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16 Dec 2017

ITC of Tax paid on Warehousing Service availed in Foreign Country

In a latest judgment of “Eaton Industrial Systems (P.) Ltd. v. CCE, Aurangabad (2017) 88 taxmann.com 89 (Mumbai-CESTAT)”, Hon’ble CESTAT bench held that an exporter of goods which has availed the services of a warehouse located in a foreign country and has paid service tax under reverse charge for import of service is eligible to claim CENVAT credit of the tax so paid if “place of removal” of goods is such foreign warehouse.

To determine the place of removal, the following are the conditions-

  1. 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;
  2. the seller bore the risk of loss or damage to the goods during transit to the destination; and
  3. the freight charges were integral part of the price of goods.

Another issue raised under the judgment is that if service tax was has been paid even if it was not payable and subsequently credit has been taken of tax so paid then such CENVAT credit cannot be demanded by the adjudicating authority.

In the instant, the appellant was an exporter who was indulged in exporting engine valves to foreign customers. The sale was carried out from the warehouses located in such foreign countries. The adjudicating authority denied the CENVAT credit claimed by the appellant of service tax paid under reverse charge for warehousing charges.

The contention of adjudicating authority was denied by the tribunal stating that- “it has observed that the ownership of goods remain with the appellant and some are sold to abroad from their warehouse. The appellant bore the risk of loss or damage to the goods during the transit to the warehouse and the charges of freight are also borne by the appellants. Therefore it cannot be said that foreign warehouse is not the place of removal and the credit shall hence the demand of CENVAT credit is not sustainable and the appeal is consequently allowed.” 

Another supporting claim was raised by the learned consultant of the appellant that no tax was payable on such transaction as the services are deemed to be performed outside India as per 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. Regarding such matter, it has been adjudged by the tribunal that “since the warehouses were hired in the USA beyond the jurisdiction of Indian authorities, no service tax can be levied and collected on such services rendered and received abroad. Since tax was not payable and the appellants merely have taken credit of what was not payable, the impugned demand is not justified. As such the impugned order is set aside and the appeal is allowed.”