Freight and insurance charges excluded from excise duty assessable value for ex-works factory gate sales

The CESTAT New Delhi held that freight and insurance charges paid by the appellant were not includable in assessable value for excise duty. The tribunal found that sale occurred at the factory gate on ex-works basis, with goods cleared from appellant's premises upon payment of sales tax. Invoices prepared at factory gate and consignment notes naming buyer as consignee established that property transfer occurred at manufacturer's premises, not buyer's location. Citing SC precedent in Escorts JCB Ltd case, the tribunal confirmed buyer's premises cannot be place of removal, making separately charged freight non-includable. The demand including extended limitation period was wrongly confirmed and set aside, allowing the appeal.

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Issues Involved:
1. Whether the value of freight and insurance charges should be included in the assessable value of final products.
2. Invocation of extended period of limitation.

Summary:

Issue 1: Inclusion of Freight and Insurance Charges in Assessable Value

The appellant, engaged in manufacturing transformers and other products, was found by the department to have excluded freight and insurance costs from the assessable value, allegedly violating Section 4 of the Central Excise Act, 1944, and related rules. The department argued that since the goods were sold on FOR (Free on Board) destination basis, the buyer's place was the place of removal, thus necessitating the inclusion of freight and insurance in the assessable value.

The appellant contended that the sale was completed at the factory gate, with the buyer assuming ownership before transportation. They cited the Supreme Court's decision in CC & CCE, Nagpur Vs. Ispat Industries Ltd., which held that the buyer's premises could not be the place of removal. The appellant also referenced Sections 4, 23, and 39 of the Sale of Goods Act to support their claim that the sale was concluded at the factory gate.

The Tribunal observed that the Supreme Court in Ultratech Cement Ltd. and Ispat Industries Ltd. had clarified that the place of removal is the factory gate, not the buyer's premises. The Tribunal noted that the appellant's invoices and transport documents indicated that the sale was completed at the factory gate, making the inclusion of freight and insurance in the assessable value incorrect.

Issue 2: Invocation of Extended Period of Limitation

The Tribunal found that the demand for the period from March 2016 to March 2017, including one month of the extended period, was wrongly confirmed. The adjudicating authority ignored Rule 5 of the Determination of Value Rules, which allows deduction of transportation costs from the assessable value if certain conditions are met. The Tribunal held that these conditions were satisfied in the appellant's case, thus the cost of transportation and insurance should be excluded from the assessable value.

Conclusion:

The Tribunal concluded that the order under challenge, which included freight and insurance in the assessable value, was not sustainable. The adjudicating authority violated judicial discipline by not following the Supreme Court's decisions. Consequently, the order was set aside, and the appeal was allowed.

[Order pronounced in the open court on 07.06.2024]

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