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PJ/CASE LAW/2015-16/2636

Whether dharmada charges and freight charges includible in assessable value?

Case:-  SHREYANS INDUSTRIES LTD. VERSUS COMMISSIONER OF C. EX., JALANDHAR
 
Citation:-  2014 (303) E.L.T. 562 (Tri. - Del.)
 

 
Brief Facts:- The appellant are manufacturers of paper and paperboard chargeable to Central Excise duty. The point of dispute in this case is from March, 2000 to June, 2001. During this period, the appellant recovered dharmada charges @ 0.25% of the value of the goods from their customers and in addition to this, recovered transit insurance charges @ 0.2% of the value of the goods. Beside this, they recovered freight charges on the actual basis. All these charges were being recovered by issuing debit notes. The point of dispute is as to whether these charges were includible in the assessable value of the goods or not. The Department was of the view that dharmada charges, insurance charges and the freight charges being charged on the actual basis were includible in the assessable value of the goods. On this basis, two show cause notices dated 31-7-2001 and 5-4-2002 were issued to the appellant for recovery of allegedly short-paid excise duty amounting to Rs. 1,81,107/- and Rs. 88,989/- respectively for the period from March, 2000 to February, 2001 and from March, 2001 to June, 2001 respectively. The show cause notices were adjudicated by the Assistant Commissioner vide Order-in-Original dated 7-11-2003 by which he dropped the proceedings. The Revenue filed review appeals against this order of the Assistant Commissioner before the Commissioner (Appeals) and the Commissioner (Appeals) vide Order-in-Appeal dated 30th July, 2004 allowed the appeals and confirmed both the demands totalling Rs. 2,70,097/- and beside this, also imposed penalty on them under Rule 173Q. Against this order of the Commissioner (Appeals), this appeal has been filed.
 
Appellant’s Contention:- Shri Jatin Singhal, Advocate and Ms. Surabhi Sinha, Advocate, the learned Counsels for the appellant, pleaded that transit insurance charges and freight charges were not includible in the assessable value, that in respect of the period prior to 1-7-2000, there was a specific provision for sub-section (2) of Section 4 providing for exclusion of the freight charges from the assessable value, that in respect of the period w.e.f. 1-7-2000, in accordance with the provisions of Rule 5 of the Central Excise Valuation Rules, 2000, the charges for freight and transit insurance were not includible in the assessable value when the same are separately shown in the invoices, that though in this case, the freight and transit insurance were not mentioned in the Central Excise invoices, the same had been charged separately by debit notes and this amounts to charging separately for the freight and transit insurance, that in any case since the transaction value of the goods is required to be at the time and place of removal and there is no dispute that the sale of the goods was from the factory gate, the freight and insurance charges cannot be included in the assessable value, that as regards dharmada charges, the same is not includible in the assessable value in view of judgment of the Tribunal in the case of Mohan & Co., Madras v. CCE, Madras reported in 1987 (30)E.L.T.624 (Tribunal), the civil appeal against which was dismissed by the Apex Court vide judgment reported in 1997 (91) E.L.T. A232 (S.C.), that same view had been taken by the Tribunal in the case of Associated Soapstone Distributing Co. Pvt. Ltd. v. CCE, Indore reported in 2002 (146)E.L.T.324 (Tri.-Del.), the civil appeal against which was dismissed by the Apex Court vide judgment reported in 2003 (154) E.L.T. A254 (S.C.), wherein the Apex Court relied upon its earlier judgment in the case of Mohan & Co., Madras v. CCE, Madras (supra) and that in view of this, the impugned order is not sustainable.
 
Respondent’s Contention:- Shri M.S. Negi, the learned DR, defended the impugned order by reiterating the findings of the Commissioner (Appeals). With regard to freight and transit insurance, he pleaded that since the same have not been shown separately in the invoices, in view of Rule 5 of the Central Excise Valuation Rules, the same have to be included in the assessable value. As regards dharmada charges, he cited the judgment of the Apex Court in the case of CCE v. Panchmukhi Engg. Works reported in 2003 (158)E.L.T.550(S.C.), wherein the Apex Court relying upon its earlier judgment in the case of Tata Iron & Steel Co. Ltd. v. CCE, Jamshedpur reported in 2002 (146)E.L.T.3 (S.C.)has held that dharmada charges are includible in the assessable value, that the Apex court in its judgment in the case of Tata Iron & Steel Co. Ltd. v. CCE, Jamshedpur (supra) had considered the Tribunal’s judgment in the case of Mohan & Co., Madras v. CCE, Madras (supra) and had overruled the same and had affirmed the judgment of the Tribunal in the case of SAIL v. CCE reported in 1997 (90)E.L.T.502 (Tribunal) on this issue and overruled the judgment of Larger Bench of the Tribunal in case ofSAIL v. CCE, Bhubaneswar reported in 2000 (119)E.L.T.249.
 
Reasoning of Judgement:- Submissions from both the sides are considered.As regards, the inclusion of freight being charged by the appellant from their customers on actual basis, and transit insurance being charged @ 0.2% of the price in the assessable value, it is  find that since there is no dispute that the appellant’s sales were at the factory gate and during the period up to 30-6-2000, the assessable value was the normal price at the time and place of removal and during the period from 1-7-2000, the assessable value is the transaction value at the time and place of removal and since the place of removal undisputedly is the factory gate, the amounts being charged for freight and insurance would not be includible in the assessable value of the goods. Moreover, when the freight and insurance were being charged separately under debit notes which are like invoices, it cannot be said that the freight and insurance charges were not being separately charged. Therefore, the impugned order upholding the Central Excise duty demand on the freight and insurance charges is not sustainable and has to be set aside. As regards dharmada charges, we find that first judgment of the Tribunal on this issue was in the case of Mohan & Co., Madras v. CCE, Madras (supra), the civil appeal against which was dismissed by the Apex Court. The Tribunal’s subsequent judgment on this issue in the case of Associated Soapstone Distributing Co. Pvt. Ltd. v. CCE, Indore (supra) relies upon its earlier judgment in the case of Mohan & Co., Madras v. CCE, Madras (supra) and while dismissing the civil appeal against this judgment, the Apex Court relied upon the dismissal of civil appeal against the Tribunal’s judgment in the case of Mohan & Co., Madras v. CCE, Madras (supra). However, we find that in the case of Tata Iron & Steel Co. Ltd. v. CCE, Jamshedpur reported in 2002 (146)E.L.T.3 (S.C.), the Apex Court on the very issue of inclusion of dharmada charges in the assessable value, has taken a contrary view holding that the same would be includible in the assessable value and in this judgment has overruled the judgment of the Larger Bench of the Tribunal in case of SAIL v. CCE, Bhubaneswar reported in 2000 (119)E.L.T.249and also the Tribunal’s judgment in case of Mohan & Co., Madras v. CCE, Madras (supra). The Apex Court’s judgment in the case of CCE v. Panchmukhi Engg. Works (supra) is based on its earlier judgment in the case of Tata Iron & Steel Co. Ltd. v. CCE, Jamshedpur (supra). In our view, since the Apex Court in its judgment dated 24-10-2002, in the case of Tata Iron & Steel Co. Ltd. v. CCE, Jamshedpur (supra), after considering its earlier judgment in the case of Mohan & Co., Madras v. CCE, Madras (supra) and overruling it has taken a view that dharmada charges are includible in the assessable value of the goods and it is this judgment which has been followed by the Apex Court in the case of CCE v. Panchmukhi Engg. Works (supra), it is the Apex Court’s view in the case of Tata Iron & Steel Co. Ltd. v. CCE, Jamshedpur (supra) and in the case of CCE v. Panchmukhi Engg. Works (supra) which would have to be treated as its final view and would hold the field. In view of this, we hold that dharmada charges are includible in the assessable value and as such there is no infirmity in the order of Commissioner (Appeals) on this point.
 
In view of the above findings, the appeal is partly allowed.

Decision:- Appeal is partly allowed.

Comment:-The crux of the case is that freight and insurance charges are not to be included in the assessable value because transaction value of goods is the value at the factory gate. Moreover, separate invoices were raised for freight and insurance charges on actual basis which indicated that the said charges were not essential condition for sale. However, dharmada charges will form part of the assessable value in view of the Apex Court decision.

Submitted By:- Somya Jain

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