2011 (6) TMI 475 - AT - Central Excise

Valuation under central excise inclusion of value of freight equalized freight held that - for the period on or after 01.07.2000 no deduction from the transaction value on account of freight equalized or otherwise is permissible and the demand for differential duty on such freight element has to be sustained. Since the issue involves interpretation of the statute and therefore no penalty is warranted.

Summary

Issues Involved:
1. Inclusion of equalized freight in the assessable value of goods for the period prior to 01.07.2000.
2. Inclusion of equalized freight in the assessable value of goods for the period after 01.07.2000.

Issue-Wise Detailed Analysis:

1. Inclusion of Equalized Freight in the Assessable Value of Goods for the Period Prior to 01.07.2000:

The primary issue revolves around whether the cost of transportation from the factory to the depot should be included in the assessable value of the goods for the period prior to 01.07.2000. The Commissioner of Central Excise (Appeals) had allowed the appeals of the assessee based on the Hon'ble Apex Court's judgment in the assessee's own case (2003(155)ELT 8(SC)). The Apex Court held that the cost of transportation from the factory to the depot is not includable in the assessable value where a manufacturer includes equalized freight in the price of the goods and sells the goods all over the country at a uniform price. The relevant paragraph from the Apex Court's judgment states:

"7. Thus, in cases where the price remains uniform or constant all over the country, it does not follow that value for purpose of excise changes merely because the definition of the term 'place of removal' is extended. The normal price remains the price at the time of delivery and at the place of removal. In cases of 'equalized freight,' it remains the same as per the judgments of this Court set out herein above."

In light of this judgment, the Tribunal held that for the period prior to 01.07.2000, the department has no case for including the cost of equalized freight in the assessable value. Consequently, the duty demands for this period cannot be sustained, and the appeals pertaining to this period were rejected.

2. Inclusion of Equalized Freight in the Assessable Value of Goods for the Period After 01.07.2000:

For the period after 01.07.2000, the legal framework underwent significant changes with the introduction of the new section 4 of the Central Excise Act, 1944. The concept of 'deemed value' was replaced by the concept of 'transaction value' on each removal for the purposes of charging excise duty. The new section 4(3)(c) defined the "place of removal" to include the depot, and section 4(3)(d) defined "transaction value" to include any amount that the buyer is liable to pay in connection with the sale, excluding only the amount of duty of excise, sales tax, and other taxes.

A bare reading of these provisions makes it clear that the value for charging excise duty has to be determined on each case of removal, and the transaction value includes the cost of transportation from the factory to the depot. Rule 7 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 further supports this by stating that the value shall be the normal transaction value of such goods sold from the depot.

Given this new legal position, the Tribunal concluded that for the period on or after 01.07.2000, no deduction from the transaction value on account of freight, equalized or otherwise, is permissible. The demand for differential duty on such freight element has to be sustained, although no penalty was deemed warranted due to the issue involving interpretation of the statute. The original adjudicating authority was directed to re-quantify the differential duty amount in accordance with the law.

Conclusion:

For the period prior to 01.07.2000, the cost of equalized freight is not includable in the assessable value of the goods sold from the depot, as held by the Hon'ble Apex Court. However, with effect from 01.07.2000, under the new section 4 of the Central Excise Act, 1944, the cost of transportation from the factory to the depot must be included in the assessable value. The impugned order was modified accordingly, and the appeals were partly allowed.