Whether the excess amount of freight recovered from the customer is to be included in the assessable value of goods?

PJ/CASE LAW/2015-16/2617

Case-BATHINDA INDUSTRIAL GASES Versus COMMR. OF C. EX. & S.T., CHANDIGARH-II

Citation-2014 (308) E.L.T. 111 (Tri. - Del.)

Brief Facts-The facts leading to filing of this appeal and stay application are in brief as under :-

The appellant are a manufacturer of Carbon dioxide and other gases chargeable to Central Excise duty under Chapter 28 of the Central Excise Tariff Act, 1985. They deliver the gases to their customers in their own specially designed tankers for which they charged their customers and as such freight charges are separately mentioned in the sale invoices issued by them to their customers. In course of audit of their records, it was found that during the year 2005-2006 to 2009-2010, the total amount recovered by the appellant from their customers towards freight was more than the expenses incurred by them on transportation and as such excess amount recovered from the customers towards freight was Rs. 92,26,000/-. The Department was of the view that this amount should form part of the assessable value of the gases sold. Accordingly, after issue of Show Cause Notice, the Jurisdictional Additional Commissioner vide order-in-original dated 24-4-2012 confirmed the Central Excise duty demand of Rs. 12,54,681/- along with interest thereon under Section 11AB in respect of clearances of gases during period from 2005-2006 to 2009-2010 and besides this imposed penalty of equal amount on the appellant under Section 11AC. This demand was confirmed by invoking extended limitation period under proviso to Section 11A(1) of the Central Excise Act. On appeal being filed to Commissioner (Appeals), this order of the Additional Commissioner was upheld vide order-in-appeal dated 1-7-2013. In course of proceedings before the Additional Commissioner as well as before Commissioner (Appeals), the appellant pleaded that their sales are at the factory gate and, hence, neither the freight charges nor the differential freight was includible in the assessable value of the goods, but this plea was not accepted and the Lower Authorities held that the sales of the appellant were on FOR basis. Against this order of the Commissioner (Appeals), this appeal had been filed along with stay application. Though this matter was listed for hearing of the stay application only, after hearing the same for some time, the Bench was of the view that since only a short issue is involved, the matter can be heard for final disposal. Accordingly with the consent of both the sides, the appeal was heard for final disposal.

Appellants Contention-Ms. Surbhi Sinha, Advocate, the learned counsel for the appellant, pleaded that the appellant’s sales were at the factory gate, that the amount of freight was being shown separately in the invoices, that just because the gases had to be transported in the specially designed tankers and the appellant own a fleet of such tankers, the appellant arranged transportation for the gases to their customers’ premises, that there was nothing in the invoices or any other documents which showed that the sale were on FOR destination basis, that when the sales were at the factory gate, there was no question of including freight charges in the assessable value of the goods sold, even if the freight amount charged by appellant from their customers was more than the actual expenses incurred in running of trucks, that in any case, the differential freight would not be includible in assessable value, that in this regard she relied upon the judgment of the Apex Court in the case of Baroda Electric Meters Ltd. v. Collector of Central Excise, reported in 1997 (94)E.L.T.13 (S.C.) and that in view of the above submissions, the impugned order was not correct.

Respondents Contention-Sh. Jayant Sahay, the learned D.R., defended the impugned order by reiterating the findings of the Commissioner (Appeals) and emphasized that the sales of the gases were on FOR basis and hence the actual freight amount recovered by the appellant from their customers would be includible in the assessable value. He, accordingly, pleaded that there was no infirmity in the impugned order.

Reasoning of Judgment-The tribunal considered the submissions from both the sides and perused the records. The undisputed fact was that the appellant were mentioning the freight amount separately in the invoices issued by them to their customers. From the facts narrated in the show cause notice and in the Order-in-Original as well as in Order-in-Appeal, it was seen that what the Department sought to include in the assessable value of the gases sold by them, is the differential freight i.e. difference between the amount charged by the appellant from their customers during 2005-2006 to 2009-2010 period as freight and the actual expense incurred on running of the tankers for delivery of gases to the customers. However, the differential freight would be includible only if the freight from the factory gate to the customer’s premise is includible in the assessable value and this can be done only if sales are on FOR destination basis in the sense that during transit, the risk of the loss of goods or damage to the goods is of the seller-manufacturer and the ownership of the goods during transit is of the manufacturer and freight is integral part of the value of the goods. In this case, though both the Lower Authorities have given finding that sales were on FOR destination basis, no evidence in this regard had been disclosed. It was not the case of Department that the invoices themselves mentioned the sales as FOR sales or that the supply orders placed by the customers mention the supply of gases on FOR basis. In fact, the invoices show the freight charges separately. In view of these circumstances, just because the customer wanted the appellant to supply the gases at their premises, it would not be correct to presume that sales were on FOR basis. There was also no allegation that the part of value of the goods was being recovered as freight charges by under-declaring the value of the goods and inflating the freight charges. In the circumstance of the case running of the tankers for supply of gases had to be treated as an independent activity and therefore the differential freight would not be includible in the assessable value. This was what the Apex Court had held in the case of Baroda Electric Meters Ltd. (supra).The tribunal, therefore, hold that the differential freight was not includible on the assessable value of the goods and the impugned order was sustainable. The same was set aside. The appeal as well as stay application were allowed.

Decision-Appeal allowed

Comment-The crux of the case is that if the sales are on FOR destination basis then the freight is to be included in the assessable value. Therefore it is clear that when the sales were at the factory gate, there was no question of including freight charges in the assessable value of the goods sold, even if the freight amount charged by appellant from their customers was more than the actual expenses incurred, the differential freight would not be includible in assessable value. The profit earned on account of freight will not form part of transaction value.

Prepared By-Neelam Jain

Checked by: Prayushi Jain

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PJ/CASE LAW/2015-16/2617

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