2014 (7) TMI 351 - AT - Central Excise

Valuation of goods - Inclusion of freight charges - Held that - Appellant are mentioning the freight amount separately in the invoices issued by them to their customers. From the facts narrated in the Show Cause Notice and in the Order-in-Original as well as in Order-in-Appeal, it is seen that what the Department seeks to include in the assessable value of the gases sold by them, is the differential freight i.e. difference between the amount charged by the appellant from their customers during 2005-2006 to 2009-2010 period as freight and the actual expense incurred on running of the tankers for delivery of gases to the customers. However, the differential freight would be includible only if the freight from the factory gate to the customer s premise is includible in the assessable value and this can be done only if sales are on FOR destination basis in the sense that during transit, the risk of the loss of goods or damage to the goods is of the seller- manufacturer and the ownership of the goods during transit is of the manufacturer and freight is integral part of the value of the goods. It is not the case of Department that the invoices themselves mention the sales as FOR sales or that the supply orders placed by the customers mention the supply of gases on FOR basis. In fact, the invoices show the freight charges separately. In view of these circumstances, just because the customer wanted the appellant to supply the gases at their premises, it would not be correct to presume that sales were on FOR basis. There is also no allegation that the part of value of the goods was being recovered as freight charges by under declaring the value of the goods and inflating the freight charges. In the circumstance of the case running of the tankers for supply of gases has to be treated as an independent activity and therefore the differential freight would not be includible in the assessable value - Decided in favour of assessee.

Summary

Issues involved:
Central Excise duty demand on excess freight charges recovered from customers, inclusion of excess freight amount in assessable value of goods sold, determination of sales on FOR basis, applicability of extended limitation period for demand confirmation, validity of penalty imposed under section 11AC.

Central Excise duty demand on excess freight charges:
The appellant, a manufacturer of gases chargeable to Central Excise duty, recovered an excess amount from customers towards freight charges compared to the actual transportation expenses incurred. The Department contended that this excess amount should be included in the assessable value of the gases sold. The Jurisdictional Additional Commissioner confirmed the duty demand, interest, and imposed a penalty. The Commissioner (Appeals) upheld this order, considering the sales to be on FOR basis. The appellant argued that since sales were at the factory gate, freight charges should not be included in the assessable value. The Tribunal noted that the Department sought to include the differential freight in the assessable value, but for this inclusion, sales must be on FOR destination basis, with evidence of risk and ownership during transit. As no such evidence was presented, and invoices showed freight charges separately, the differential freight was held not includible in the assessable value, citing the Baroda Electric Meters Ltd. case. Consequently, the impugned order was set aside, and the appeal and stay application were allowed.

Inclusion of excess freight amount in assessable value:
The Department argued that the excess freight amount recovered by the appellant from customers should be considered part of the assessable value of the goods sold. However, the Tribunal emphasized that for the differential freight to be included, sales must be on FOR destination basis, with the freight being integral to the value of the goods. As the evidence did not support sales being on FOR basis, and invoices showed freight charges separately, the Tribunal held that the excess freight amount was not includible in the assessable value, following the principles established in the Baroda Electric Meters Ltd. case.

Sales determination on FOR basis:
The key contention revolved around whether the sales of the appellant were on FOR basis, as the Department asserted. The Tribunal noted that for freight charges to be included in the assessable value, sales must be on FOR destination basis, with evidence of risk and ownership during transit favoring the manufacturer. As no concrete evidence supported sales being on FOR basis, and invoices indicated separate freight charges, the Tribunal concluded that the differential freight was not includible in the assessable value, in line with the Baroda Electric Meters Ltd. case.

Applicability of extended limitation period for demand confirmation:
The Department confirmed the duty demand by invoking the extended limitation period under the proviso to Section 11A(1) of the Central Excise Act. However, the Tribunal, after considering the submissions and evidence, found that the inclusion of the excess freight amount in the assessable value was not justified due to the absence of evidence supporting sales being on FOR basis. Therefore, the Tribunal set aside the impugned order, implying that the demand confirmation based on the extended limitation period was not sustainable in this case.

Validity of penalty imposed under section 11AC:
In addition to confirming the duty demand, the Department imposed a penalty under section 11AC on the appellant. However, the Tribunal, upon analyzing the facts and arguments presented, concluded that the differential freight was not includible in the assessable value, rendering the penalty imposition unwarranted. Consequently, the Tribunal set aside the impugned order, allowing the appeal and stay application.