TaxTMI 
TaxTMI 
2026 (6) TMI 1005
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....project for setting up of boiler and ancillary facilities, refurbishments etc. 2.1. The Appellant entered into: * turnkey agreement dated 15.03.2000 with Gujarat Mineral Development Corporation Limited ['GMDC'] for setting up 2 Circular Fluidized Bed Combustion (CFBC) Steam Generators and Auxiliaries, in respect of the Akrimota Lignite Based Thermal Power Station ('Akrimota Project'). * turnkey agreement dated 05.12.1999, with Madhya Pradesh Electricity Board ['MPEB'], for refurbishment of 4 Units of Korba East Power Station ('Korba Project') to restore their generating capacity to 50MW each. 2.2. For both these projects the Appellant entered into separate contracts and consideration for : (i) supply of manufactured equipment; (ii) supply of imported equipment (iii) transportation of the equipment, erection and commissioning of the same at the project site. 2.3. The contracts executed by the Appellant entail supply of manufactured equipment on ex-works contracts where the risk and title passed to the customer at the factory gate. The said equipment were provided to the Appellant for the purpose of erection, commissioning, tes....
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....ively consumed at the site for this process, Rule 8 of the Central Excise Valuation Rules, 2000 applies and accordingly the 110/115% of the cost of the production has to be applied for valuation of the goods. (iii) Extended period of limitation is invokable since the non-inclusion of freight charges was not stated in the returns filed and if the department had not audited the Appellant's books, such evasion of excise duty would have gone unnoticed. 2.6. Being aggrieved by the impugned order, the Appellant filed the instant appeal. 3. The appellant submits that the instant issue is no longer res-integra as freight charges cannot be included in the transaction value since the goods are sold on ex-works basis as held by the Hon'ble Supreme Court in the case of ispat industries, the buyer's premises can never be place of removal of goods. The Appellant submits that they have entered into contracts for Akrimota and Korba project, for supply of equipment on FOR Works and Ex-Works basis respectively. They have also entered into separate agreements for transportation of the equipment, and erection and commissioning of the same at the premises of the buyer, which are not rela....
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....(iii) was inserted in the definition of place of removal to include 'a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory' within the ambit of the said term, still, the buyer's premises cannot be considered as place of removal, for the Ex-work supplies since all the places specified under clause (iii) have necessarily to be the places relatable to the manufacturer and not any third party like the buyer/ customer. 3.3. In this regard, reliance is placed on the decision of the Hon'ble Supreme Court in the case of Commissioner of Customs and Central Excise, Nagpur v. Ispat Industries Ltd. - 2015 (324) E.L.T. 670 (S.C.) wherein it was held that for the period prior to 14.05.2003, as per Section 4 of the Central Excise Act, there will be no extended place of removal and the factory premises or the warehouse (in the circumstances mentioned in the Section) can alone be the places of removal. Further, as per Rule 5 of the Excise Valuation Rules, if the goods are sold for delivery at a place other than the place of removal, the value of such excisable goods shall be deemed to be the tr....
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....tes, and accordingly valuation as per Rule 8 of the Valuation Rules has to be adopted. 4.1. In this regards, the Appellant submits that it is an admitted fact on record that the goods were sold by the Appellant to the customers (viz. GMDC and MPEB) Ex-works/ FOR works, viz. at the factory gate and not at the project sites. These goods were then, provided to the Appellant at the project site by the customers for carrying on the further erection, commissioning, testing etc. separately. Therefore, having already sold the goods to the customers/ buyers at the factory gate, there could have not been any captive consumption (without sale) of the very same goods by the Appellant. Accordingly, Rule 8 of the Valuation Rules which per se requires that 'where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf....' is not invokable in the facts of the present case. 4.2. The Appellant further submits that they have entered into turnkey agreements wherein the manufactured equipment (referred to as On-shore supply) as well as the imported equipment (referred to as 'Off-shore supply) were supplied to the buyer. Then, the said goods were prov....
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....rectly paid on the individual components of boiler manufactured and cleared by the Appellant. 4.6. Further, reliance is placed on the decision in the case of M/s. Cheema Boilers Ltd. v. Commissioner of Central Excise & ST, Chandigarh - 2018 (4) TMI 1157 - CESTAT Chandigarh, wherein in a case of composite contract entered for erection, commissioning and installation of boilers at site, the Department attempted to levy excise duty by including the value of bought out items in the assessable of the parts cleared by the factory. In this case, the excise duty demand was set aside by observing that the boilers emerge at project site as an immovable property, which is not excisable goods. 4.7. The Appellant also placed their reliance on the decision of the CESTAT Mumbai in the case of S.S Engineer v. CCE, Pune - II - 2019-TIOL-1124CESTAT-MUM, wherein also it was held that the demand of excise duty made against the assessee on goods erected, installed at site were not sustainable. Reliance is also placed on the decision in the case of CCE Ahmedabad v. Air Control & Chemicals Engg Co. Ltd. - 1997 (94) E.L.T. 171 (Tribunal) wherein it was held that turnkey projects are not excisable go....
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.... in the impugned order. 9. Heard both sides and perused the appeal documents. 10. The first issue involved in the present appeal is whether the cost of freight can be included in the value of assessable value for payment of excise duty, in case of Ex-works/ FOR works contracts, when separate invoices were raised for both supply of goods and transportation undertaken on behalf of the buyer. We find that the Appellant have entered into contracts for Akrimota and Korba project, for supply of equipment on FOR Works and Ex-Works basis respectively. They have also entered into separate agreements for transportation of the equipment, and erection and commissioning of the same at the premises of the buyer, which are not related to the supply of equipment. As per the contracts entered into by the Appellant for Akrimota and Korba project, the risk and title of the goods are passed on the buyer, at the factory gate. The relevant portion of the Korba project agreement, is extracted below for ease of reference - "6.0 Transfer of Title 6.1 For Domestic Supplies Transfer of the title in respect of equipment and materials supplied by the CONTRACTOR pursuant to the terms of ....
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.... place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, by the transaction value; (b) In any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed. ..... Explanation. - In this clause - .... (c) "place of removal" means - (i) a factory or any other place or premises of production or manufacture of the excisable goods; (ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty, from where such goods are removed; 10.6. From the wordings of the Section 4 extracted above, it is evident that excise duty is chargeable at the time of clearance from the place of removal. As per the Section 4 of the Excise Act, prior to the amendment w.e.f., 14.05.2003, the place of removal means only the factory or premises of production, or a warehouse or any other place where goods have been permitted to be deposited without payment of duty. It is evident that the provision does not enable any other premises excep....
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....r, and has no reference to the place of delivery which may be either the buyer's premises or such other premises as the buyer may direct the manufacturer to send his goods. As a matter of law therefore, the Commissioner's order and Revenue's argument based on that order that freight charges must be included as the sale in the present facts took place at the buyer's premises is incorrect. Further, for the period 1-7-2000 to 31-32003 there will be no extended place of removal, the factory premises or the warehouse (in the circumstances mentioned in the Section), alone being places of removal. Under no circumstances can the buyer's premises, therefore, be the place of removal for the purpose of Section 4 on the facts of the present case." 10.8. By relying on the decision cited supra, we observe that it is unambiguously clear that only the factory or warehouse of the Appellant can be place of removal and therefore the cost of transportation, which is incurred post clearance from the factory, cannot be included in the assessable value for payment of excise duty. The same is applicable even post the amendment of Section 4 of the Central Excise Act w.e.f. 14.05.2003. ....
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....cture of other articles, the value of such goods shall be 110% / 115% of the cost of production of such goods. In the instant case, the Department has alleged that the Appellant has executed the contracts for the erection and commissioning of the equipment in respect of the Akrimota and Korba project, and the Appellant is captively consuming the equipment so cleared by the Appellant from the factory to the place of removal being project sites, and accordingly valuation as per Rule 8 of the Valuation Rules has to be adopted. We find that the allegation of the department is factually incorrect. In the present case, the goods were sold by the Appellant to the customers (viz. GMDC and MPEB) Ex-works/ FOR works, viz. at the factory gate and not at the project sites. These goods were then, provided to the Appellant at the project site by the customers for carrying on the further erection, commissioning, testing etc. separately. Therefore, having already sold the goods to the customers/ buyers at the factory gate, there could not have been any captive consumption (without sale) of the very same goods by the Appellant. Rule 8 of the Valuation Rules is applicable in respect of the cases 'wh....
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....xcisable. 11.5. Reliance in this regard is placed on the decision of the CESTAT Mumbai in the case of M/s. Thermax Ltd. v. Commissioner of CGST & CE, Pune - I - 2022 (12) TMI 1047 - CESTAT Mumbai which was affirmed by the Hon'ble Supreme Court in 2026 (5) TMI 1586 - SC Order, wherein it was held that boilers which are erected at the customer's site basis the goods manufactured and cleared by the assessee including the bought out items, is an immovable property, which is not excisable. Thus, duty is correctly paid on the individual components of boiler manufactured and cleared by the Appellant. 11.6. Reliance is also placed on the decision of the CESTAT Mumbai in the case of M/s. Thermax Ltd. v. Commissioner of CGST & CE, Pune - I - 2022 (12) TMI 1047 - CESTAT Mumbai which was affirmed by the Hon'ble Supreme Court in 2026 (5) TMI 1586 - SC Order, wherein it was held that boilers which are erected at the customer's site basis the goods manufactured and cleared by the assessee including the bought out items, is an immovable property, which is not excisable. Thus, duty is correctly paid on the individual components of boiler manufactured and cleared by the Appellant. 11.7. Fur....