Transactional value

[S.C. WADHWA]

Dear Expert,

We are selling excise able goods on contract basis to one company.  Freight on dispatches is paid by selling company.  In consideration the said company reimbursing to selling company towards freight on fixed rare basis as decided in agreement for example ₹5/- per kg. The selling company booked the freight received as freight income.

Query is whether excise duty on differential amount of freight i.e freight received minus freight paid per kg or on full value of freight income booked relating to excise able items to be paid. We are not getting any cenvat and paying duty at the rate of 2.06 percent only.

Regards,

WADHWA

[Rajagopalan Ranganathan]

Sir,

      Rule 5 of Central Excise Valuation (Determination of Price of Excisable goods) Rules, 2000 stipulates that-

               Where any excisable goods are sold in the circumstances specified in clause (a) of sub-section (1) of section 4 of the Act except the circumstances in which the excisable goods are sold for delivery at a place other than the place of removal, then the value of such excisable goods shall be deemed to be the transaction value, excluding the cost of transportation from the place of removal up to the place of delivery of such excisable goods.

Explanation 1.- "Cost of transportation" includes -

(i)  the actual cost of transportation; and
(ii) in case where freight is averaged, the cost of transportation calculated in accordance with generally accepted principles of costing.

Explanation 2. - For removal of doubts, it is clarified that the cost of transportation from the factory to the place of removal, where the factory is not the place of removal, shall not be excluded for the purposes of determining the value of the excisable goods.

    According to this rule when the excisable goods are sold from a depot or consignment agent's premises but not at the factory gate then the freight charged either actual or on average basis, the such freight need not be included in the assessable value.

            In your query it is not clearly stated that whether your are selling the goods at the factory gate or from a place other than factory gate.

            If you are selling the goods at the factory gate, if the freight is included in the price charged fir the goods then freight is includible in transaction value and you have pay duty on the same.  If you show the freight amount separately in your invoice, then it need not be included in the transaction value.

AI Summary

Transportation cost exclusion affects excise transaction value, excluding freight when goods are sold other than factory gate. Rule 5 excludes the cost of transportation from transaction value where goods are sold other than at the factory gate; 'cost of transportation' includes actual transport cost and averaged freight calculated by accepted costing principles. Freight charged on sales from a depot or consignment agent need not be included in the assessable value. Conversely, where goods are sold at the factory gate, freight included in the price is includible in transaction value unless shown separately on the invoice.