2026 (2) TMI 122 - AT - Central Excise

Freight charges in FOR sales must be included in transaction value, leading to allowance of the department appeal.

In contracts for sale on FOR (free on road/delivery) basis, freight charges for transport from factory to buyer must be included in the transaction value ... Place of removal - FOR contract / delivery to buyer's premises - Transfer of ownership and risk in transit - Point of sale / sale at destination - Inclusion of freight charges in transaction value - Valuation u/s 4 - Circular No. 1065/4/2018-CX., dated 8-6-2018 - Statutory interest u/s 11AA - Penalty u/s 11AC - HELD THAT:- In Ispat Industries [2015 (10) TMI 613 - SUPREME COURT], the issue involved was whether by virtue of a transit insurance policy in the name of the manufacturer, excise duty is liable to be recovered on freight charges incurred for transportation of goods from the factory gate to the buyer’s premises, treating the buyer’s premises as the place of removal. In view of the two Larger Bench decisions of this Tribunal in The Ramco Cements Limited [2023 (12) TMI 1332 - CESTAT CHENNAI-LB] and Sweety Industries [2024 (2) TMI 1393 - CESTAT AHMEDABAD (LB)] a Division Bench of the Tribunal in M/s. Hindustan Zinc Ltd. [2024 (4) TMI 817 - CESTAT NEW DELHI] examined the issue at length and held that the cost of transportation from the factory premises to the premises of the buyer when the sale is on FOR basis would have to included in the transaction value. The division bench extensively referred to the Circular dated 08.06.2018 and the decision of the Supreme Court in Roofit Industries [2015 (4) TMI 857 - SUPREME COURT]. The decision of the Tribunal in Hindustan Zinc is based on the two Larger Bench decisions of the Tribunal in The Ramco Cements and Sweety Industries. The aforesaid discussion leads to the inevitable conclusion that the value of freight charges would have to be included in the transaction value of the goods as the contract was on FOR basis. The order passed by the Commissioner (Appeals), therefore, cannot be sustained and is set-aside. The appeal filed by the department is, accordingly, allowed. Issues: (i) Whether freight charges forming part of the contract price under FOR/destination sales must be included in the transaction value for determination of excise duty when the place of removal is the buyer's premises.Analysis: The question requires examination of the contractual terms as to place and point of sale, the time of transfer of property in the goods, and the applicable principles for determining 'place of removal' under valuation law. Relevant authorities and administrative guidance establish the general principle that 'place of removal' is to be determined with reference to the point of sale, subject to exceptions where the contract is FOR/destination sale and facts show that ownership and risk remained with the seller until delivery at buyer's premises. Where purchase orders specify delivery at buyer's premises, include freight in the contract price, require payment only after acceptance at destination, and impose transit risk/liability on the seller, those facts show the sale occurs at buyer's premises and freight up to that point forms part of the transaction value under Section 4. The Board's Circular dated 08.06.2018 and the cited Supreme Court decisions (Roofit; Ispat) and subsequent Tribunal precedents applying those principles are applicable fact-sensitive guides; where sale is on FOR terms and ownership/risk remains with the seller till delivery, freight collected or included in price must be added to assessable value and attract duty, interest under Section 11AA, and possible penalty under Section 11AC.Conclusion: In respect of the decided issue (i), freight charges included in the contract price for FOR/destination sales where ownership and risk remain with the seller until delivery at buyer's premises are required to be included in the transaction value for determination of excise duty.Ratio Decidendi: Where a contract is on FOR/destination terms and the contractual terms and conduct show transfer of property and risk to the buyer only upon delivery at the buyer's premises, freight charges up to delivery form part of the transaction value under Section 4 and must be included in the assessable value for excise duty.