount of litigation in Central Excise. The Department's irresistible urge to levy excise duty on transport charges was and still is the main reason for all the disputes.
In 1995, the Supreme Court in the Madras Rubber Factory case - held that in cases where the goods are sold in the course of wholesale trade at place or places outside the place of removal, i.e., at depots, as in the case of Madras Rubber Factory, the expenses incurred in maintaining and running the said depots cannot be deducted from the price but the cost of transportation along with the cost of insurance on freight can be deducted as held in Bombay Tyre International. This holding does not, of course, prevent the assessees from representing their case to the Government if they are so advised in this behalf and it is for the Government to consider the same in the light of all relevant circumstances.
Then the definition of Place of Removal read as:
"Place of removal” means
(i) a factory or any other place or premises where the excisable goods are produced or manufactured;
(ii) a warehouse or any other place or premises where any excisable goods have been permitted to be deposited without payment of duty according to rules and from where such goods are removed.
The MRF judgement came in 1995 and P. Chidambaram became the Finance Minister in 1996. In his 1996 Budget, he amended the above provision to insert a third clause which read as:
iii. a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory.
The MRF judgement was successfully undone!
But can transportation be really brought under excise control?
Arguing in the famous Bombay Tyre International case - , Nani Palkhiwala propounded three principles, which he contended, formed the essential characteristics of a duty of excise.
Firstly, excise is a tax on manufacture or production and not on anything else.
Secondly, uniformity of incidence is a basic characteristic of excise.
And thirdly, the exclusion of post-manufacturing expenses and post-manufacturing profits is necessarily involved in the first principle and helps to achieve the second.
In DDT 1066 - 05.03.2009, I wrote, Revenue seems to be having a love for realising Revenue on freight. They have been fighting hundreds of cases in all appellate forums to get that extra pie of excise duty on transport charges. Right from the Supreme Court down to some rare ‘reasonable' Commissioners, everyone had been repeatedly telling them, "your duty is on manufacture, not transport” - but they don't listen. Whatever you write in your Rules, the fact remains that you cannot simply levy excise duty on transport charges.
One reason for such frivolous appeals even after the issue had been settled long ago is, ‘the Revenue thinks they have no costs for litigation'.
To add to the confusion, they imported the concept of "place of removal” to CENVAT Credit and litigation continues unabated.
Can't they give a two-line clarification that transport charges are not to be included in the assessable value and that credit will be allowed on transportation charges? The whole concept of ‘place of removal' should be removed from the statute.