2009 (3) TMI 1 - SC - Central Excise

Supreme Court upholds exclusion of freight/insurance charges from excisable value for excise duty. Importance of sales terms highlighted.

COMMISSIONER OF CENTRAL EXCISE, NOIDA Versus M/s. ACCURATE METERS LTD.

The Supreme Court dismissed the appeal, affirming the Tribunal's decision that freight and insurance charges should not be included in the excisable value ... Includibility of ‘freight’ and ‘insurance charges’ in the value of the goods (electric meters) – revenue plea is that the manufactured goods were actually delivered to the purchasers at their premises and not at the factory gate – in the impugned case value of the electric meters was to be fixed as at the factory gate - freight and the insurance charges, were to be charged on an average basis and not on actual basis – therefore, transportation and insurance charges are not includible Issues Involved:1. Whether 'freight' and 'insurance charges' constitute the value of the goods for the purpose of computation of Excise Duty under the Central Excise Act, 1944 and the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.Issue-wise Detailed Analysis:1. Freight and Insurance Charges in Computation of Excise Duty:The primary issue in this appeal was whether 'freight' and 'insurance charges' should be included in the value of goods for the computation of Excise Duty as per the Central Excise Act, 1944 and the Central Excise Valuation Rules, 2000. The respondent, a manufacturer of electric meters, argued that these charges should not be included, citing the nature of their transactions and previous legal precedents.2. Nature of Transaction and Contracts:The respondent supplied electric meters to State Electricity Boards, with two separate contracts: one for the supply of meters and another for transportation and insurance. The value of the meters was fixed at the factory gate, while freight and insurance were charged on an average basis, not actual costs. The Adjudicating Authority initially concluded that the sale occurred at the buyer's end, thus including freight and insurance in the value of the goods.3. Legal Framework and Definitions:Section 3 of the Central Excise Act provides for the levy and collection of duty, while Section 4 deals with the valuation of excisable goods. Section 4(1)(a) specifies that the value of goods should be the transaction value at the time and place of removal. The 'place of removal' is defined in Section 4(3)(c) to include the factory, warehouse, or depot from where goods are sold.4. Adjudicating Authority and Appeal Decisions:The Adjudicating Authority's decision was reversed by the Commissioner (Appeals), who followed the CESTAT's earlier judgment in favor of the respondent. The CESTAT dismissed the Revenue's appeal, noting the absence of a stay order from the High Court on the earlier Tribunal decision.5. Relevant Legal Precedents:The respondent relied on the Supreme Court's decision in M/s Escorts JCB Ltd. vs. CCE, Delhi, which supported the exclusion of freight and insurance from the value of goods. The Tribunal in Associated Strips Ltd. vs. Commissioner of Central Excise also held that delivery to a carrier constitutes delivery to the buyer, thus excluding freight and insurance from the excisable value.6. Application of Rules 4 and 5:Rules 4 and 5 of the Central Excise Valuation Rules were considered. Rule 5 states that the value of excisable goods should exclude the cost of transportation if charged separately. The respondent's contracts specified ex-factory prices, with separate charges for freight and insurance, aligning with Rule 5.7. Tribunal's Findings and Supreme Court's Conclusion:The Tribunal found that the respondent sold goods on an ex-factory basis and arranged transportation and insurance separately. The Supreme Court upheld this view, concluding that the amount claimed for transportation and insurance should not be included in the value of the electric meters for excise duty purposes.8. Final Judgment:The Supreme Court dismissed the appeal, affirming the Tribunal's decision and ruling that freight and insurance charges are not to be included in the excisable value of the goods. The appeal was dismissed with costs, and the counsel's fee was assessed at Rs. 25,000/-.Conclusion:The Supreme Court's judgment clarified that freight and insurance charges should not be included in the value of goods for excise duty computation if these charges are separately contracted and not part of the ex-factory price. The decision reinforces the importance of the specific terms of sale and the separation of transportation and insurance costs in determining excisable value.