Whether freight and insurance charges includible in assessable value?

PJ/Case law/2014-15/2279

Case:- COMMISSIONER OF CENTRAL EXCISE, NASHIK Vs GENERAL METALLISERS LTD.

Citation:- 2014 (300) E.L.T. 534 (Tri. – Mumbai)

Brief facts:- The respondent, M/s. General Metallisers Ltd. was a manufacturer of Metallised Paper/Paper products falling under Chapter 48 of the Central Excise Tariff. The respondent delivered the goods ex-factory. However, in some cases the buyers of the goods requested that delivery be made at their premises and undertook to reimburse the freight and insurance charges. Accordingly, goods were delivered at the buyer’s premises by making necessary arrangements for transportation and insurance. However, the freight and insurance charges were collected separately through debit notes and it was not indicated in the invoice. Therefore, a show cause notice was issued demanding excise duty on the freight and insurance charges collected by the respondent from their buyers, during the period 1-7-2002 to 28-2-2003 for a sum of Rs. 2,01,805/- under the provisions of Section 11A of the Central Excise Act, 1944 along with interest thereon under Section 11AB ibid and also proposing to impose penalty under Section 11AC. Notice was adjudicated and demands were confirmed. Aggrieved of the same, the appellant approached the lower appellate authority, who came to the conclusion that the place of removal remains the factory and therefore, the appellant was not liable to pay excise duty on the freight and insurance charges recovered from their customers in respect of transaction where the customers had requested for delivery of the goods at their premises. Aggrieved of the same, the Revenue is in appeal before Tribunal.

Appellant’s contentions:- It was the contention of the Revenue that since the goods have been delivered at the premises of the customers, in terms of Rule 5 of the Central Excise Valuation Rules, 2000, the appellant was liable to discharge excise duty on the freight and insurance charges and therefore, the impugned order was not sustainable in law.

The ld. Additional Commissioner (AR) appearing for the Revenue reiterated the ground urged in the appeal memorandum and submits that the application of Rule 5 of Central Excise Valuation Rules, 2000 was warranted in the instant case and therefore, the impugned order was bad in law.

Respondent’s contentions:- The ld. Counsel for the respondent on the other hand submitted that the impugned order had been correctly passed as there was no dispute about the place of removal which remains the factory gate. Only in a few cases at the request of the customers, the goods were delivered at their premises for which the respondent made necessary arrangements for transportation and insurance and the charges were reimbursed to the respondent by the buyers. However, in all these cases, the place of removal was ex-factory only and therefore, the question of inclusion of freight and insurance charges to the ex-factory price does not arise.

Reasoning of judgment:- The Tribunal held that as per the show cause notice, the goods have been sold ex-factory. However, at the request of the customers, the goods were delivered at the customer’s premises for which recovery of freight and insurance charges have been made from the customers. In the Order-in-Original, the adjudicating authority had given a clear finding that there was no dispute about the place of removal which was the factory. If there was no dispute about the place of removal, the question of invoking Rule 5 of Central Excise Valuation Rules, 2000 would not arise at all. In view of the above factual position, we do not find any infirmity in the impugned order passed by the lower appellate authority. Accordingly, we dismiss the appeal filed by the Revenue as devoid of merits.

Decision:- Appeal was dismissed.

Comment:- The analogy drawn from the case is that if the assessee’s general practice is that goods are sold ex-factory but if at the request of some customers, the goods are delivered at the customer’s premises for which recovery of freight and insurance charges is made from the customers, the place of removal remains to be factory and hence Rule 5 of Central Excise Valuation Rules would not be applicable. Even otherwise, if the excise duty is being paid on the freight charges, then too, credit of outward freight would be admissible if the sales would be treated as “Free on Receipt” basis provided the conditions for availing credit on outward freight is being satisfied by the assessee.

Prepared by: Ranu Dhoot

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PJ/Case law/2014-15/2279

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