Whether duty payable on excess freight collected by manufacturer over and above equalized freight ?

PJ/Case Law/2013-14/2075

Case:- FERRO ALLOYS CORPORATION LTD. Vs C.E., C. & S.T., BHUBANESWAR-I

Citation:- 2013 (294) E.L.T. 440 (Tri. - Kolkata)

Brief facts:- Both the Assessee and the Revenue were in appeal in this case. Being aggrieved by the Order-in-Original No. CCE/BBSR-I/12/2003, dated 28-8-2003, the Assessee filed an Appeal, whereby the Commissioner confirmed the demand of Rs. 78,92,762/- and imposed a penalty of Rs. 8,00,000/- under Rule 173Q, and being aggrieved by the Order-in-Appeal No. 275/BBSR-I/2004, dated 10-12-2004, the Revenue filed another Appeal. The issue involved in both these Appeals was common. Therefore, they were being taken up together for disposal.
Briefly stated the facts of the case were that the Assessee was a 100% EOU and they had also cleared the goods to Domestic Tariff Area (DTA) during the period from 16-9-1999 to 14-3-2001. They had cleared their goods by arriving at the assessable value in terms of the Board’s Circular No. 512/91/93-Cus-IV, dated 18-5-1994, whereas the Department’s view was to charge duty by arriving at the assessable value in terms of the Circular No. 7/2001, dated 6-2-2001. The Department had also raised a demand on the differential value of the clearances made by the Assessee to their sister unit by working out the assessable value in terms of Rule 8 of Central Excise Valuation Rules, 2000, whereas the Assessee paid duty based on the assessable value what they had actually charged from other independent buyers. The show cause notice also raised a demand against the Assessee on account of non-inclusion of the differential amount of freight on which they had paid the duty and the freight which they had recovered from their customers. All the proceedings were confirmed by the learned Commissioner. Aggrieved by the same, the assessee filed the appeal. The Revenue also filed another Appeal for the period from 20-3-2001 to 28-2-2002, on the ground that the learned Commissioner (Appeals) should not have decided the issue, when the Department’s appeal was pending decision, against the Larger Bench’s decision in the case of Indoworth India Pvt. Ltd. v. CCE, Nagpur reported in 2004 (170)E.L.T.46 (Tri.-LB).

Appellant’s contentions:- Insofar as the valuation of clearance made in DTA was concerned, the contention of the Assessee was that the Tribunal in the case of Futura Polymers Ltd. v. CCE, Chennai [2003 (152)E.L.T.156 (Tri. - Del.)] held that the demand for the period from February, 2000 to January, 2001 had to be governed by the earlier Circular, i.e. Circular dated 18-5-1994. The Larger Bench of this Tribunal in the case of Indoworth India Ltd. v. CCE, Nagpur (supra) agreed with the view taken by this Tribunal in the case of Futura Polymers (supra) and held that the method as adopted by the Revenue for the calculation of duty of Customs was valid only after 1-3-2002. The contention was that the Board through its Counsel intimated the Hon’ble Supreme Court that the Department accepted the Larger Bench’s decision in the case of Indoworth India (supra) and in view of this, the Hon’ble Supreme Court vide its Order dated 12-10-2011 dismissed the appeal filed by the Department against the Tribunal’s decision in the case of Futura Polymers Ltd. (supra). Thus the issue stood settled in favour of the Assessee for the period prior to 1-3-2002. Insofar as the demand of duty on value of stock-transfer was concerned, the contention of the Assessee was that in their case, the value of sale to independent buyers was available. Therefore, in case of the clearances made to the sister unit of the Assessee’s firm, the value should be as per the value adopted in case of the independent buyers. In support of their contention, they placed reliance on a Larger Bench decision in the case of Ispat Industry Ltd. v. C.C.E. reported in 2007 (209)E.L.T.185 (Tri.-LB).As regards the inclusion of freight recovered from their customers, the Assessee contended that differential amount between equalized freight and the freight actually paid, was not includible in the assessable value. In support of their contention, they have placed reliance on the Hon’ble Supreme Court’s decision in the case of Baroda Electric Meters Ltd. v. Collector of Central Excise reported in 1997 (94)E.L.T.13 (S.C.).

Respondent’s contentions:- Learned A.R. appearing for the Department reiterated the findings of the lower authorities. Insofar as the valuation in case of stock-transfer was concerned, learned AR submitted that the valuation in that case should be done as per Rule 8 of the Central Excise Valuation Rules, 2000. Insofar as the inclusion of additional freight was concerned, the learned AR contended that the Assessee had charged the equalized freight of Rs. 800.00 per MT. They had also charged extra over and above the equalized freight. This would form part of the assessable value.

Reasons of judgment:- The Bench considered the submissions of both sides and perused the records. Insofar as the valuation for DTA sale was concerned, they agreed with the contention of the Assessee that the issue stood settled in view of the decisions in the case of Futura Polymers Ltd. and Indoworth India Ltd. Undisputedly, the period involved in this case was prior to 1-3-2002, which was covered, vide the procedure prescribed under the Circular dated 18-5-1994. The Assessee had calculated the duty, vide the method prescribed under the aforesaid Circular, which was also not in dispute. Therefore, the demand to this extent was not sustainable. Insofar as the valuation in case of stock-transfer was concerned, the assessable value for sale to independent buyers was available, and it was not in dispute that the Assessee had paid the duty as per such assessable value. The Larger Bench of this Tribunal in the case of Ispat Industries(supra) held that the application of Section 4 of the Central Excise Act, 1944 would lead to determination of a value which would be more consistent with the provisions of Central Excise Act, 1944, and the provisions of Rule 8 ibid, would not apply. In these circumstances, the demand against the Assessee on this count was also not sustainable. Insofar as the demand of duty on differential amount between equalized freight and freight actually paid, the Hon’ble Supreme Court in the case of Baroda Electric Meters Ltd. v. Collector of Central Excise (supra) held that wherever freight actually paid was less than the amount collected by way of freight and transportation charges, the differential amount was not includible in the assessable value, since the duty of excise was a tax on the manufacturer and not a tax on the profits made by a dealer on transportation. Thus, the differential amount was not includible in the assessable value.

Decision:- Assessee’s Appeal was allowed and the Revenue’s Appeal was dismissed.

Comment:-The analogy drawn from this case is that as regards valuation in case of stock-transfer is concerned, if there are sales to independent buyers, the provision of Rule 8 would not be applicable in view of the decision of the larger bench given in the case of Ispat Industries wherein it was held that Rule 8 is not applicable if there are some sales to independent buyers also. Further, in case actual freight collected by the manufacturer is more than the equalized freight, the differential amount is not required to be includible in the assessable value because excise duty is a tax not on the profits made by the manufacturer on transportation of goods.

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PJ/Case Law/2013-14/2075

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