Rebate - Determination of Transaction value - inclusion of expenses till place of removal

PJ/CASE STUDY/2011-12/35

07 December 2011

PJ/Case Study/2011-12/35

CASE STUDY

Prepared By:
CA Pradeep Jain
Sukhvinder Kaur LLB [FYIC]
And Megha Jain, B. Com

Introduction:-

On the export of Goods, the Government has granted benefit of claiming rebate of duty under Rule 18 of the Central Excise Rules, 2002 or exemption from payment of duty under Rule 19 of the Central Excise Rules, 2002. The issue raised in this case under study was that what will be the transaction value for computing excise duty? Whether the transactional value under Section 4 of the CEA, 1944 is to be computed after deducting from FOB value all post removal expenses incurred by the assessee to arrive at assessable value u/s 4 of the CEA, 1944 or the post removal expenses will also be included in the transaction value?

In the matter of M/s Kansara Modler Limited
[Order-in-Original no. 226-263/2011, Dated: 24.11.2011]

Relevant Legal Provisions:-

Definition of “Place of Removal” in Section 4 (3) (c) of the Central Excise Act, 1944:-

(c) "place of removal" means.

i. a factory or any other place or premises of production or manufacture of the excisable goods;

ii. a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty; from where such goods are removed;

Definition of “Transaction Value” in Section 4 (3) (d) of the Central Excise Act, 1944:-

(d) "transaction value" means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods;

Brief Facts:-

- Assessees are engaged in the manufacture and export of goods falling under the First Schedule to the Central Excise Tariff Act, 1985. They filed rebate claim of excise duty paid on goods exported under Rule 18 of the Central Excise Rules, 2002.

- The rebate claims were sanctioned by the Sanctioning Authority to the assessees.

- Department examined the rebate claims granted and alleged that the Order-In-Original passed by the Assistant Commissioner sanctioning the rebate claims were not proper.

- Following grounds were raised proposing to recover the grant of rebates to the assessees:

The adjudicating authority has erred in sanctioning rebate amount in cash without ascertaining the correct transactional value under section 4 of the CEA, 1944 and without deducting from FOB value all post removal expenses incurred by the assessee to arrive at assessable value u/s 4 of the CEA, 1944. The rebate in cash should have been sanctioned to the extent of assessable value arrived at after deducting the amount of all post removal expenditures incurred from factory gate onwards including transportation charges from ICD to Port of Export, CHA charges, Terminal handling charges etc. incurred upto loading of goods into vessel from FOB value, however only local freight has been deducted.

As per Part 1 of Chapter 8 the CBEC’s Excise Manual of Supplementary Instructions, 2005, the value for the purpose of export shall be the transactional value and should conform to section 4 or section 4A, as the case may be of the CEA, 1944. This is also in accordance with the Order No. 589-593/05, dated: 29.11.05 in the case of M/s National Tools (Exports), Jodhpur and 536582/05 dated 24.11.2005 in the case of M/s Banswara Syntex Ltd. issued by the Government of India.

Therefore, sanction of rebate claims in cash to the extent they includes the amount which represents the amount of duty which would be leviable on all the expenditures incurred by the assessee, from factory gate onwards, is improper as these charges were required to be deducted from FOB value to arrive at assessable value under section 4 of the Central Excise Act, 1944 for the purpose of rebate claim, therefore the said OIO’s has been reviewed vide the corresponding review orders and ordered thereby to file appeal against the OIO.

- Hence, it appeared that the matter has not attained the finality. In the event of Department succeeding in appeal, the rebate granted shall become erroneous. Therefore, the demand notice was issued to protect recovery of amount erroneously rebated so as to ensure that recovery is not barred by limitation as per the provisions of Section 11A of the Central Excise Act, 1944.

Therefore, the claim of rebate filed by the said assessee in respect of the exported goods covered under the relevant ARE-1s which have been sanctioned erroneously in cash on the post removal expenses, to be declared by the assessees without ascertaining the correct transactional value, as above are liable to be recovered from them alongwith interest under section 11A and 11AB of the Central Excise Act, 1944.

Reasoning of the Assistant Commissioner:-

The learned Assistant Commissioner held as under:

- It was found that the Adjudication proceedings of these show cause notices were kept pending in call book as the department has filed Revision Applications No. 198/96/09-M and 198/103/09-RA against the order – in - appeal No.156-186(DK)CEPPR-II/09 dated 06.03.2009 and 259-265(DK)CE/JPR-II/2009 dated 26.03.2009 respectively before the Joint Secretary, Govt. of India, New Delhi. The Joint Secretary to the Govt. of India vide his Order No. 12254226/11-CX dated 14.09.2011 has upheld the said orders passed by the Commissioner (Appeals) Central Excise, Jaipur-II, who in his order rejected the departments contention that Section 4 value in case of export shall be FOB value less post removal expenses from factory gate to port of export. The Joint Secretary to the Govt. of India vide his said orders dated 14.09.2011 also directed the Original Adjudicating Authority to determine the place of removal taking into account the observation made by him and decide the rotate claims accordingly. He also directed that the principal of natural justice are in fact required to be followed while deciding the cases. The said Orders passed by the Joint Secretary to the Govt of India, New Delhi, has been accepted by the Competent Authority.

- Accordingly, the Assistant Commissioner proceeded with the show cause notices. It was found that the show cause notices were issued to recover the erroneous sanction of rebate on post removal charges in cash instead of Cenvat Credit without ascertaining the correct transaction value.

- As per the definition given in Section 4(3)(d), the "transaction value” means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of the assessee by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including ,but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expense's, storage. outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods, it was found that the transaction value includes all expenses paid by the exporter and liable to be recovered from the buyer up to the place of removal except all taxes, actually payable on excisable goods.

- Referring to the definition of “place of removal” in Section 4 (3) (c), the Assistant Commissioner found that the place of removal in the case of export of goods is the place from where the goods leaves the territory of India that is the place from where the document called export general Manifest has been prepared and dispatch to the concern place of export that may be port airport inland container depot, customs freight station or land customs station of transaction value as has been provided in its definition.

- This is further corroborated by the fact that the relevant case for the purpose of claim of refund of duty in the case of export means the date on which the ship or the aircraft (in the instant cases it is ship) in which such exported goods are loaded, leave India as per the provisions of Section 11-13(5)(B)(a)(i) of the Central Excise Act, 1944.

- Accordingly, the proceedings initiated against the assessee vide the impugned show cause notices were dropped.

Decision of the Assistant Commissioner:-

Proceedings dropped.

Conclusion:-

The learned Assistant Commissioner rightly held that the costs or expenses incurred till the place of removal will be included in the transaction value. Therefore, it is first required to ascertain as to where is the place of removal of goods and then the transaction value is to be computed.

But the department is deducting the said amount from the rebate claim and allowing the cenvat credit. We hope that they will allow the total rebate in cash after this decision.

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PJ/CASE STUDY/2011-12/35
07 December 2011

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