2023 (5) TMI 890 - AT - Central Excise

Place of removal - valuation of goods - inclusion of recovered freight charges from their EPD (Project Division) by way of debit notes, in the assessable value - Department s contention is that EPD (Project Division) in the place of removal and hence the freight charges recovered from the factory to the place of removal is to be included in the transaction value. What is the place of Removal in the present case? HELD THAT - From the perusal of the invoices, it is quite evident that the goods were directly dispatched by the appellant from their factory to the site of the ultimate customer - The manner of preparation of invoice has been recognized by the Board by way of Circular No. 96/7/1995 dated 13,02.1995, clarifying in respect of the admissibility of Modvat Credit to the consignee holding that The duplicate copy of the manufacturer s invoice under Rule 52A will serve as cover for transport and for availment of Modvat by the end user. Undisputedly the goods are directly dispatched from the factory premises of the appellant to the project site. Further the invoice also shows that the insurance against it has been paid by the customer for transportation of the goods and has been borne by the customer and not by the appellant. Freight also is shown to have been paid separately over and above the invoice value - No evidence has been produced by the Revenue at any time of proceedings to show that the goods were cleared by the appellant from their factory to EPD Chennai and thereafter from Chennai to the project site. In absence of any such evidence showing transportation of the goods to the premises of EPD Division, the entire premise on which the case is based has to fail on factual basis. In the case of COMMNR. OF CENTRAL EXCISE, NAGPUR VERSUS M/S. ISPAT INDUSTRIES LTD. 2015 (4) TMI 73 - SUPREME COURT after considering Rule 5 and Rule 7 of Central Excise Rules, 2002, Hon ble Supreme Court has held that Tribunal has correctly arrived at a categorical finding that the respondent is not responsible to pay the cost of transport from the place of removal to the place of delivery i.e. from the factory gate to the depot separately. In terms of Rule 5 of the Central Excise Valuation (Determination of price of Excisable Goods) Rules, 2000, such a cost of transport which is also separately shows, is not includable in the valuation for the purpose of excise duty. In the case of BATHINDA INDUSTRIAL GASES PVT LTD. VERSUS COMMISSIONER OF CENTRAL GOODS AND SERVICE TAX, CUSTOMS, EXCISE BHOPAL 2022 (12) TMI 48 - CESTAT NEW DELHI it was held that The freight charges are not includible in the assessable value of liquid CO 2 those being separately charged in the invoices and the gas was sold at the time of clearance from the factory of the appellant. The authorities below are held to have wrongly confirmed the duty demand against the appellant on the basis of inclusion of freight charges in assessable value. There are no merits in the impugned order - appeal allowed.

Summary

Issues Involved:
1. Determination of the place of removal for the purpose of including freight charges in the assessable value.
2. Applicability of Rule 5 of the Central Excise Valuation Rules.
3. Validity of the demand for duty and penalty under Section 11A(1) and Section 11AC of the Central Excise Act, 1944.
4. Timeliness of the show cause notice.

Issue-wise Detailed Analysis:

1. Determination of the Place of Removal:
The key issue was to determine whether the place of removal was the factory gate at Mumbai or the EPD (Project Division) at Chennai. The appellant argued that the place of removal was the factory gate, substantiated by invoices indicating direct dispatch from the factory to the customer's site. The department contended that the place of removal was the EPD at Chennai, necessitating the inclusion of freight charges in the assessable value. The Tribunal examined sample invoices and found that goods were dispatched directly from the factory to the ultimate customer's site, and the freight and insurance were borne by the customer, not the appellant. The Tribunal concluded that the place of removal was indeed the factory gate, not the EPD Chennai, as no evidence was presented to show transportation to the EPD Division.

2. Applicability of Rule 5 of the Central Excise Valuation Rules:
The appellant argued that Rule 5 was not applicable as the sale occurred at the factory gate, and the freight charges should not be included in the assessable value. The Tribunal supported this view, referencing the Board's Circular No. 96/7/1995, which clarified that the place of removal is the factory gate when goods are directly dispatched to the customer. The Tribunal also cited several judicial precedents, including the Supreme Court's decision in Ispat Industries Ltd., which emphasized that the place of removal is the seller's premises and not the buyer's.

3. Validity of the Demand for Duty and Penalty:
The Commissioner (Appeals) upheld the demand for duty and penalty, asserting that the appellant had suppressed facts by not disclosing the recovery of freight charges. The Tribunal, however, found this reasoning flawed as the goods were directly dispatched from the factory, and the freight charges were separately shown and borne by the customer. The Tribunal relied on various judicial precedents, including the Supreme Court's rulings in Escorts JCB Ltd. and VIP Industries Ltd., which held that freight charges incurred after the place of removal should not be included in the assessable value. Consequently, the Tribunal set aside the demand for duty and penalty.

4. Timeliness of the Show Cause Notice:
The appellant contended that the show cause notice was time-barred, as it was issued beyond the normal period of limitation. The Tribunal observed that the department became aware of the freight charges only during an audit, indicating that the appellant had not suppressed facts with intent to evade duty. Therefore, the extended period for issuing the show cause notice under Section 11A(1) was not justified. The Tribunal concluded that the show cause notice was indeed time-barred.

Conclusion:
The Tribunal set aside the impugned order, ruling in favor of the appellant. It determined that the place of removal was the factory gate, not the EPD Chennai, and that Rule 5 of the Central Excise Valuation Rules was not applicable. The demand for duty and penalty was invalid, and the show cause notice was time-barred. The appeal was allowed, and the order was pronounced in the open court.