Equalised freight deduction cannot be disallowed without proof that excess freight formed part of the goods value.

Excess freight could not be added to the assessable value absent evidence that it formed part of the value of the goods, and a deduction claimed on an equalised freight basis could not be rejected on conjecture alone. The Department had shown only that the assessee's freight deduction exceeded actual freight expense, but had not proved that the excess represented any element of goods value. The demand of duty was therefore unsustainable. Once the duty demand failed, the consequential penalties under the excise provisions also had no basis and were set aside.

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Issues: Whether the amount deducted towards freight could be disallowed and included in the assessable value in the absence of evidence that the excess freight formed part of the value of the goods, and whether the consequential penalties could survive.

Analysis: The demand was based on the view that the assessee had claimed a lump sum deduction towards freight despite incurring a lesser freight expense. The show cause notice itself proceeded on the footing that the deduction was claimed on an equalization basis. The finding of the lower authority distinguishing the Supreme Court ruling on equalized freight was not accepted, because the Department had adduced no evidence to show that the excess freight represented any part of the goods' value. In such circumstances, the excess freight could not be added to the assessable value. Once the demand failed, the penalties imposed under the excise provisions also had no basis.

Conclusion: The freight deduction was allowable, the demand of duty was unsustainable, and the penalties were set aside.

Ratio Decidendi: Excess freight cannot be included in the assessable value unless the Department proves that it is part of the value of the goods; a claim for equalized freight deduction cannot be disallowed merely on conjecture.

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