2020 (12) TMI 1056 - AT - Central Excise

Valuation - inclusion of Freight charges in the assessable value - place of removal - premises of the buyers - appellant paid duty on the assessable value without including the value of freight, as according to the appellant, freight was incurred beyond the place of removal which is the factory gate of the appellant - HELD THAT - The sale invoices raised by the appellant clearly mentioned at serial number 4 that our responsibility ceases when goods leave factory . Rule 5 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 also provides that the cost of transportation from the place of removal to the place of delivery is not includable in the assessable value. The cost of transportation has also been separately mentioned in invoices and this cost is paid by the buyer. It is, therefore, evident that the factory gate is the place of removal and duty is charged at the price of the goods charged at the factory gate. Merely, because the payment of transit insurance has been made by the appellant would not mean that the place of removal would be the place of the buyer - the payment of transit insurance by the appellant is not a decisive factor for determining the place of removal. The Supreme Court in COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE, NAGPUR VERSUS M/S ISPAT INDUSTRIES LTD. 2015 (10) TMI 613 - SUPREME COURT considered this situation in detail. According to the Department, the said Industry evaded Central Excise duty by mis-declaring that the factory gate was the place of removal and not the buyer's premises and, consequently, the freight charges were required to be added in determining the assessable value. The Commissioner held that the premises of the customer was actually the place of removal and not the factory gate of the Industry. In regard to the payment made by the appellant to the buyer for any transit loss, the appellant has submitted that such charges were paid only in cases where the transit loss was more than 30 kg and even these cases, the charges were recovered from the transporters. The Commissioner (Appeals) was not justified in holding that the value of freight charges was required to be added in the assessable value of the goods - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Determination of the "place of removal" for the purpose of including freight charges in the assessable value.
2. Applicability of extended period of limitation and imposition of penalty.

Issue-wise Detailed Analysis:

1. Determination of the "place of removal" for the purpose of including freight charges in the assessable value:

The appellant contended that all sales were on an ex-works basis from April 2013 to June 2017, with transportation arranged on behalf of buyers and freight charges separately mentioned in invoices. The appellant argued that the factory gate was the "place of removal," thus excluding freight charges from the assessable value.

The Department believed the buyer's premises to be the "place of removal," necessitating the inclusion of freight charges in the assessable value. The Assistant Commissioner confirmed this view, leading to the appellant's appeal to the Commissioner (Appeals), who upheld the Department's position, citing the appellant's responsibility for transit insurance and shortages, indicating ownership retained until delivery.

The Tribunal found merit in the appellant's argument, referencing Section 4(3) of the Excise Act and the Central Excise Valuation Rules, 2000, which exclude transportation costs from the assessable value if the sale occurs at the factory gate. The Tribunal emphasized the Supreme Court's decision in Ispat Industries Ltd., which clarified that the buyer's premises cannot be the "place of removal."

The Tribunal noted that the sale invoices stated "our responsibility ceases when goods leave factory," and transportation costs were separately billed and paid by the buyer. The Tribunal concluded that the factory gate was the "place of removal," and the payment of transit insurance by the appellant did not alter this determination.

2. Applicability of extended period of limitation and imposition of penalty:

The Commissioner (Appeals) had invoked the extended period of limitation and imposed a penalty, alleging suppression of facts by the appellant. However, the Tribunal found that the appellant had clearly mentioned the ex-works basis in the invoices and had separately indicated and recovered freight charges from the buyers.

The Tribunal referenced the Supreme Court's distinction in Ispat Industries Ltd. from the Roofit Industries Ltd. case, noting that the facts of the present case aligned more closely with Ispat Industries. The Tribunal also cited several Tribunal decisions supporting the appellant's position that freight charges are not includible in the assessable value for ex-works sales.

Given these considerations, the Tribunal concluded that the extended period of limitation was not applicable, and the penalty was not justified. The Tribunal set aside the order of the Commissioner (Appeals) and allowed the appeal.

Conclusion:

The Tribunal held that the factory gate was the "place of removal" and freight charges were not includible in the assessable value. The extended period of limitation and penalty were not applicable. The appeal was allowed, and the order of the Commissioner (Appeals) was set aside.