Whether equalized freight separately charged to be included in the assessable value ?

PJ/Case Law/2014-15/2395

Case:- COMMISSIONER OF CENTRAL EXCISE, ALLAHABAD Vs CHANDRA METALS PVT LTD

Citation:- 2014-TIOL-797-CESTAT-DEL

Brief facts:-To appreciate the issue, it is necessary to go through the brief facts of the case. The appellants manufactured various varieties of copper wires classifiable under chapter 74 of the first schedule to the Central Excise Tariff Act, 1985. It was alleged by the Revenue through show cause notices dated 19.8.2003 and 17.11.2007 based on records that the appellants had entered into contracts with their respective buyers for delivery of goods at the agreed prices on FOR destination basis, but the freight charges were not shown in the respective invoices. The appellants raised separate bills/ invoices showing freight therein. However, it was alleged that this freight being part of the transaction value was not allowed to be deducted from the assessable value in terms of section 4 of the Central Excise Act, 1944 read with Rule 5 of Central Excise Valuation (Determination of Price of Excisable goods) Rules, 2000 as it existed during the relevant period. It was further alleged that the appellants did not bring these facts to the notice of the department with an intent to evade payment of duty. Demands of Central Excise duty amounting to Rs.3,52,436/- and Rs.69,440/- respectively, alleged to have been short paid on the clearances of goods removed by the appellant in the above manner under proviso to section 11A(1) of Central Excise Act, 1944 alongwith interest under section 11AB and proposal of imposition of penalty under section 11AC of the Act read with Rule 25 of Central Excise Rules, 2002 were issued.

Appellant’s contentions:-Following grounds of appeal have been taken by the department:

(a) Commissioner (Appeals) while concluding the case clearly covered under section 4(1)(a) and not section 4 (1) (b) did not deemed to have considered clearances in the case of contract and records of transaction and clearly established that sales were made on FOR destination basis. It was further stated that the goods were sold for at place (buyer's premises) other than the place of removal.

(b) Commissioner (Appeals) has not taken into consideration the facts of exclusion of cost of transportation under Rule 5 is not absolute but conditional and was subjected to fulfilment of laid requirements. Deductions of transportation were available to the goods of actual cost of transportation.

(c) Commissioner (Appeals) has also not taken into consideration the fact that equalized freight was not actual transportation cost and was accordingly excluded from the assessable value of the goods.

(d) It also stated that the Commissioner (Appeals) has not taken into consideration the Board's circular F.No.354/1/2008-TRU dated 30.6.2008 where it has been clarified that exclusion is permissible only for cost of transportation so charged from his buyer and if there was a system pricing and sale of unit price included and collected freight for delivery at factory gate or elsewhere no freight will be permissible. Commissioner (Appeals) has not appreciated the fact that transportation could not be shown on actual basis on every invoice.

The judgement quoted by the Commissioner (Appeals) have also been contested on the ground that the department has not accepted these judgements and have challenged these judgements.

Respondent’s contentions:- Counsel of the party has mainly relied upon the judgement of the Tribunal in the case of CCE, Nagpur vs. Ramakrishna Electricals Pvt. Ltd.- 2011 (272) ELT 149 (Tri.-Mum).

Reasoning of judgment:- Ld. Counsel of the party has mainly relied upon the judgement of the Tribunal in the case of CCE, Nagpur vs. Ramakrishna Electricals Pvt. Ltd.- 2011 (272) ELT 149 (Tri.-Mum) wherein it has been held that:

"Supply of transformer to State Electricity Boards, freight charges, inclusion of - Contract clearly indicates ex-works price, freight charges on equalized basis mentioned separately - Merely because Sales tax paid on amount inclusive of freight charges, it cannot be concluded that sale taken place at destination – Clauses relating to testing etc., indicating that property transferred at factory gate itself – It has been decided by Supreme Court in the case of Accurate Meters Ltd. 2009 (235) E.L.T. 581 (S.C.) = 2009-TIOL-31-SC-CX-LB and also the Tribunal in the case of Majestic Auto Ltd. 2003 (160) E.L.T. 541 (Tribunal) = 2003-TIOL-23-CESTAT-DEL that freight charges cannot be included in the assessable value - No infirmity in impugned order."

Para 5.1 and 5.2 of the judgement are reproduced for ready reference:-

5.1 The Hon'ble Apex Court in the case of Commissioner of Central Excise v. Accurate Meters Ltd., 2009 (235) E.L.T. 581 (S.C.) = 2009-TIOL-31-SC-CX-LB considered a similar situation wherein the goods were supplied by the assessee to the State Electricity Boards and two separate contracts were entered into, one for sale of meters and another for transportation and transit insurance thereof. As per the terms of the contract, the assessee was bound to transport the goods from the factory-gate to the place of State Electricity Boards at the rates specified in the tender. In the said case the Apex Court held that the place of removal remains the factory-gate and the cost of transportation from the place of removal to the place of delivery cannot be included in the assessable value even though the cost of transportation has been calculated on average basis and not on actual basis. The ratio of the said judgment apply squarely to the facts of the present case.

5.2 Similarly, this Tribunal in the case of Majestic Auto v. CCE cited supra, had held that the equalised cost of freight shown separately in the invoices cannot be included in the assessable value even after 1-7-2000 when the place of removal remains the factory-gate.

In view of above cited judgement of the Tribunal, it clearly comes out that cost of transportation from the place of removal to the place of delivery cannot be included in the assessable value even though cost of transportation has been calculated on average basis and not on actual basis. Same finding was reflected by the Tribunal in the case of Majestic Auto Ltd. cited supra. We have also perused board's circular wherein it has been stated that the deductions are permissible only for the actual cost so collected from his buyers. However, with reference to the judgement of Supreme Court in the case of Accurate Meter - 2009 (275) ELT 585 (SC) = 2009-TIOL-31-SC-CX-LB and the Tribunal's judgement in the case of Majestic Auto, this issue has already been decided allowing deduction of equalized freight also.

Decision:- The appeal is rejected.

Comment:- The analogy of the case is that the cost of transportation from the place of removal to the place of delivery cannot be included in the assessable value even though cost of transportation has been calculated on average basis and not on actual basis in view of the decision of the Tribunal in the case of Majestic Auto Ltd.

Prepared by: Monika Tak

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PJ/Case Law/2014-15/2395

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