Service Tax or Central Excise Duty on Freight Charges

[Krishna Murthy]

A manufacturing unit raises central excise invoice with basic price and central excise on the basic price. Freight is also included in the invoice but the same is not included for calculation of central excise duty. The unit has paid service tax on such freight charges levied. Now, the department says since the place of removal is buyers place, freight charges are to be included in assessable value for central excise purpose.

What is the position of law. Is payment of service tax as done by the unit is correct or the unit should have paid central excise on freight charges also, since the place of removal is buyers place or central excise duty and service tax both are applicable in this case.

[KASTURI SETHI]

Both cannot be charged. Can you elaborate ? What is your sale pattern ? What is commodity and its Chapter/Heading/Sub-heading.

[Venkataprasad Pasupuleti]

There are many decisions & circulars on this issue.

Refer SC decision in case of Ispat industries wherein the hon'ble SC held that buyers place will never be a place of removal & frieght charges are not liable for excise duty.

[PAWAN KUMAR]

dear sir,

please read the Excise Circular No.1065/4/2018-CX dated 08-06-2018 wherein it has been clearly prescribed the place of removal.

[Krishna Murthy]

Sir, Thanks for your reply. The dealer is a manufacturer of PSCC Poles used by electricity department with HSN Code 68109990. The dealer entered a PO with the electricity department for supply of the poles to the destination as mentioned in the PO. The PO specified price of poles and transportation cost and insurance separately. The PO clearly mentioned that the risk of sending the poles is of the manufacturer’s. The dealer however paid excise duty on basic price of poles and paid service tax on transportation cost and insurance.

[YAGAY andSUN]

In our view since you own the risk for sending poles to electricity department, therefore excise duty on Invoice Value will be the assessable value. since you paid service tax on both components, therefore, in our view matter should be sorted out by the department accordingly in the line of Ease of Doing Business. Further, your intention was to pay the tax and due to bonafide believe and since being a interpretative issue, penalty could not be levied. If required you may opt to pay the differential tax and statutory interest to sort out this matter.

AI Summary

Assessable value inclusion of freight: contractual risk allocation determines whether freight and insurance form exciseable value. The core issue is whether separately invoiced freight and insurance form part of the excise assessable value when delivery is at the buyer's location. Resolution depends on contractual allocation of risk and shipment terms: if the manufacturer retains risk and freight/insurance are charged as part of the invoice value, those components can be included in the assessable value; conversely, authorities indicate that delivery to the buyer's premises alone does not necessarily establish the buyer's place as the place of removal for excise valuation.