2025 (8) TMI 567 - AT - Central Excise

Excess Transit Insurance Charges Not Part of Assessable Value Under Central Excise Valuation Rules 5 and 6

CESTAT Chandigarh held that the amount collected as excess transit insurance from dealers is not includible in the assessable value for excise duty under ... Calculation of Excise duty - non-inclusion of amount of transit insurance collected from the dealers in the assessable value - Rule 5 and Rule 6 of the Central Excise Valuation Rules, 2000 - HELD THAT:- As per the agreement between the respondent and its dealers, sale of goods takes place at the factory gate and the dealers are liable to take the delivery of the goods at the factory gate and the dealers will be liable to incur the cost of transportation from the factory gate to its own premises. Further, it is found that as per the agreement, the title and risk in the goods being sold to dealers passed to the dealers at the factory gate. Further, the excess transit insurance charges recovered from the dealers is in addition and is not in connection with the sale of goods. Further, as per the Section 4(1)(a) of the Excise Act, the assessable value of the goods shall be the transaction value and the transaction value is the ex-factory price and the amount collected as excess transit insurance is not in connection with the sale of gods and it has no nexus with the manufacturing activity undertaken by the assessee. The excess transit insurance collected by the assesse-respondent from the dealer is merely a profit on which no excise duty is attracted - there is no infirmity in the impugned order passed by the learned commissioner - Appeal of Revenue dismissed. ISSUES: Whether excess transit insurance charges collected from dealers are includible in the assessable value of excisable goods under the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.Whether the valuation of excisable goods should be governed by Rule 5 and Rule 6 of the Central Excise Valuation Rules, 2000, in respect of excess transit insurance collected.Whether the place of removal and transfer of title at the factory gate excludes transit insurance charges from assessable value under Section 4(1)(a) of the Central Excise Act.Whether excess transit insurance collected constitutes a part of the consideration for sale or is merely a profit on which excise duty is not leviable.Whether invocation of the extended period of limitation is justified in the absence of suppression of facts by the assessee.Whether interest and penalty can be imposed when the underlying demand is not sustainable. RULINGS / HOLDINGS: The excess transit insurance charges collected from dealers are not includible in the assessable value of excisable goods as they are not connected with the sale of goods or manufacture activity.The valuation of excisable goods in respect of excess transit insurance is not governed by Rule 5 and Rule 6 of the Central Excise Valuation Rules, 2000, as the excess charges are independent of the transaction value.Since the sale and transfer of title occur at the factory gate, and the dealer bears transportation costs thereafter, the excess transit insurance does not form part of the transaction value under Section 4(1)(a) of the Central Excise Act.The excess transit insurance collected is merely a profit and no excise duty is leviable on such profit, consistent with binding judicial precedents.The extended period of limitation cannot be invoked as there is no suppression of facts by the assessee and the demand arose from data furnished by the assessee itself.When the demand is unsustainable, the imposition of interest and penalty is not justified. RATIONALE: The Court applied the statutory framework under Section 4(1)(a) of the Central Excise Act, which defines assessable value as the transaction value at the time and place of removal, and the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.The Court relied extensively on the terms of the dealership agreement establishing that the place of removal and transfer of title is at the factory gate, thereby excluding post-removal charges like transit insurance from assessable value.Judicial precedents were cited to establish that excess charges collected post-sale which constitute profits are not subject to excise duty, reinforcing the interpretation of assessable value.The Court noted the absence of suppression or concealment by the assessee, precluding invocation of extended limitation period, consistent with established principles regarding limitation under excise law.The Court upheld the principle that interest and penalty cannot be imposed when the foundational demand is not sustainable, aligning with procedural fairness doctrines.