2012 (4) TMI 555 - AT - Central Excise

Liability of excise duty - excess transportation charges - Department was of the view that since the appellant has charged excess transportation charges from his customer, in view of Rule 5 of Valuation Rules, 2000, appellant is liable to pay excise duty on excess transportation charges - Held that - the transaction value of goods supplied in this case is to be calculated on the basis of Section 4(1)(a) i.e. the sale price of goods charged at the factory gate. Admittedly, on that price the excise duty have been paid. Merely because the appellant has made profit on transportation from the place of removal to the place of delivery, it cannot be said that the aforesaid profit has any co-relation with the goods cleared to factory gate as such he cannot be asked to pay excise duty on the freight. Similar issue decided in the case of Baroda Electric Meters Ltd. v. C.C.E. 1997 (7) TMI 126 - SUPREME COURT OF INDIA where it was held that the equalized freight charged from everyone freight actually paid less than the amount collected by way of equalized freight, differential amount not includible in the assessable value since the duty of excise is on manufacture and not on profit made by a dealer on transportation . Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Central excise duty demand on excess transportation charges.
2. Interpretation of Rule 5 of Valuation Rules, 2000.
3. Applicability of Section 4(1)(a) of the Central Excise Act, 1944.

Central excise duty demand on excess transportation charges:
The appellant, a manufacturer of electrical insulators, charged excess transportation charges to customers from April 2002 to December 2003. The Department contended that under Rule 5 of Valuation Rules, 2000, the appellant was liable to pay excise duty on the difference between the charged amount and actual transportation costs. The adjudicating authority upheld this view, leading to a duty demand of Rs. 6,32,083. The appellant's appeal was dismissed by the appellate authority, prompting a further challenge.

Interpretation of Rule 5 of Valuation Rules, 2000:
The appellant argued that as goods were sold at the factory gate, valuation for excise duty should align with Section 4(1)(a) of the Central Excise Act, based on invoice prices excluding transportation charges. The appellant cited the Supreme Court's judgment in Baroda Electric Meters Ltd. v. C.C.E. to support this position. Conversely, the Department contended that Rule 5 dictates the exclusion of transport charges from transaction value, emphasizing that inflated costs are not permissible. The Department's stance was that the difference between customer-charged and actual transportation costs is subject to excise duty.

Applicability of Section 4(1)(a) of the Central Excise Act, 1944:
The Tribunal examined Section 4(1)(a) and Rule 5, noting that when goods are sold for delivery at the place of removal and the buyer and seller are unrelated, the transaction value is decisive for excise duty. As the goods were sold at the factory gate in this case, the transaction value should be based on invoice prices sans transport charges. The Tribunal emphasized that profit from transportation should not attract excise duty, citing the Baroda Electric Meters Ltd. case. Consequently, the Tribunal found the order-in-original unsustainable, allowing the appeal and setting aside the duty demand and impugned order.

In conclusion, the Tribunal ruled in favor of the appellant, emphasizing the primacy of transaction value based on invoice prices for excise duty calculation and rejecting the imposition of duty on transportation profits.