Whether FOB value taken for filing the rebate claim for the duty paid on exported goods is correct?

PJ/Case Study/2012-13/69

Prepared by: CA Neetu Sukhwani &
Prayushi Jain

Case study

Introduction

M/S UMAX PACKAGING LTD. had filed a rebate claim of Rs. 4,60,971/- for the duty paid on exported goods. This was sanctioned by the adjudicating authority but the impugned order was again reviewed as to the correctness, legality and the propriety of the order. Consequently, the Review Committee directed the adjudicating authority to file appeal against the said order to the Commissioner Appeals. The respondent, (M/s Umax packaging Ltd) mainly contended that place of removal in case of export is the place of port, where export documents are presented in front of the custom officer. Therefore all the expenses incurred from factory to port of export shall be included in the transaction value for the purpose of granting rebate claim. Finally, the Commissioner Appeals, looking into the legality and tenability of respondent’s contention, upheld the order granting the rebate claim and also held the FOB value to be correct and rejected the department’s appeal.

M/S UMAX PACKAGING LTD.[OIA 87(OPD)CE/JPR-11/2013 DATED 13.08.2013]

Relevant legal provisions

1. Rule 18 of central excise rules, 2002 for filing of rebate claim.
2. Section 4 of central excise act 1994 for computing assessable transaction value.
3. Section 5 of Central sales tax act for place of removal in case of export/import.

Issue Involved:

The following issue was made before the Commissioner Appeals:-

Whether FOB value taken for filing the rebate claim for the duty paid on exported goods is correct?

Brief facts:-

M/S Umax Packaging, Ltd., engaged in the manufacture of excisable goods namely industrial packing material falling under chapter heading no. 392190960 of first schedule to Central Excise Tariff Act, 1985. The assessee filed a rebate claim of Rs 4,60,971/- in respect of goods cleared under 5 ARE-1s on payment of duty for export. These goods were exported under different shipping bills on 30.01.2012, 15.02.2012, 15.03.2012, 27.03.2012 and 15.11.2012. The Deputy Commissioner, Central Excise Division, Jodhpur had sanctioned rebate of Rs 4,60,971/-(Rs. 4,56,190/- in cash and Rs. 4781/- in credit) to the assessee for the duty paid on exported goods vide order-in-original no. 180/2012-R dated 10.10.2012 in terms of notification no. 19/2004-CE(NT) dated 06.09.2012 issued under Rule 18 the Central Excise Rules, 2002.

On examination of the order in original by the Review Commissioner, it was found that the order-in-original passed by the Deputy Commissioner, Central Excise Division was not proper and legal. The adjudicating authority, i.e., the Deputy Commissioner was directed to file appeal against the said order in original to the Commissioner Appeals. The department thus filed the appeal to the first appellate authority and the respondent were asked to file cross objections.
Appellant’s Contention:

Appellant contended that in respect of ARE-1 No. 32 dated 31.03.2012, it has been noticed that the price of the goods were ex-factory and the FOB value and value for payment of duty are same, which is not correct. FOB value always includes the cost of freight, insurance, and other charges if any, from factory to point of export. The local freight, insurance and other expenses have to be deducted from FOB value to arrive at the transaction value. FOB value is the free on board value which includes all the charges up to the port of shipment and to arrive at the correct assessable value/transaction value under section 4 of the Central Excise Act 1944, it is necessary to deduct the charges incurred from the factory gate to the port of export irrespective of the fact as to who incurred the expenses.

Respondent’scontention:


1)         The Respondent submits that the order in original no. 180/2012-R dated 10.10.2012 passed for sanctioning the rebate claim of Rs. 4,60,971/- is very correct and the grant of rebate is well within the boundaries of Excise Law. As such, the impugned appeal filed by the department is wholly and totally erroneous and is liable to be quashed.

2)         The Respondent submit that the contention of the impugned appeal that the rebate claim sanctioned to them is not correctly ascertained as per provisions of Section 4 of the Central Excise Act, 1944 as the value is determined without deducting from FOB value all the post removal expenses like transportation charges from ICD to port of export, CHA charges, etc. In this respect it is submitted that the word place of removal has been explained in Section 4(3) (c) (iii) of Central Excise Act, 1944 as under-

“A depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory”.

Section 5 of the Central Sales Tax Act clarified that in the case of export and import the sale or purchase of goods shall be deemed to take place in the following manner:-

“when is a sale or purchase of goods said to take place in the course of import or export- (A) a sale or purchase of goods shall be deemed to take place in the course of export of the goods out of the territory of India only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have crossed the Customs frontiers of India.”

This means, in respect of export goods, place of removal is the place where the documents are presented to the Customs officers for export and not the factory gate.

Similar views have also been expressed by the Hon’ble Tribunal in the case of M/S KUNTAL GRANITE LTD. V/S COMMISSIONER OF C. EXCISE BANGALORE [2007(215) E.L.T 515 (Tri. Bang)].

Harmonious reading of the above provisions clearly reveal that the F.O.B value of the exported goods has been arrived at by including the all expenditures incurred on the said goods up to the port of lading. As such, these expenditures are not deductible from the said value for the purpose of rebate claim. As such, the rebate claim sanctioned to us correctly ascertained and the impugned appeal filed by the Revenue is not legally sustainable and is liable to be quashed. The refund claim should be kept intact.

3)         The respondent further submit that the F.O.B. value of the export goods is arrived at after considering all the post removal expenses. The Board has also clarified that the Cenvat Credit is allowed on the Outward freight (which is a post removal expense) if the sale has taken place at destination point. This has been clarified by the Board in Circular no. 97/08/2007 dated 23.08.07. The relevant para from this Circular is produced as follows:-

“……However, there may be situations where the manufacturer/consignor may claim that the sale has taken place at the destination point because in terms of the sale contract/agreement (i) the ownership of goods and the property in the goods remained with the seller of the goods till the delivery of the goods in acceptable condition to the purchaser at his door step; (ii) the seller bore the risk of loss of or damage to the goods during transit to the destination; and (iii) the freight charges were an integral part of the price of goods. In such cases, the credit of the service tax paid on the transportation up to such place of sale would be admissible if it can be established by the claimant of such credit that the sale and the transfer of property in goods (in terms of the definition as under Section 2 of the Central Excise Act, 1944 as also in terms of the provisions under the Sale of Goods Act, 1930) occurred at the said place.”

The analysis of above para makes it clear that even the Cenvat Credit is allowed if the exporter is able to prove that the sale has taken place at destination. Following the same analogy, there should not be any deduction of post removal expenses. The deduction of outward freight is accepted by the respondent only to avoid the conflicts and the same is not required as per above Circular. As such, the rebate claim sanctioned to them should be kept intact and the impugned appeal should be quashed.

4)         It is further submitted that the impugned appeal is contending that the post removal expenses should be deducted from the F.O.B. value to arrive at the transaction value under Section 4 of the Central Excise Act, 1944. This allegation directly reflects that the department is of the view that the transaction value is always lower that the F.O.B. value whereas the supplementary instructions issued by the board say that the assessable value can be more or less than the FOB value of the goods. This clarification is given in Chapter 7 of the Supplementary Instructions issued by the CBEC. The relevant para 7.1 is produced as follows for the sake of convenience:-

“7.1      The exporter is required to prepare five copies of application in the form ARE-1. The form is specified in Annexure-14 to Notification no. 42/2001-Central Excise (N.T.) dated 26-6-2001 (See in Part 7). The goods shall be assessed to duty in the same manner as the goods for home consumption, though duty is not required to be paid considering the clearance is meant for export without payment of duty. The classification and rate of duty should be in terms of Central Excise Tariff Act, 1985 read with any exemption notification and/or the said Rules. The value shall be the “transaction value” and should conform to section 4 or section 4A, as the case may be, of the Central Excise Act, 1944. It is clarified that this value may be less than, equal to or more than the F.O.B. value indicated by the exporter on the Shipping Bill.”

The analysis of above makes it ample clear that the transaction value may be less than, equal to or more than the FOB value. However, the view taken in the impugned appeal is in contradiction to the instructions given by the Board. Such an appeal is not legally sustainable and is liable to be quashed and the rebate sanctioned to us should be kept intact.

5)         The Respondent further submit that the decisions given by various appellate authorities reflects that the value of export goods is determined after considering all the expenses incurred till the goods are exported. Taking this view, Cenvat Credit of post removal expenses has been allowed by Hon’ble Ahmedabad Tribunal in the case of CCE, Rajkot vs. M/s Rolex Rings Pvt. Ltd. [2008-TIOL-383-CESTAT-AHM]. The verdicts of Hon’ble Ahmedabad Tribunal in this case are produced as follows:-

“ST – Cenvat Credit – CHA service is covered in the definition of input service as the manufacturer continues to remain the owner of the goods in question till the same are exported – Revenue’s appeal rejected”.

In the light of above decision, credit of services availed after post clearance of products is also available. The analogy on which the credit is allowed is that the value of post removal expenses is considered while determining the F.O.B. value of the export goods. Following the same analogy, since the value of post removal expenses is inbuilt in the F.O.B. value of the goods, the rebate sanctioned to us is correctly sanctioned and the same should be upheld. Therefore, the appeal filed by the department is not legally sustainable and is liable to be quashed.

6)         The respondent further submits that the verification of assessment of duty is done by the Central Excise officers before the goods are removed for export. At that time, no objection is raised and when the assessee comes for claiming the rebate, the amount of rebate is reduced by saying that the assessment is not proper. Since the assessment is approved by the department, the same office cannot take different stand later on. It has been clarified by CBEC in their supplementary instructions that the Central Excise officer has to verify the identity of the goods and the assessment of duty at the time of removal of goods for export. There are two procedures for clearance of goods for export. It can be under self sealing or it can be under examination and sealing by the Central Excise officer. In both the cases the assessment of duty is finalized and approved by the Central Excise Officer. The relevant para no. 4.5 of Chapter 8 of the Supplementary instructions given by the Board clarifies this in case of Sealing of goods and examination by the Central Excise Officer. This para is produced as follows for your ready reference:-

“The Superintendent or Inspector of Central Excise, as the case may be, willverify the identity of goods mentioned in the application and the particulars of the duty paid or payable. If he finds that the declaration in ARE.1 and the invoices are correct from the point of view of identity of goods and its assessment to duty, and that the exporter has recorded the duty payable in Daily Stock Account, he shall seal each package or the container ensuring that the goods cannot be tampered with after the examination. Normally, individual packages should be sealed by using wire and lead seals and an all-sides-closed container by using numbered one time Lock/Bottle seals or in such other manner as may be specified by the commissioner of Central Excise by a special or general written order. Thereafter, the said officer shall endorse and sign each copy of application in token of having such examination done and such examination report must accompany the export goods to the port/airport of export.”

Similar explanation has been given by the Board in case of Dispatch of Goods by self sealing and self certification by the exporter. It has been given at para 6.3 of the Supplementary instructions by the Board and is produced as follows:-


“ The said Superintendent and Inspector of CentralExcise shall verify the particulars of assessment, the correctness of the amount of duty paid or duty payable, its entry in the Daily Stock Account maintained under rule 10 of the said Rules (the manufacturer or warehouse owner will be required to present proof in this regards), corresponding invoice issued under Rule 11. If he is satisfied with this particular, he will endorse the relevant A.R.E. 1 and append their signatures at specified places in token of having done the verification. In case of any discrepancy, he will take up the matter with the assessee for rectification and also inform the jurisdictional Deputy/ Assistant Commissioner. Once verification is complete and the A.R.E.1 is in order, he shall distribute the documents (A.R.E.1) in the following manner:…”

The analysis of the above two paras makes it clear that in every export, before removal of the goods the particulars of the assessment and the correctness of the duty paid is verified by the Central excise officer. Since this assessment is not challenged by the department, it cannot be confronted later on at the time of claiming the rebate. This has been held in the case of COLLECTOR OF CENTRAL EXCISE, KANPUR Versus FLOCK (INDIA) PVT. LTD. [2000 (120) E.L.T. 285 (S.C.)]. In this case it was held that where any assessment is finalized by any Central Excise officer and that assessment is not challenged by the Revenue, later on the refund/rebate cannot be challenged on the grounds that the assessment is not proper. The verdicts of Hon’ble Supreme Court are produced as follows for your ready reference:-

“Order - Appealable order - Finality - Non-challenge of an appealable order - Effect - Where an adjudicating authority has passed an order which is appealable under the statute and the party aggrieved did not choose to exercise the statutory right of filing an appeal it is not open to the party to question the correctness of the order of the adjudicating authority subsequently by filing a claim for refund on the ground that the adjudicating authority had committed an error in passing his order - Sections 35, 35A and 35C of Central Excise Act, 1944 - Rules 11 and 173B of Central Excise Rules, 1944……”

The analysis of this decision makes it clear that this case is equally applicable in case of respondent also. Since in the instant case also, the assessment is finalized by the Inspector/Superintendent of Central Excise and this assessment is not challenged by the Revenue, the same cannot be challenged now at the time of claiming rebate by the respondent. Therefore, relying on the decision of the Hon’ble Apex Court, the impugned appeal filed by the department should be quashed and the order in original sanctioning the rebate claim should be upheld.

7)         In continuation to the above, the respondent also submits that the learned Assistant Commissioner has allowed rebate claim by accepting FOB value as the transaction value vide order-in-original no. 226-263/2011-R dated 24.11.2011, in the case of M/s Dinesh Enterprises (Unit-II) by holding that place of removal in case of export of goods is the place from where the goods leave the territory of India and thus the expenses incurred by the exporter from the place of export to place of removal are to be part of transaction value. They further submit that firstly rebate claims were sanctioned to various assessees by accepting FOB value as the transaction value by the adjudicating authority. Thereafter, in pursuance of review proceedings conducted in respect of this matter, the department was directed to file appeal to the Commissioner Appeals for recovering the said rebate claim sanctioned but the Commissioner Appeals rejected the plea of the department that section 4 value in case of export shall be FOB value less post removal expenses from factory gate to the port of export vide Order in Appeal No. 156-186 (DK) CE/JPR-II/09 dated 06.03.2009 and 259-265 (DK) CE/JPR-II/2009 dated 26.03.2009. Thereafter, revision applications no. 198/96/09-RA and 198/103/09-RA were filed in the matter by the department but the Joint Secretary to the Government of India vide its order no. 1225-1226/11-CX dated 14.09.2011 remanded the matter back to the adjudicating authority to determine the place of removal taking into account the observations made and decide the matters accordingly. Finally, the adjudicating authority has accepted the FOB value for the purposes of sanctioning rebate claim to the assessee. Therefore, the above cited order has attained finality as it is not challenged further by the department. Therefore, the rebate claim sanctioned to the respondent is correct by accepting FOB value itself and as such there is no requirement of deducting post removal expenses from the same to arrive at transaction value.

Moreover, as the matter has already been decided by the Assistant Commissioner himself in case of M/s Dinesh Enterprises (Unit-II), a different stand cannot be taken by him in case of another assessee for the same issue as it would also amount to violating the principles of consistency to be maintained and also the judicial discipline. The respondent further submits that it has been held by the hon’ble Supreme Court that where the facts and circumstances are identical, the consistency should be maintained while deciding the case. It has been decided in the following cases:-

·         Government of Andhra Pradesh & Othrs v/s A. P. Jaiswal & Ors [2001 AIR SCW 101]
“Consistency is the cornerstone of the administration of justice. It is consistency which creates confidence in the system and this consistency can never be achieved without respect to the rule of finality. It is with a view to achieve consistency in judicial pronouncements, the Courts have evolved the rule of precedents, principle of stare decisis etc. These rules and principles are based on public policy and if these are not followed by Courts then there will be chaos in the administration of justice……”

·         Commissioner of C. Ex., Vadodara v/s Adarsh Re-rolling Mills [2002 (143) ELT 533 (Tri. - LB)]
“Certainty about law and uniformity in its implementation are central in ensuring rule of law. Therein lies the necessity to follow precedent and subordination of adjudicating authorities to their appellant authorities. Uniformity in tax administration is even more important than legal correctness.”

Thus, in the light of above decisions, it is clear that the uniformity in the decisions under similar facts and circumstances is the essence of administration of justice. Since the decision of learned Assistant Commissioner as cited hereabove has been rendered under same facts and circumstances, its benefit should be extended to them and the impugned show cause notice should be set aside and the rebate already sanctioned should be upheld.

8)         The respondent submits that on the strength of the grounds mentioned here above though the rebate claim sanctioned to them is correct and it should be kept upheld. Without prejudice to the grounds mentioned here above the respondent submits that though the appeal filed by the department is not sustainable yet if the case is decided in favour of the Revenue, then yet in case the appeal filed by the department is decided in favour of Revenue, then the Cenvat Credit of the expenses deducted from the F.O.B. value should be allowed.

Reasoning of the Commissioner (Appeals): -

Commissioner after hearing both appellant and respondent view passed the decision in favour of respondent stating that appellant’s contention is not tenable and justified. As in the case of KUNTAL GRANITES LTD VS CCE 2007(215) ELT 515(TRIB), it has been held that in case of export place of removal is the place where export documents are presented to customs officer for export. This is also clear from OIO No. 226-263/2011-R dated 24.11.2011 passed by the adjudicating authority which appears to have been accepted by the department, in which it was held that the place of removal in the case of export of goods is the place from where the goods leave the territory of India. Thus the expenses incurred by exporter from the place of removal to place of export are the part of transaction value.
Commissioner hence concluded that in case of export, the place of removal is port of export as held by hon’ble CESTAT in the case of M/S Madhav marbles & Granites Ltd. Vs CCE reported in 2009 (239) ELT 120 (Tri). Further it was also observed in the case of M/S National tools (exports) reported in 2012 (281) ELT 738 (G.O.I), it was concluded that place of removal is port of export where sales take place.
Thus it was held that FOB value was correct transaction value and hence rebate claim has been correctly granted to the respondent.

Conclusion: The essence of this case is that the place of removal in case of export is the port where export documents are presented to customs officer. Therefore, all the expenses from factory gate to place of export shall be included in computation of FOB value and rebate on same is allowable under rule 18 of central excise tariff act, 1962. However, there is a general practice of allowing the rebate claim relating to the ex-factory price of goods only in cash and the rest by way of cenvat credit.

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PJ/Case Study/2013-14/69
07 September 2013

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PJ/Case Study/2013-14/69
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