2023 (2) TMI 180 - AT - Central Excise

Excluding freight charges from assessable value for excise duty

The India Cements Ltd. Versus Commissioner of Central Excise & Service Tax Hyderabad - I and Commissioner of Central Tax Rangareddy - GST

The Tribunal held that the freight charges for delivering goods to the buyer's premises should not be included in the assessable value for excise duty ... Short paid Central excise duty (Valuation) - non-inclusion of value of freight charged by the appellant for delivering the cement to their buyers premises - error in calculation or not - clearance of cement dispatched on ‘Free on Road (FOR) basis’ to their customers - place of removal - the place of delivery was the place of removal that Department alleged that the appellant has short paid central excise duty as it has not included the freight charges in assessable values - contravention of the provisions of Section 4 of the Central Excise Act, 1944 read with Rule 5 and 7 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 and the Rule 4, 6, 8, 11 and 12 of the Central Excise Rules 2002. HELD THAT:- Learned DR has laid emphasis upon clause 3 of the definition of place of removal as was relevant for the period in question because said clause includes the place from where the goods are to be sold in the definition of ‘place of removal’, the buyer’s place becomes the place of removal where sale gets concluded at buyer’s place. The said submission is not acceptable in the light of decision of Hon’ble Apex Court in Ispat Industries Ltd., [[2015 (10) TMI 613 - SUPREME COURT]] only wherein the Hon’ble Apex Court has held that the words used in the provision are “goods are to be sold”. The contention of the Revenue would be correct if and only if the words in the provision would have been “goods have been sold”. The earlier decision in the case of Escorts JCB Ltd., Vs CCE [2002 (10) TMI 96 - SUPREME COURT] was held to have similar facts as were there in the case of Ispat Industries Ltd. The Hon’ble Court also observed that in the case of Commissioner of Customs & Excise, Aurangabad Vs Roofit Industries Ltd., [2015 (4) TMI 857 - SUPREME COURT] the Hon’ble Supreme Court had distinguished Escort’s JCB’s case. But based on the facts of that case (Roofit’s), it was held that the sale of goods in terms of Section 19 of sale of goods Act did not take place at the factory gate of assessee. The Court also observed that the Court’s attention was not drawn to Section 4 of Excise Act as originally enacted and as amended to demonstrate that the buyer’s premises cannot, in law, be “a place of removal” under the said section. Hence, the reliance of Department on the decision of Roofit Industries Ltd., is also no more sustainable. The value of freight charged by the appellant for delivering the cement to their buyers premises is not to be included while assessing the value for the purpose of payment of central excise duty. Appellant has rightly excluded the same - The differential duty confirmed by the order under challenge is therefore wrong. Appeal allowed. Issues Involved: Determination of the 'place of removal' for the purpose of calculating the assessable value of goods under the Central Excise Act, 1944, and whether the freight charges for transportation of goods from the factory gate to the buyer's premises should be included in the assessable value.Issue-wise Detailed Analysis:1. Facts and Background:The appellants are engaged in the manufacturing of cement and are registered under service tax for the transport of goods by road service. The cement was cleared in two manners: to depots and consignment agents, and to industrial users and bulk consumers on a 'Free on Road (FOR) basis.' The Department scrutinized the accounts and alleged that the appellants short-paid central excise duty by not including the freight charges in the assessable value, contravening Section 4 of the Central Excise Act, 1944, and related rules. Show cause notices were issued, and demands were confirmed by Orders-in-Original, leading to the appeals before the Tribunal.2. Appellant's Argument:The appellant argued that the issue is settled by various judicial precedents which hold that the buyer's premises cannot be considered the 'place of removal.' They relied on several case laws, including:- KJV Alloys Conductors Pvt Ltd. vs. CCE & ST, Medchal GST- Vijai Electricals Ltd. vs. CCE & ST Hyd-I- CCE Lucknow vs. M/s Shashi Cables Ltd.- M/s Aptar Beauty & Home India Pvt Ltd. vs. Commissioner of Central Tax, Medchal GST- CCE Allahabad vs. M/s Sarthek Enterprises Ltd.- M/s Aditya Birla Chemicals India Ltd. vs. CCE & ST RanchiThe appellant also cited the Supreme Court decision in CCE, Nagpur vs. Ispat Industries and a previous Tribunal decision in their own case, My Home Industries Pvt. Ltd. vs. Commissioner of Central Tax, Visakhapatnam.3. Department's Argument:The Department acknowledged the Supreme Court's decision in Ispat Industries and the Tribunal's decision in the appellant's own case but argued that the definition of 'place of removal' includes any place from where excisable goods are sold after clearance from the factory. They contended that the purchase orders indicated that the appellants were obligated to deliver goods in acceptable condition at the buyer's place, retaining ownership until delivery. Therefore, the buyer's place was rightly considered the place of removal, and freight charges were includable in the assessable value. The Department relied on the Supreme Court decision in Commissioner of Customs & Excise, Aurangabad vs. Roofit Industries Ltd.4. Tribunal's Observations and Decision:The Tribunal noted that the issue was identical to the one decided by the Supreme Court in Ispat Industries, which clarified that excise duty is not payable on freight charges for transportation from the factory gate to the buyer's premises. The Tribunal also referred to its own decision in the appellant's case, My Home Industries Pvt. Ltd., and upheld the principle that the buyer's premises cannot be the place of removal. The Tribunal emphasized that the place of removal refers only to the manufacturer's premises or premises referable to the manufacturer.5. Legal Precedents and Interpretation:The Tribunal discussed the Supreme Court's interpretation of Section 4 of the Central Excise Act and the amendments that introduced the concept of 'transaction value.' The Court in Ispat Industries held that the cost of transportation from the place of removal to the place of delivery is to be excluded from the assessable value. The Tribunal also addressed the Department's reliance on the Roofit Industries case, distinguishing it based on the facts and the lack of examination of the amended Section 4 in that case.6. Conclusion:The Tribunal concluded that the value of freight charges for delivering cement to the buyer's premises should not be included in the assessable value for excise duty purposes. The orders under challenge were set aside, and the appeals were allowed.(Order pronounced in the open court on 01.02.2023)