2024 (6) TMI 376 - AT - Central Excise

Valuation - inclusion of amount of freight and insurance paid by the appellant in the assessable value or not - Place of removal - goods have been supplied on FOR destination bases, is the buyer s place - invocation of extended period of limitation. Inclusuon of cost of freight in the assessable value - HELD THAT - There was an agreement between the appellant and its buyers according to which prices were agreed to be on ex work basis as also have been mentioned in the invoices. The goods admittedly got cleared from the factory of appellant on payment of appropriate sales tax. Invoice were prepared at the factory gate only in the name of the buyer, also, when the goods were handed over to the transporters, later issued the lorry receipts/consignment notes mentioning the buyer as the consignee. These apparent and admitted facts are sufficient for us to hold that sale of impunged goods had taken place at appellant s factory gate only. In view of the Section 19 of the Act, it is clear that in case of sale of specific or ascertained goods, property in those goods gets transferred when the parties intent for so which has to be inferred from the conduct of the parties and terms of the contracts - The transporter had issued consignment notes mentioning the buyer as the consignee. It stands absolutely clear that the intent to transfer the property was at the time of clearance of goods from the appellants/the manufacturer s premises. The Hon ble Supreme Court earlier also in the case of ESCORTS JCB LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, DELHI-II 2002 (10) TMI 96 - SUPREME COURT had held that since the sale of goods is at the ex works of the assessee and handing over such goods to the transporter is deemed to be the delivery to the buyer in terms of provisions of Sale of Goods Act, the transaction between the assesse and its buyer got completed at the factory gate of the assessee and the place of removal would be the factory premises only. Based on these observations, the freight as well as transit insurance amount shown and charged separately in the invoices is held to not to be includable in the assessable value - Thus, it has been categorically held by Hon ble Supreme Court that buyer s premises can never be the place of removal, hence, the freight charged separately in the invoices is not includable in the assessable value for the payment of excise duty. Inclusion of cost of insurance - HELD THAT - The order under challenge has wrongly held that the freight and insurance charges are includable in the assessable value. Learned adjudicating authority has absolutely ignored Rule 5 of Determination of Value Rules which makes it clear that when goods are sold for delivery at a place other than place of removal transaction value of excisable goods shall not include actual cost for transportation from the place of removal up to the place of delivery of such excisable goods - Hence cost of transportation/ freight has to be deducted from the assessable value. Extended period fo limitation - HELD THAT - The demand for the entire period which includes one month of extended period of limitation has wrongly been confirmed. The order under challenge has wrongly held that the freight and insurance charges are includable in the assessable value. The order in appeal/ order under challenge is hereby ordered to be set aside. Consequent thereto, the appeal stands allowed.

Summary

Issues Involved:
1. Whether the value of freight and insurance charges should be included in the assessable value of final products.
2. Invocation of extended period of limitation.

Summary:

Issue 1: Inclusion of Freight and Insurance Charges in Assessable Value

The appellant, engaged in manufacturing transformers and other products, was found by the department to have excluded freight and insurance costs from the assessable value, allegedly violating Section 4 of the Central Excise Act, 1944, and related rules. The department argued that since the goods were sold on FOR (Free on Board) destination basis, the buyer's place was the place of removal, thus necessitating the inclusion of freight and insurance in the assessable value.

The appellant contended that the sale was completed at the factory gate, with the buyer assuming ownership before transportation. They cited the Supreme Court's decision in CC & CCE, Nagpur Vs. Ispat Industries Ltd., which held that the buyer's premises could not be the place of removal. The appellant also referenced Sections 4, 23, and 39 of the Sale of Goods Act to support their claim that the sale was concluded at the factory gate.

The Tribunal observed that the Supreme Court in Ultratech Cement Ltd. and Ispat Industries Ltd. had clarified that the place of removal is the factory gate, not the buyer's premises. The Tribunal noted that the appellant's invoices and transport documents indicated that the sale was completed at the factory gate, making the inclusion of freight and insurance in the assessable value incorrect.

Issue 2: Invocation of Extended Period of Limitation

The Tribunal found that the demand for the period from March 2016 to March 2017, including one month of the extended period, was wrongly confirmed. The adjudicating authority ignored Rule 5 of the Determination of Value Rules, which allows deduction of transportation costs from the assessable value if certain conditions are met. The Tribunal held that these conditions were satisfied in the appellant's case, thus the cost of transportation and insurance should be excluded from the assessable value.

Conclusion:

The Tribunal concluded that the order under challenge, which included freight and insurance in the assessable value, was not sustainable. The adjudicating authority violated judicial discipline by not following the Supreme Court's decisions. Consequently, the order was set aside, and the appeal was allowed.

[Order pronounced in the open court on 07.06.2024]