2007 (11) TMI 618 - AT - Central Excise

Valuation - includibility - freight charges and discounts - whether deduction of equalized freight has to be average equalized freight based on last year s actuals, as held by learned Member (Judicial), or the deduction should be of the actual equalized freight incurred during the particular year, when the assessments are provisional, as held by learned Member(Technical)? Held that - in the case of Baroda Electric Meters Ltd. vs. CCE, 1997 (7) TMI 126 - SUPREME COURT OF INDIA , the Hon ble Supreme court has set aside the finding of the Tribunal that wherever freight actually paid was less than the amount collected by way of freight and transportation charges, the difference was appropriated by the appellant and, therefore, the same would be a part of the assessable value. In other words, the Supreme Court has held that even when the freight actually paid was less than the amount collected by way of freight, and the difference was retained by the appellant, it would still not form part of the assessable value. This being so, the issue stands answered in favour of the assessees. Appeal dismissed - decided against Revenue.

Issues Involved:
1. Demand of differential duty due to claimed deductions in freight charges without documentary evidence.
2. Determination of assessable value considering excess freight charges collected.
3. Applicability of Supreme Court and Tribunal decisions on freight charge deductions.

Issue-wise Detailed Analysis:

1. Demand of Differential Duty Due to Claimed Deductions in Freight Charges Without Documentary Evidence:
The core issue in this case revolves around the respondent claiming deductions for freight charges and discounts without providing documentary evidence. Various show cause notices were issued, proposing to disallow these deductions due to the lack of evidence. The adjudicating authority, after reviewing documents and a Chartered Accountant's certificate, concluded that the respondents were eligible for deductions of actual average freight charges at specific rates for the periods 1990-91, 1991-92, and 1992-93. The Commissioner(Appeals) later set aside this order, stating that additional freight charges collected in excess of equalized freight could not be considered as assessable value, as it was a profit on the transport of goods. The revenue appealed against this decision.

2. Determination of Assessable Value Considering Excess Freight Charges Collected:
The revenue's argument was that the respondent had claimed deductions from the value on account of freight charges in excess of the actual freight charges incurred. They argued that only the actual amount of freight charges incurred should be deducted, and any excess claimed should be included in the assessable value. The respondent countered by citing the Supreme Court decision in Baroda Electric Meters Ltd. vs. CCE and other Tribunal decisions, which supported their method of claiming average equalized freight charges based on previous years' actuals. The Tribunal found the issue to be covered by the Supreme Court's decision, which allowed for average anticipated expenses to be deducted in the absence of actuals for the current year.

3. Applicability of Supreme Court and Tribunal Decisions on Freight Charge Deductions:
The Tribunal extensively discussed the applicability of the Supreme Court's decision in Baroda Electric Meters Ltd. vs. CCE, which supported the respondent's method of claiming average equalized freight charges. The Tribunal also referenced similar cases such as Gujarat Guardian Ltd. vs. CCE and Pepsico India Holdings Ltd. vs. CCE, which upheld the principle that excess freight charges collected do not form part of the assessable value. The Tribunal concluded that the Commissioner(Appeals) correctly followed the law as settled by the Supreme Court and various Tribunal decisions, setting aside the order-in-original.

Separate Judgment by K.K. Agarwal:
K.K. Agarwal, Member (Technical), disagreed with the majority view. He emphasized that deductions should be based on actual equalized freight incurred during the particular year, especially when assessments are provisional. He cited Section 4(2) of the Central Excise Act, 1944, which mandates that only the actual cost of transportation should be excluded from the assessable value. He argued that allowing deductions based on last year's actuals was not permissible under the statutory provisions.

Majority Order:
The majority, including the Vice President, Jyoti Balasundaram, upheld the view that even if the freight actually paid was less than the amount collected, the difference retained by the appellant would not form part of the assessable value. This was consistent with the Supreme Court's judgment in Baroda Electric Meters Ltd. vs. CCE. Consequently, the appeal filed by the revenue was rejected.

Conclusion:
The Tribunal, by majority order, rejected the revenue's appeal, affirming that the deductions claimed by the respondent based on average equalized freight charges from the previous year were valid and did not form part of the assessable value. The decision was guided by the Supreme Court's precedent and supported by consistent Tribunal rulings.

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