Excise duty on freight charges upheld; valuation based on place of removal under Section 4 of Central Excise Act

The CESTAT upheld the demand of excise duty on freight charges included in the assessable value for sales made on a Freight on Road (FOR) destination basis, affirming that the place of removal determines valuation. Following Supreme Court precedents, costs incurred after transfer of ownership cannot be added to the assessable value. The Tribunal found the appellant deliberately suppressed freight charges to evade duty, justifying invocation of the extended period of limitation. The appeal was dismissed, confirming the duty demand and extended limitation period due to suppression of facts.

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ISSUES:

Whether the freight amount charged on a sale made on Freight on Road (FOR) destination basis is includible in the assessable value for the purpose of Central Excise duty under Section 4 of the Central Excise Act, 1944.Determination of the "place of removal" for excisable goods sold on FOR destination basis-whether it is the factory gate or the buyer's premises.Whether the demand of duty on the clearance of scrap/non-excisable goods without reversal under Rule 6(3) of the Cenvat Credit Rules, 2004 is justified.Applicability of extended period of limitation and penalty under Section 11AA and Section 11AC of the Central Excise Act for non-inclusion of freight in assessable value and suppression of facts.

RULINGS / HOLDINGS:

Freight amount charged on FOR destination basis sales is includible in the assessable value for Central Excise duty because the "place of removal" is the buyer's premises where ownership and risk transfer occurs, not the factory gate. The court relied on the "manifest" fact that "the sale of goods did not take place at the factory gate ... but took place at the place of the buyer on the delivery of the goods."The "place of removal" under Section 4(3)(c) of the Central Excise Act means premises referable to the manufacturer, but in cases of FOR destination contracts where ownership and risk remain with the seller until delivery at buyer's premises, the place of removal is the buyer's premises. This is supported by Supreme Court decisions in Roofit Industries and Ispat Industries, and Circular dated 08.06.2018 by CBIC.The demand of duty on clearance of scrap/non-excisable goods without reversal under Rule 6(3) of the Cenvat Credit Rules, 2004 was set aside because the scrap did not arise from manufacturing activity and was related to plastic packaging material, thus not liable for reversal.The extended period of limitation and penalty under Sections 11AA and 11AC were rightly invoked and upheld because the appellant "suppressed the facts with intent to evade the payment of central excise duty" by not including freight in the assessable value, which was detected during departmental audit.

RATIONALE:

The court applied the statutory definition of "place of removal" under Section 4(3)(c) of the Central Excise Act, 1944, and Rule 2(t) of the Cenvat Credit Rules, 2004, which incorporates definitions from the Excise Act.The court relied heavily on Supreme Court precedents, notably CCE v. Roofit Industries Ltd. and CCE v. Ispat Industries Ltd., which clarified that the place of removal is generally the manufacturer's premises, but an exception exists for FOR destination sales where ownership and risk remain with the seller until delivery at buyer's premises.The Circular dated 08.06.2018 issued by the Central Board of Indirect Taxes and Customs was used as authoritative guidance to reconcile conflicting principles and clarify that the place of removal for FOR contracts is the buyer's premises, thereby including freight in assessable value.The court distinguished earlier Tribunal decisions relying on Escorts JCB Ltd., noting that the Supreme Court had "distinguished the Escorts JCB's case on facts" in subsequent rulings.The court recognized a doctrinal shift reinforced by Larger Bench decisions of the Tribunal and recent Division Bench rulings that consistently hold freight charges on FOR sales must be included in assessable value for excise duty.Regarding scrap clearance, the court applied Rule 6(3) of the Cenvat Credit Rules, 2004, and found that scrap unrelated to manufacturing activity is not subject to reversal of credit, consistent with prior Tribunal rulings.Extended limitation and penalty were justified based on the principle that deliberate suppression of material facts to evade duty triggers extended limitation and penalty provisions under the Central Excise Act.

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