2025 (5) TMI 51 - AT - Central Excise

Transportation charges excluded from assessable value when property transfers at factory gate under Central Excise

M/s. Shree Laxmi Iron & Steel Works Pvt. Ltd. Versus Commissioner of Central Excise, Kolkata-II

M/s. Shree Laxmi Iron & Steel Works Pvt. Ltd. Versus Commissioner of Central Excise, Kolkata-II - TMI The core legal questions considered in this appeal pertain to the inclusion of freight charges, separately shown in invoices, in the assessable value for Central Excise duty purposes. Specifically, the issues revolve around whether transportation charges collected by the manufacturer from buyers, when sales are effected on a FOR (Free on Rail/Factory) factory gate basis, should be included in the assessable value under Section 4 of the Central Excise Act, 1944 read with Rule 6 of the Central Excise Rules, 2000. The appeal also addresses whether the invocation of extended limitation period based on alleged suppression of facts by the appellant is justified.The first and primary issue concerns the legal interpretation of the 'place of removal' of excisable goods and its impact on the valuation for excise duty. The question is whether the place of removal can be considered as the buyer's premises (where goods are delivered) or remains the factory gate of the manufacturer, thereby excluding transportation charges from the assessable value.The second issue relates to the applicability of precedents and circulars concerning the non-inclusion of freight and transportation charges in the assessable value, especially where these charges are separately indicated and agreed upon in the contract between the parties.Thirdly, the issue of whether the appellant's conduct amounts to willful suppression of facts warranting invocation of extended limitation period and penalty under Section 11AC of the Central Excise Act was considered.Regarding the first issue, the legal framework includes Section 4 of the Central Excise Act, 1944, which governs the valuation of excisable goods, and Rule 6 of the Central Excise Rules, 2000, which elaborates on the components of assessable value. The definition of 'place of removal' under Section 4(3)(c) was pivotal. The Court noted that 'place of removal' means the factory or premises of manufacture or other specified places from where goods are removed. The Court emphasized that the place of removal must be a place from which goods are physically removed, and if the goods are sold on FOR factory gate basis, the property in the goods passes to the buyer at the factory gate itself.The Court relied heavily on the appellant's own purchase orders and invoices which separately indicated factory gate price and freight charges, with delivery on FOR basis. This contractual clarity negated the Revenue's contention that the place of removal could be the buyer's premises. The Court held that if the place of removal were to be considered as the buyer's premises, the goods would have to be further removed by the buyer for sale, which was not the case.In its reasoning, the Court extensively referred to authoritative precedents. The Tribunal's decision in Aditya Birla Insulators Ltd. was cited, which held that transportation and insurance charges could not be included in assessable value when the place of removal is the factory gate. The Court also relied on the Hon'ble Supreme Court's decisions in Commissioner of Central Excise, Chennai-II vs. Aeons Construction Products Ltd. and Commissioner of Central Excise, Mumbai-III vs. Hind Rectifiers Ltd., which categorically held that transportation charges incurred at the buyer's instance after the property in goods has passed cannot be loaded onto the assessable value for excise duty.Further, the Court noted the CBEC Circular No.37B No.59/1/2003-CX dated 03.03.2003, which supported the position that freight charges separately indicated and agreed upon do not form part of the assessable value. The Court also referred to the principle that excise duty is a tax on manufacture and not on profit made on transportation or freight charges.Regarding the second issue of precedents and circulars, the Court examined various judicial pronouncements. The Hon'ble Supreme Court's ruling in Baroda Electric Meters Ltd. vs. Collector of Central Excise was highlighted, where it was held that differential or excess freight is not includible in assessable value as excise duty is on manufacture and not on transportation profits. The Tribunal's decisions in Icomm Tele Ltd. vs. Commissioner of Central Excise and Mercedes Benz India Pvt. Ltd. vs. Commissioner of Central Excise were also cited, reinforcing that excess freight or profit on transportation is not liable to excise duty.The Court found that the adjudicating authority had correctly relied on these precedents and the Commissioner (Appeals) had rightly set aside the show cause notices based on these principles. The Revenue's argument that the appellant had suppressed facts to invoke extended limitation was rejected, as the transportation charges were separately disclosed in invoices and returns, negating any willful misstatement.On the issue of suppression and extended limitation, the Court observed that there was no new fact or evidence brought forth by the Revenue to counter the findings of the Commissioner (Appeals). The appellant had transparently disclosed the freight element, and the property in goods passed at the factory gate, thus no suppression or misstatement was found. Consequently, invocation of extended limitation and penalty under Section 11AC was not justified.The Court applied the law to the facts by affirming that the place of removal is the factory gate, and since the freight charges were separately indicated and agreed upon, these charges cannot be included in the assessable value for excise duty. The Court rejected the Revenue's contention that delivery to buyer's premises should alter the place of removal or the valuation. The contractual terms and the transfer of ownership at the factory gate were determinative.Competing arguments by the Revenue that the transportation charges formed part of the transaction value were considered but found unsustainable in light of the statutory definition, judicial precedents, and the contractual documentation. The Court emphasized that excise duty is not a tax on transportation profits and that the appellant's practice of separately showing freight charges was consistent with the law.In conclusion, the Court held that the impugned order of the Commissioner (Appeals) was legally sound and set aside the show cause notices and demand for short payment of duty on freight. The appeal was allowed in favor of the appellant.Significant holdings include the following verbatim excerpts:'As the property had already changed the hands, we thus do not find any reason to interfere with the impugned order.''If the transportation work was taken by the assessee, thereafter, at the instance of the buyer and deliver the goods at the site, that cannot be a ground for loading the price with the transportation charges.''The place of removal has to be a place from where the goods are removed. The Departmental Authorities seem to have lost sight of this qualifying clause while persisting in their efforts to include transport and insurance charges in the assessable value.'Core principles established are:The place of removal for excise duty valuation is the factory gate when sales are on FOR factory gate basis, and ownership passes at that point.Transportation or freight charges separately indicated and agreed upon in the contract are not includible in the assessable value for Central Excise duty.Excise duty is a tax on manufacture and not on profit or charges related to transportation.Separate disclosure of freight charges negates any allegation of suppression of facts or misstatement warranting extended limitation or penalty.Final determinations on each issue are:The freight element separately shown in invoices and collected at the buyer's instance is not includible in the assessable value for Central Excise duty.The place of removal is the factory gate and not the buyer's premises for the purpose of valuation.No suppression of facts or willful misstatement was established to invoke extended limitation or penalty provisions.The impugned show cause notices and demand for short payment of duty on freight charges are set aside.