2012 (12) TMI 918 - AT - Central Excise

Valuation of goods - Determination of assessable value of goods - Place of removal of goods - Held that - about 17% of the sales were to independent buyers, at the factory gate and it is not the allegation of the department that those were not genuine sales and that the price was not the correct price. Therefore, the factory gate price to independent buyer would be the assessable value even in the cases under dispute, where the appellant had arranged the transportation of the goods and in addition to the factory gate price have charged freight, charges at equalised rates from the buyers. In our view even if the amount charged by the appellant towards freight at equalised rate is more than the amount of expenses incurred on freight the differential freight would not be includible in the assessable value so long as it is not the case of the department that the sale price for delivery of the goods at the factory gate to independent buyers is not the correct price or that the same had been artificially depressed and the freight expenses has been artificially inflated. The additional consideration which is includible in the assessable value of the goods is the consideration for the goods being sold, which is in addition to the declared sale price. Any amount being received by a manufacturer from the buyer of the goods cannot be termed as additional consideration and added to the value of the goods it must be shown that it is sale of the goods, not for some other transaction. Thus if the amount being received by the Assessee is for some service like transportation, transit insurance etc. being provided to the buyer after clearance of the goods from the place of removal, that amount would not be includible on the assessable value. The burden is on the Department to prove that the price at the place of removal had been depressed and the balance price is flowing as additional consideration by inflating transportation/insurance charges. So far as the period prior to 28-9-1996 is concerned, the price for the delivery at the factory gate would be applicable even in the cases where the appellant after clearance of the goods from the factory had arranged the delivery to the customers, as there is no allegation that the in 17% sales where the goods had been sold to independent buyers for delivery at the factory gate, the price is not the correct price and had been artificially depressed - As regards, the period w.e.f. 28-9-1996, in respect of this period, it is not the department s case that the sales were not at the factory gate but at buyer s premises on FOR destination basis. Once, the department accepts that the sales were at the factory gate and the price for sale at the factory gate is available, there would be no justification to reject the same and take recourse to Central Excise Valuation Rules and add the differential between the freight amount charged at equalised rate and actual freight expenses to the factory gate price - Following decision of Baroda Electric Meters Ltd. v. C.C.E. 1997 (7) TMI 126 - SUPREME COURT OF INDIA - Decided in favour of assessee.

Summary

Issues Involved:

1. Inclusion of equalized freight charges in the assessable value.
2. Applicability of extended period for demand under Section 11A(1) of the Central Excise Act.
3. Imposition of penalty under Section 11AC of the Central Excise Act.

Issue-wise Detailed Analysis:

1. Inclusion of equalized freight charges in the assessable value:

The appellant, a manufacturer of aerated waters, sold their products at the factory gate to independent buyers, with about 17% of sales occurring at the factory gate where buyers arranged their own transport. In other sales, the appellant arranged transportation and charged equalized freight rates. The department contended that the excess amount recovered as equalized freight over actual freight expenses should be included in the assessable value. The appellant argued that the factory gate price should be the assessable value even when they arranged transportation. The Tribunal held that the factory gate price to independent buyers, whose correctness was not disputed, should be the assessable value for all sales. It was noted that the differential freight would not be includible in the assessable value unless it was shown that the factory gate price was artificially depressed and the freight expenses inflated. The Tribunal relied on the Supreme Court's judgment in Baroda Electric Meters Ltd. v. C.C.E., which held that the differential between equalized freight and actual freight expenses is not includible in the assessable value.

2. Applicability of extended period for demand under Section 11A(1) of the Central Excise Act:

The department issued multiple show cause notices invoking the extended period under the proviso to Section 11A(1) of the Central Excise Act, alleging that the appellant suppressed facts by not including the excess freight charges in the assessable value. The appellant contended that all relevant facts were known to the department, and there was no suppression of facts. The Tribunal found that there was no justification for invoking the extended period as the factory gate price was available and not disputed, and the differential freight was not an additional consideration.

3. Imposition of penalty under Section 11AC of the Central Excise Act:

The Commissioner had imposed a penalty equal to the duty demand under Section 11AC of the Central Excise Act. The appellant argued that there was no suppression of facts or intent to evade duty, and hence, the penalty was not justified. The Tribunal agreed with the appellant, noting that the price at the factory gate was available and there was no evidence of suppression or intent to evade duty. Consequently, the imposition of the penalty was not justified.

Conclusion:

The Tribunal concluded that the factory gate price to independent buyers should be the assessable value for all sales, and the differential freight charges are not includible in the assessable value. The extended period for demand under Section 11A(1) was not applicable, and the penalty under Section 11AC was not justified. The impugned order was set aside, and the appeal was allowed.