Inclusion of cost of Equalized Freight in Assessable value of Goods

PJ/Case Laws/2011-12/1321

Case: - COMMISSIONER OF CENTRAL EXCISE, NASHIK VS VIP INDUSTRIESLTD

Citation: - 2011-TIOL-1130-CESTAT-MUM

Issue:- Cost of Equalized freight - whether includible in assessable value of goods for discharging Excise Duty liability?

Brief Fact:- Respondent-assessee had 3 units at (1) MIDC Area, Jalgaon, (2) MIDC, Malegaon, Sinnar, Nasik and (3) MIDC, Satpur, Nashik. They were manufacturing excisable goods i.e. Travel Goods (of moulded plastics) falling under sub-heading no. 4201.00. The goods were cleared from their factory to their depots from where the sales were affected. However, Respondent were not including the cost of freight expenses from factory to depot in the assessable value of the goods sold from depot, even though, they are recovering from their customers depot-wise equalized freight at a pre-determined percentage varying from 1.5% to 4.5% of the price of the goods.

Therefore, Department issued show-cause notices demanding Central excise duty on amount recovered towards equalized freight from customers on the ground that in respect of goods sold from depot, the place of removal (as defined in section 4 of the Central Excise Act, 1944) is the depot and, therefore, whatever cost has been incurred for the transportation of goods from factory to depot should be included in the assessable value of goods for discharge of Excise duty liability. Ten show-cause notices were issued demanding central excise duty on the amount of equalized freight covering various periods.

The Adjudicating Authority passed orders confirming the duty demanded and imposed penalty.

Respondent filed appeals before the Commissioner (Appeals). The Commissioner (Appeal) relied upon the Apex Court's decision in appellant's own case [2003 (155) ELT 8(SC)] and allowed the appeals of respondent.

Department is in appeal before the Tribunal against the orders of the Commissioner (Appeals).

Appellant’s Contention:- Department contended that as per amended Section 4 (effective from 28.09.1996), place of removal includes depot also and, therefore, the value has to be determined at the price at which the goods are sold from the depot. Since this value includes cost of transportation of the goods from the factory to depot, the same is liable to be included in the assessable value of the goods sold from the depot. Department further argued that with effect from 1.7.2000, the old Section 4 was substituted by a new Section 4 according to which excise duty chargeable on the transaction value on each case of removal and depot is defined as a place of removal in the new Section 4. Further, Rule 7 of the Central Excise Valuation Rules, 2000 clearly states that where the excisable goods are not sold by the assessee at the time and place of removal but are transferred to 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 place of removal, the value shall be the normal transaction value of such goods sold from such other place. Since the sale value at the depot includes cost of transportation of goods from factory to the depot, the assessee cannot claim any deduction towards such cost of transportation while discharging duty liability.

Respondent’s Contention:- Respondent-assessee in their Cross Objections has stated that the issue relating to inclusion of equalized freight from factory to depot in the assessable value of goods manufactured and cleared by them has been settled in their own case by the Apex Court in the case cited hereinabove and, therefore, the order of the Commissioner (Appeals) based on the said Supreme Court judgment is correct.

Reasoning of Judgment:- The Tribunal observed that the Apex Court in Appellant's own case reported in 2003 (155) ELT 8 (SC) had held that the cost of transportation from the factory to the depot is not includable in the Assessable value where a manufacturer includes equalized freight in the price of the goods and sells the goods all over the country at a uniform price. It was held that the judgment of the Apex Court pertains to period prior to 01.07.2000 and relates to provisions of Section 4 as it stood prior to 01.07.2000. Thus, it was held that the duty demand before 01.07.2000 was not sustainable.

The Tribunal held that as per the provisions of the new Section 4 of the Central Excise Act, 1944 read with rule 7 of the Valuation Rules, 2000 it is abundantly clear that while arriving at transaction value for the purpose of charging excise duty, the cost of transportation from the factory to the depot is to be included and no abatement in respect thereof is permitted. To that extent, in view of the changed position in law, the Apex Court's judgment in the assessee's case has no applicability as the same pertains to the position in law as it stood prior to 01.07.2000. Therefore, the impugned order so far as it allows exclusion of cost of transportation from factory to depot with effect from 01.07.2000 is not in accordance with law and is liable to be set aside. Therefore, for the period on or after 01.07.2000, no deduction from transaction value on account of freight, equalized or otherwise, is permissible and the demand for differential duty on such freight element has to be sustained.

It was held that since the issue involves interpretation of the statute, therefore, no penalty is warranted.

Accordingly, the original adjudicating authority is directed to requantify the differential duty amount as discussed above in accordance with law. In sum, it was held that for the period prior to 01.07.2000, the cost of equalized freight is not includable in the assessable value of the goods sold from the depot as has been held by the Apex Court in the Assessee’s own case. However, with effect from 01.7.2000, when the provisions of new Section 4 of the Central Excise Act, 1944, came into force, no such extension is permissible and duty is liable to be paid on the value inclusive of cost of transportation from factory to depot. The impugned orders modified accordingly.

Decision:- Appeals partly allowed.

Comment:- This is clear understanding of law. After 1.7.2000, in case of clearance of goods at depot, the duty is to be paid at factory gate on the price available at depot of same goods at same or nearest time. Hence the decision of tribunal is clearly correct that the law itself has changed from 2000 and it was done to include the transportation cost from factory to depot and hence the deduction for the same is not available. However, if the goods are sold to buyer and transportation is charged separately then the same is not includible. But if the agreement with the buyer is also FOR destination i.e. sale takes place at buyer’s premises then the duty is to be paid on transportation charges also.

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PJ/Case Laws/2011-12/1321

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