2025 (11) TMI 830 - AT - Central Excise

Decision rules freight shown in depot invoices not includable in assessable value under Rule 5 and Rule 6

M/s. Carris Pipes and Tubes Pvt. Ltd Versus The Commissioner of GST & Central Excise, Coimbatore

CESTAT CHENNAI - AT allowed the appeal and set aside the first appellate order. The Tribunal held that average freight charged and shown separately in ... Calculation of Excise Duty - Inclusion of cost of transportation from the buyers on the basis of average cost of transportation in the assessable value - contravention of provisions of Rule 6 of the Central Excise Rules, 2002, Rule 5 of the Valuation Rules - HELD THAT:- Firstly, the ratio of the Hon’ble Apex Court in Baroda Electric Motor [1997 (7) TMI 126 - SC ORDER] has clearly held that equalized freight charged from everyone is not includable in the assessable value as duty of excise is on manufacture and not on profit made on transportation and hence, it was incumbent on the Revenue in its Appeal before the First Appellate Authority to satisfy this condition, but unfortunately we do not find any whisper about the same. Secondly, the Appellant has furnished three CAS-5 certificates which have not been found fault with by any of the lower authorities rather, the Original Authority has accepted the same. There is also a reference to CBEC’s Excise Manual of Supplementary Instructions,2005 Chapter 3 Part-III Para 3.2 which prescribes the exclusion of cost of transportation to be allowed only for the actual cost of transportation, if the same is shown separately in the invoice. Further, Revenue has nowhere disputed the case of the Appellant that invoices issued by depot (i.e. from the place of removal) to their customers (place of delivery) the average cost of transportation has been shown separately, which only implies that the average cost of transportation collected from the customers for the sale of excisable goods from their depots shall not form part of the assessable value, which is required to be excluded in terms of Rule 5 of Valuation Rules. There are no justification or reason made out to sustain the impugned orders, in fact, the OIO dt. 31.03.2015 is a well-reasoned order which has discussed the factual aspects in the context of various documents furnished in support by the Appellant and therefore the First Appellate Authority has seriously erred in disturbing the same - the impugned order is set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether average/equalized transportation charges collected from buyers and shown separately on invoices for deliveries from depots are includible in the assessable value of excisable goods under Explanation 2 to Rule 5 of the Valuation Rules read with Section 4 of the Central Excise Act. 2. Whether the First Appellate Authority lawfully disturbed the Adjudicating Authority's finding (which accepted the assessee's working, CAS-5 certificates and supporting documents) by applying a different illustration/principle without addressing the factual evidence. 3. Whether demands and penalties confirmed or imposed by the lower authorities (including imposition under Rule 25 and/or Section 11AC) are sustainable where the assessable value exclusion for equalized freight is established. ISSUE-WISE DETAILED ANALYSIS Issue 1: Inclusion of average/equalized transportation charges in assessable value Legal framework: Explanation 2 to Rule 5 of the Valuation Rules and Section 4 of the Central Excise Act govern what components are includible in the assessable value; CBEC instructions (Excise Manual, Supplementary Instructions, 2005, Ch.3 Pt.III para 3.2) acknowledge that actual transportation cost shown separately in the invoice may be excluded. Precedent treatment: The Court relied on the binding ratio of the highest judicial authority which holds that equalized freight charged uniformly is not includible in assessable value because excise duty is on manufacture and not on profit made on transportation (treated as binding authority and followed). Interpretation and reasoning: The Adjudicating Authority accepted the assessee's methodology and documentary proof (working based on actual figures, CAS-5 certificates, Cost Accountant clarification and sample invoices showing separate freight). The Tribunal found that equalized freight collected at depots and shown separately on invoices falls within the exclusion contemplated by Explanation 2/read with Section 4 and CBEC guidance, and therefore ought not to be added to assessable value. Ratio vs. Obiter: The statement that equalized freight uniformly charged is not part of assessable value is applied as ratio (binding to the present facts). References to CBEC instructions and the assessee's particular CAS-5 computations are explanatory and factual applications (non-binding on legal principle but material to the outcome). Conclusions: Equalized/average transportation charges that are shown separately on invoices for deliveries from depots and supported by contemporaneous working and CAS-5 certificates are not includible in assessable value; demands based on inclusion of such charges cannot be sustained. Issue 2: Legality of First Appellate Authority disturbing the Adjudicating Authority's finding Legal framework: Appellate authority must address and deal with the factual findings, evidentiary material and legal reasoning of the Adjudicating Authority; an appellate order must show application of mind to the evidence on record. Precedent treatment: The Tribunal applies the established principle that an appellate authority cannot disturb a well-reasoned adjudicatory finding without dealing with material evidence relied on below; no precedent was overruled-rather the Tribunal enforces that standard. Interpretation and reasoning: The First Appellate Authority relied on an alternate illustration and found fault with the assessee for not following that illustration, while ignoring the detailed explanation, CAS-5 certificates, Cost Accountant clarification and sample invoices accepted by the Adjudicating Authority. The Tribunal considered this a failure to apply mind and to engage with material facts and binding precedent, rendering the appellate interference legally unsustainable. Ratio vs. Obiter: The Tribunal's censure of the appellate authority for not engaging with evidence is ratio in relation to the correctness of the impugned appellate orders; observations about proper appellate conduct are binding as applied here. Conclusions: The First Appellate Authority erred in disturbing the Adjudicating Authority's well-reasoned order without dealing with the material evidence and binding precedent; its reversal is set aside and the original adjudicatory finding restored. Issue 3: Sustainability of demands and penalties where exclusion of equalized freight is established Legal framework: Demand for differential duty flows from inclusion of components in assessable value; penalties under Rule 25 of the Rules or Section 11AC arise only where the underlying demand/inclusion is legally supportable. Precedent treatment: Where the assessable value has been correctly determined to exclude equalized freight (following binding precedent and supported documentary evidence), ancillary demands and penalties based on contrary inclusion lack foundation and must fall. Interpretation and reasoning: Given the Tribunal's conclusion that equalized freight was not includible, the demands confirmed and penalties imposed in the impugned orders lack a legal basis. The Tribunal noted that Revenue did not dispute sample invoices or CAS-5 findings before the appellate authority and failed to address the controlling precedent; accordingly, sustaining the demands and penalties was erroneous. Ratio vs. Obiter: The holding that demands and penalties dependent on a wrongly included freight component are not sustainable is ratio insofar as it follows logically from the primary legal determination; incidental comments on Revenue's appellate strategy are obiter. Conclusions: Demands and penalties founded on inclusion of average/equalized freight are unsustainable; the impugned appellate confirmations of demand and penalties are set aside and the adjudicatory orders accepting the exclusion are restored with consequential relief as per law. RELIEF AND DISPOSITION (INTEGRATED CONCLUSION) The Tribunal set aside the impugned appellate orders that confirmed demands and imposed penalties, restored the Adjudicating Authority's well-reasoned order which excluded equalized freight from assessable value, and allowed the appeals with consequential benefits, the Court finding the Revenue's appellate approach legally and factually deficient in the face of binding precedent and unchallenged documentary evidence.