2016 (6) TMI 575 - AT - Central Excise

Valuation - Disallowancwe of deduction for freight - freight indicated was equalised freight and hence not actual transportation charges - Held that - since the delivery in this case is FOR destination, the case will fall under Section 4(1)(b) and not under Section 4(1)(a). As per Rule 5 of the Valuation Rules, in order to allow the deduction of the cost of transportation following criterion should be fulfilled (a) The goods should be sold for delivery at a place other than place of removal, (b) Cost of freight should be in addition to the price for the goods, and (c) Cost of transportation should shown separately in the invoices. As regards the first criterion, the place of removal is factory gate, however the goods were delivered at customer place. Therefore goods were sold for delivery not at the place of removal (i.e. factory gate) but at other place i.e. customer door step. From the sample invoices it is seen that the freight shown in the invoices is in addition to basic price of the goods. It is clear from the terms of the bid documents also that basic price and other components have to be indicated separately. Therefore, there is no dispute that basic price and the freight components are clearly indicated separately in the invoices and therefore criterion i.e. cost of transportation should be in addition to the basic price of the goods stand fulfilled. Therefore, we find no valid reason for disallowing the deduction for the freight paid inasmuch as the goods are FOR destination. We also find that a coordinate Bench of CESTAT in the case of Sterlite Optical Technologies Ltd. vs. CCE &C, Aurangabad 2015 (9) TMI 1023 - CESTAT MUMBAI has taken a view in identical facts that freight will be allowable as a deduction from the composite price. - Decided against the Revenue

Summary

Issues:
1. Disallowance of deduction for freight in excise duty calculation for goods sold FOR destination.
2. Interpretation of Section 4(1)(b) of the Central Excise Act and Rule 5 of the Central Excise Valuation Rules.
3. Application of legal provisions in the context of goods sold for delivery at a place other than the place of removal.

Analysis:
The case involved the respondent engaged in manufacturing excisable goods supplied to the Department of Telecommunications (DoT) and Bharat Sanchar Nigam Limited (BSNL). The controversy arose when the Revenue sought to disallow the deduction for freight in excise duty calculation, claiming the freight indicated was equalised and not actual transportation charges. The respondent contended that as delivery was FOR destination, a deduction for transportation charges should be allowed under Section 4(1)(b) of the Central Excise Act read with Rule 5 of the Valuation Rules.

The Tribunal examined Rule 5 of the Valuation Rules, which states that when goods are sold for delivery at a place other than the place of removal, the cost of transportation should not be included in the transaction value of excisable goods. The rule clarifies that the cost of transportation must be shown separately in the invoices, in addition to the price for the goods. In this case, the goods were sold for delivery at the customer's place, not at the factory gate, fulfilling the criteria for deduction of transportation costs.

The Tribunal found that the freight was clearly indicated separately in the invoices, meeting the requirement for the deduction of transportation costs. Referring to a previous decision, the Tribunal held that freight should be allowed as a deduction from the composite price when goods are sold FOR destination. Therefore, the Tribunal dismissed the Revenue's appeal, upholding the deduction for freight paid by the respondent in the excise duty calculation.

In conclusion, the Tribunal's decision clarified the application of Section 4(1)(b) and Rule 5 in cases where goods are sold for delivery at a place other than the place of removal, emphasizing the need to show transportation costs separately in invoices to claim deductions. The judgment provided a clear interpretation of the legal provisions and upheld the respondent's entitlement to deduct freight expenses in excise duty calculations for goods sold FOR destination.