2025 (5) TMI 1366 - AT - Central Excise

Appellant entitled to CENVAT credit on service tax for FOR sales including freight charges in assessable value

CESTAT Chandigarh allowed appeals regarding CENVAT credit entitlement on FOR sale transactions. The appellant sold goods on FOR basis including freight ... Entitlement to the CENVAT Credit - Free on Road (FOR) sale destination basis - inclusion of freight in the transaction value - refund claimed on the duty paid on the returned goods - Availing the benefit of Notification No. 56/2002-CE - claim of excess self-credit - Demand of tax along with interest and penalty - HELD THAT:- From the perusal of documents on record, it is clear that the appellant sold the goods on FOR basis and have included the value of freight in the assessable value which has been disputed by the department. Further, we find that this issue is no more res integra as the same has been settled by the Larger Bench of the Tribunal in the case of M/s Ramco Cements Limited [2023 (12) TMI 1332 - CESTAT CHENNAI-LB] as well as by the Hon’ble High Court of Himachal Pradesh in the case of M/s Inox Air Products Pvt Ltd. [2024 (4) TMI 32 - HIMACHAL PRADESH HIGH COURT], wherein the Hon’ble High Court, after considering various judgments of Hon’ble Supreme Court as well as the decision of Larger Bench of the Tribunal in M/s Ramco Cements Limited (supra)’s case, has held that when there is FOR sale and the assessable value includes freight charge also, in that situation, the assessee is entitled to the CENVAT Credit of service tax. Thus, by following the ratios of the decisions cited supra, we are of the considered opinion that the impugned order is not sustainable in law; accordingly, we set aside the same and allow the appeals of the appellant. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in the appeals are:Whether the element of outward freight paid by the appellant should be included in the assessable value of the goods under Section 4 of the Central Excise Act, 1944, when the sale is made on FOR (Free on Road) destination basis;Whether the appellant was entitled to claim CENVAT credit or refund on the duty paid on returned goods that were subsequently cleared again on payment of duty;Whether the appellant's inclusion of freight in the transaction value led to excess payment of excise duty and whether the demand raised by the department on this ground was justified;Whether the appellant's claim of excess self-credit/refund contravened the provisions of Notification No. 56/2002-CE dated 14.11.2002.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Inclusion of Outward Freight in Assessable Value under Section 4 of the ActRelevant Legal Framework and Precedents: Section 4 of the Central Excise Act, 1944, governs the determination of assessable value for levy of excise duty. Notification No. 56/2002-CE allows for refund of duty paid on inputs used in manufacture. The legal question revolves around whether outward freight charges, when borne by the manufacturer under an FOR destination contract, form part of the transaction value and hence assessable value.The Larger Bench of the Tribunal in M/s Ramco Cements Limited vs. Commissioner of Central Excise, Puducherry, and the Hon'ble High Court of Himachal Pradesh in M/s Inox Air Products Pvt Ltd vs. Commissioner of Central Excise have addressed this issue. The High Court, after considering Supreme Court precedents, held that in FOR sales, where ownership and risk remain with the seller until delivery at the buyer's premises, freight charges form part of the assessable value. The Central Board of Indirect Taxes and Customs (CBIC) circular dated 8.6.2018 reinforces this position, binding departmental officers.Court's Interpretation and Reasoning: The Tribunal carefully examined the contractual terms, evidencing that the appellant's sales were on FOR destination basis, meaning the place of removal is the customer's premises. The Tribunal noted that the appellant included freight charges in the transaction value, which the department disputed.The Tribunal relied on the Larger Bench decision and the High Court ruling, which concluded that when the seller retains ownership and risk during transit, the freight paid by the seller is includible in the assessable value. The Tribunal rejected the department's argument that the place of removal was the manufacturer's premises and that freight services were received beyond the place of removal, disqualifying them as input services under CENVAT Credit Rules.Key Evidence and Findings: The contractual terms of sale (FOR destination), documentary proof of freight payments included in invoices, and authoritative precedents were pivotal. The Tribunal also noted the CBIC circular and Supreme Court rulings affirming the binding nature of Board instructions under Section 37B of the Central Excise & Salt Act, 1944.Application of Law to Facts: Applying the settled legal position, the Tribunal held that the appellant was justified in including freight in the assessable value and claiming CENVAT credit on the service tax paid on freight.Treatment of Competing Arguments: The department's contention that freight should not be included as it was beyond the place of removal and that the appellant inflated transaction value was rejected based on the clear contractual terms and binding precedents. The Tribunal emphasized that the appellant's inclusion of freight was lawful and consistent with the legal framework.Conclusion: The Tribunal concluded that the demand raised on account of inclusion of outward freight in assessable value was not sustainable and set aside the impugned order on this issue.Issue 2: Claim of CENVAT Credit/Refund on Duty Paid on Returned GoodsRelevant Legal Framework and Precedents: Notification No. 56/2002-CE permits refund of duty paid on inputs used in manufacture, including in cases of returned goods. The appellant claimed refund/self-credit on goods returned and cleared again on payment of duty.Court's Interpretation and Reasoning: The Commissioner (Appeals) had partially allowed the appellant's appeal on this issue, holding that since the appellant took CENVAT credit on returned goods and cleared them again on payment of duty, they were entitled to refund/self-credit under the notification.Key Evidence and Findings: The appellant's records showed CENVAT credit availed on returned goods and subsequent clearance on payment of duty. The department's allegation of excess refund was not substantiated with evidence of non-compliance or misuse.Application of Law to Facts: The Tribunal agreed with the Commissioner (Appeals) that the appellant's claim was legitimate under the notification, as the duty paid on returned goods was not claimed twice unlawfully.Treatment of Competing Arguments: The department's contention of excess refund claim was rejected due to lack of evidence and the appellant's compliance with procedural requirements.Conclusion: The Tribunal upheld the partial relief granted by the Commissioner (Appeals) on this issue and rejected the department's demand.Issue 3: Allegation of Excess Payment of Duty and Mis-declaration of Transaction ValueRelevant Legal Framework and Precedents: Section 11A of the Central Excise Act authorizes recovery of duty short-paid or erroneously refunded. Section 11AB provides for interest on delayed payment, and Section 11AC prescribes penalty. The department alleged that inclusion of freight inflated transaction value, resulting in excess duty payment and refund claims.Court's Interpretation and Reasoning: The Tribunal found that since inclusion of freight in assessable value was lawful, the allegation of inflated transaction value was unfounded. The appellant's payment of duty and claim of refund were in accordance with law and binding precedents.Key Evidence and Findings: Documentary evidence of freight inclusion, contractual terms, and binding judicial precedents negated the department's allegations.Application of Law to Facts: The Tribunal held that no excess duty was paid in violation of law; rather, the appellant paid duty as per lawful assessable value. Hence, recovery proceedings and penalty imposition were not justified.Treatment of Competing Arguments: The department's reliance on the adjudicating authority's original order was overridden by the binding Larger Bench and High Court decisions.Conclusion: The Tribunal set aside the demand and penalty imposed on this ground.3. SIGNIFICANT HOLDINGSThe Tribunal's crucial legal reasoning is encapsulated in the following verbatim excerpt from the decision of the Hon'ble High Court of Himachal Pradesh, relied upon by the Tribunal:'31) The CBIC, in its circular dt.8.6.2018 has considered these two decisions and also the decision in Ultra Tech cement (Supra) and had specifically held (as set out in para 23 supra) that in the case of FOR destination sale where the ownership, risk in transit, remained with the seller till goods are accepted by buyer on delivery and till such time of delivery, seller alone remained the owner of goods retaining right of disposal, benefit has been extended by the Apex Court on the basis of facts of the cases.33) In Ranadey Micronutrients etc. vs. Collector of Central Excise [AIR 1997 SC 69] the Supreme Court held that in view of Section 37B of the Central Excise & Salt Act, 1944, instructions issued by the Board in order to ensure uniform practice of assessment of excisable goods throughout the country get statutory status and significance, and they are binding on officers of the Central Excise Department.38) Therefore, we hold on issues mentioned above that the Tribunal was not justified in holding that place of removal for the GTA Services provided under FOR sale contract is the manufacturer's premises and not the place where the goods are sold; that the Tribunal was not justified in holding that the GTA services in the present case are being received beyond the place of removal and therefore not covered within the definition of Input Service under Rule 2(1) of CENVAT Credit Rules, 2004.'Core principles established include:In FOR destination sales, freight charges borne by the seller are includible in assessable value under Section 4 of the Central Excise Act;Ownership and risk retention by the seller during transit are critical factors determining inclusion of freight in assessable value;Instructions issued by the CBIC under Section 37B have statutory binding force on departmental officers;CENVAT credit on service tax paid on outward freight is admissible when freight forms part of assessable value;Claims of refund or self-credit on duty paid on returned goods cleared again on payment of duty are valid under Notification No. 56/2002-CE, if proper procedures are followed;Excess demand and penalty cannot be sustained if based on erroneous interpretation of assessable value and freight inclusion.Final determinations on each issue were:The inclusion of outward freight in assessable value for FOR destination sales is lawful and justified;The appellant's claim of CENVAT credit/refund on duty paid on returned goods cleared again is valid;The demand for excess duty and penalty imposed on the appellant is unsustainable and set aside;The impugned order of the Commissioner (Appeals) was set aside to the extent it disallowed inclusion of freight in assessable value, and the appeals were allowed accordingly.