2007 (6) TMI 208 - AT - Central Excise

Tribunal Upholds Inclusion of Charges in Transaction Value - Importance of Pricing Master Document

The Tribunal upheld the inclusion of commission and freight charges in the transaction value, dismissing appeals filed by the company and Revenue. The ... Company issuing debit notes separately over and above the invoice value in respect of Commission, wear and tear charges, & freight to the different distribution agencies – held that wear and tear charges are not includible the A.V. – held that Commission and Freight charges are includible in A.V., because in the instant case sales cannot be held to be taken place at factory gate as company extends its control on the price of product far beyond the jurisdiction of their factory gate Issues involved: Wear and tear charges, commission charges, freight charges.Issue-wise detailed analysis:Wear and Tear Charges:The Tribunal concluded that wear and tear charges were not includible in the assessable value. This conclusion was based on the Tribunal's decision in Pepsico India Holdings Pvt. Ltd. v. CCE, Mumbai, and the Supreme Court's judgment in Indian Oxygen Ltd. v. CCE. The Tribunal held that lease charges on dispensing machines are not includible in the assessable value of syrup since the sale of syrup and leasing of dispensing machines are two different activities. The Tribunal emphasized that what is included is any additional amount charged as a price by reason of or in connection with the sale of the goods under assessment and not amounts charged in connection with or by reason of the sale of other goods or provision of other services. This precedent weighed in favor of the company.Commission Charges:The Commissioner (Appeals) observed that no agreement was entered into by the company with its distributors, referred to as buyers. In the absence of any written agreement, the transaction could not be considered as if on a principal-to-principal basis. Consequently, commission charges paid to distributors were included in the transaction value for payment of Central Excise Duty. The company contended that the Department adopted a double standard, applying Section 4(1)(a) for commission and Section 4(1)(b) read with Rule 7 for freight. The Department argued that the transaction value had to be determined either at the factory gate or at the depot, and freight charges for internal movements had to be added under Section 4(1)(a). The Tribunal found that the company extended its control over the price of its products beyond the factory gate, indicating that the sale did not actually take place at the factory gate. The Tribunal also noted that the company failed to demonstrate any correlation between individual sale transactions and payments made towards such transactions, confirming that no sale was effected at the factory gate. The Tribunal found the affidavits produced by the company unconvincing and emphasized the importance of the 'pricing master' document, which indicated that the company's financial interests extended beyond the factory gate.Freight Charges:The company contended that freight charges were not includible in the assessable value as the sale was effected at the factory gate. The Tribunal examined the 'pricing master' document, which revealed that the company kept track of various cost elements contributing to the final selling price of their product even after the sale at the factory gate. The Tribunal found that the company extended its control over the price of its products beyond the factory gate, indicating that the sale did not actually take place at the factory gate. The Tribunal concluded that the company's claim that sales took place at the factory gate was a myth created to evade payment of duty. The Tribunal found that the company failed to demonstrate any correlation between individual sale transactions and payments made towards such transactions, confirming that no sale was effected at the factory gate. The Tribunal also noted that the company had misled the Department by showing a component of sales tax in their illustration, which was actually exempted.Conclusion:The Tribunal upheld the findings of the Commissioner (Appeals) regarding the inclusion of commission and freight charges in the transaction value. The Tribunal dismissed both appeals filed by the company and the Revenue, finding no warrant to interfere with the findings of the Commissioner (Appeals).