Place Of Removal In FOR Sales Cannot Be Presumed As Factory Gate: CESTAT Chennai Reiterates

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has reiterated that the “place of removal” in FOR (Free on Road or Rail) destination sales cannot be mechanically assumed to be the factory gate and must be determined on the basis of facts and contractual terms.

The tribunal set aside and remanded a service tax order denying CENVAT credit on outward transportation services after finding that the tax authorities had confirmed the demand without examining whether the disputed clearances were in fact made on a FOR destination basis.

A coram of Judicial Member P. Dinesha and Technical Member Vasa Seshagiri Rao clarified that the determination of the place of removal depends on when ownership and risk in the goods pass to the buyer.

The tribunal observed that under Section 4(3)(c) of the Central Excise Act, the place of removal “cannot be mechanically or presumptively fixed at the factory gate in all cases.”

The appeal was filed by Madras Cements Ltd., now known as Ramco Cements Ltd., which had cleared cement from its factory and depots to dealers and customers between November 2007 and September 2008.

The company claimed that these clearances were effected on an FOR destination basis. The freight was, therefore, part of the sale price, and ownership and risk passed only upon delivery at the buyer's premises.

During the relevant period, the company availed CENVAT credit of about Rs. 2.33 crore on service tax paid under the reverse charge mechanism on goods transport agency (GTA) services used for outward transportation.

The tax department disputed the credit on the ground that outward transportation beyond the factory gate does not qualify as an “input service” under Rule 2(l) of the CENVAT Credit Rules, 2004.

A show-cause notice was issued in November 2008, and the demand was later confirmed by the Commissioner, who proceeded on the assumption that the factory gate was the place of removal.

Before the tribunal, the company relied on settled judicial precedents to argue that even after the amendment to Rule 2(l) with effect from April 1, 2008, GTA services used up to the buyer's premises remain eligible for credit where sales are on a FOR destination basis and ownership and risk pass only upon delivery.

While agreeing with this legal position, the tribunal found that the commissioner had failed to undertake the required factual examination of sale contracts, invoices, and transport documents.

It clarified that where sales are established to be on a FOR destination basis and ownership and risk pass only at the buyer's premises, such premises would constitute the place of removal.

Reiterating that GTA services used for outward transportation up to the place of removal qualify as input services both before and after April 1, 2008, the Tribunal held that entitlement to credit depends on factual verification.

Accordingly, the impugned order was set aside, and the matter was remanded to the adjudicating authority for limited verification of whether the disputed clearances were effected on a FOR destination basis. 

Case Title: Madras Cements Limited v. Commissioner of GST and Central Excise

Citation: 2026 LLBiz CESTAT(CHE) 25

Case Number: Excise Appeal No. 221 of 2009

Counsel for Appellant/Assessee: R. Parthasarathy, Consultant

Counsel for Respondent/Department: Sanjay Kakkar, Authorised Representative