TRANSPORTATION CHARGES

[Mr. M. GOVINDARAJAN]

Rule of the Central Excise Valuation (Determination of price of excisable goods) Rules, 2000 (‘Rules’ for short) provides that the value of the excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the removal of goods under assessment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment as may appear reasonable to the proper officer.

Rule 5 provides that where any Rule excisable goods are sold in the circumstances specified in clause (a) of sub-section (1) of section 4 of the Act except the circumstances in which the excisable goods are sold for delivery at a place other than the place of removal, then the value of such excisable goods shall be deemed to be the transaction value, excluding the cost of transportation from the place of removal upto the place of delivery of such excisable goods.  The explanation 1 to this Rule provides that the cost of transportation includes the actual cost of transportation and in case where freight is  averaged the cost of transportation calculated in accordance with generally accepted principles of costing.  The explanation 2 to this rule provides that the cost of transportation from the factory to the place of removal, where the factory is not the place of removal shall not be excluded for the purposes of determining the value of excisable goods.

In this article various case laws are discussed which will highly the various issues involved in transportation charges for the purpose of including the same in the assessable value.
In ‘Commissioner of Central Excise, Nagpur V. Ispat Industries Limited’ - 2015 (4) TMI 73 - SUPREME COURT the issue for consideration by the Supreme Court is as to the includibility of the cost of transportation charges from the factory gate to the depot which was the place of removal in the transaction value of the goods under the Central Excise Valuation (Determination of price of excisable goods) Rules, 2000 (‘Rules’ for short). The assessee was engaged in clearance of their final product  directly to the customers at the factory gate as well as stock transfer to their various depots. The Tribunal in this case held that while allowing the appeal of the assessee, the Tribunal has arrived at a conclusion that 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 such a cost of transport which is also separately shown is not includible in the valuation for the purpose of excise duty.

In ‘K.G. Naidu Mills V. Commissioner of Central Excise, Coimbatore’ - 2015 (5) TMI 177 - CESTAT CHENNAI the question to be considered by the Tribunal is as to whether transportation  cost of input sent to the job worker’s premises shall be included in the assessable value of the goods manufactured by the said job worker. The Tribunal held that it is not disclosed in written submission that the said importation cost disintegrated in contract between manufacturer and job worker. The transportation charges is includible in assessable value unless the evidence is produced of said disintegration.

In ‘Commissioner of Central Excise, Belapur V. Sharp Batteries & Allies) Industries Limited’ - 2015 (2) TMI 878 - CESTAT MUMBAI the Tribunal held that as the goods have been cleared to the customers from their godown by the assessee, therefore, whatever transportation charges being paid for transportation of the goods from the factory to the godown are includible in the assessable value. In these circumstances, the same are includible in the assessable value as the goods have been cleared to the customers from the godown only.

In ‘Insulators & Electricals Company V. Commissioner of Central Excise, Bhopal’ - 2012 (4) TMI 555 - CESTAT NEW DELHI the appellant is the manufacturer of electrical insulators. The appellant had supplied electrical insulators to their customers and charged them transportation charges shown in the invoices in excess of actual transportation charges paid to the transporters. The department was of the view that since the appellant has charged extra transportation charges from the customer in view of Rule 5 the appellant is liable to pay excise duty on excess transportation charge.  Show cause notices were issued to the appellant.  The Adjudicating Authority confirmed the demands. The Tribunal found that it is not disputed that the appellants had sold the goods in question at the factory gate.  He was asked by the customers to transport the goods purchased by them to their premises and he had made profit of transportation charges he cannot be asked to pay the excise duty on the profit. The Tribunal held that the factory gate is the place of removal. Therefore the transaction value is the price mentioned in the invoice excluding the transport charges which admittedly were separately mentioned. The Tribunal opined that the transaction value of goods is to be calculated on the basis of Section 4(1)(a) i.e., the sale price of goods charged at factory gate.  The Tribunal further held that merely because the appellant has made profit on transportation from the place of removal to the place of delivery it cannot be said that the aforesaid profit has any co-relation with the goods cleared to factory gate as such he cannot be asked to pay excise duty on the freight.

In ‘Nirmal transports V. Commissioner of Central Excise, Pune - II’ - 2011 (1) TMI 758 - CESTAT, MUMBAI the Tribunal held that the central excise duty is payable at the time of clearance of goods at the place of removal. It is admitted that the appellants have not paid the duty or cleared goods without proper central excise invoice at factory gate. The appellant admitted that the invoices were issued only after the clearance of goods from the godown of M/s Nirmal Warehouse.  The Tribunal indicates that from the above discussions two situations emerge:

• Either at the factory gate is the place of removal; or
• The godown of M/s Nirmal warehouse is the place of removal

If the factory gate is the place of removal, all the clearances  through M/s Nirmal warehouse are the removal of goods clandestinely, as no invoice is issued or if the godown of the Nirmal warehouse is the place of remova, then the transportation charges are includible in the assessable value.

In this case the Commissioner has held that the place of removal is Nirmal Warehouse.  The transportation charge up to the Nirmal  Warehouse is to be includible in transaction value.  The Tribunal upheld the findings of the Commissioner.

In ‘Anita Prints V. Commissioner of Central Excise, Mumbai-II’ - 2015 (5) TMI 178 - CESTAT MUMBAI the Tribunal found that the show cause notice issued to the appellant does not rely upon any documents which indicate the value which is attributed to transport and octroi in the said show cause notice. The said show cause notice blindly states that transport charges and octroi to be included in the assessable value of the goods without evidencing that the said transport charges and octroi are paid by the appellant and the amount which is indicated in the show cause notice is the amount which has been deduced form the records maintained in the appellant’s premises.  The Tribunal held that in the absence of any evidence which indicates the specific amounts as have been paid by the appellant, the entire fulcrum of the show cause notice is displaced and any order confirming the demand raised in such show cause notice has to go.

In ‘Eveready Industries India Limited V. Commissioner of Central Excise, Noida’ - 2014 (12) TMI 908 - CESTAT NEW DELHI the Tribunal held that the show cause notice does not allege either expressly or by implication that outward freight charges were separately collected by the appellant.  There is also no evidence, oral or documentary on the record to facilitate a finding as to additional collection of outward freight by the appellant. The appellant clearly, specifically and categorically pleaded the response to the show cause notice that since the sales were on FOB destination basis, the transaction value include the value of freight and that the freight charges were not separately collected from the buyers and further that the amount of transportation charges paid by the appellant were disclosed in its books of account under the head of expenditure.  The Tribunal held that neither the primary or appellate authority adverted to any evidence whatsoever documentary or oral on the basis of which the primary authority perversely affirmed that the appellant was required to include the value of transportation charges in addition to the transaction value, on which duty was paid. The Tribunal quashed the impugned order.

In ‘Commissioner of Central Excise, Nashik V. Techno Force (I) Private Limited’ - 2014 (11) TMI 370 - CESTAT MUMBAI the Tribunal held that Rule 5 was amended by Notification No. 11/2003-CE (NT), dated 01.03.2003 and the condition of showing the transportation charges separately in the invoice have been withdrawn.  The Tribunal found that there is no allegation against the assessee that they have recovered the transportation charges over and above those actually paid by them. The assessee contended that the goods have been sold at the factory gate and whatever the transportation charges paid by them on behalf of the buyers have been charged through debit note.  The Tribunal held that the transportation charges collected by the respondents are not includible in the assessable value.

In ‘Hyva India Private Limited V. Commissioner of Central Excise, Belapur’ - 2015 (1) TMI 985 - CESTAT MUMBAI the issue for consideration by the Tribunal is whether the cost of transportation and transit insurance have been included in the assessable value on the chassis fitted with engine supplied by TATA motors. The appellant has produced a Chartered Accountant’s certificate and copies of e-mail correspondence exchanged between them in support of the claim that these costs has been included or not could have been easily verified by the department by conducting necessary enquiry through the jurisdictional excise authorities at Jamshedpur. Instead of doing the necessary verification, the Adjudicating Authority has unnecessarily proceeded to adjudicate the matter without verifying the facts and expecting that it is the job of the Tribunal to verify these facts and not that of Adjudicating Authority.  The Tribunal strongly condemned this approach of Adjudicating Authority.  When a certificate is produced duly certified by the Charted Accountant, it was the responsibility of the Adjudicating Authority to consider and accept the same.  If he had  any doubt about the veracity of the certificate, then he could have got the same verified through the jurisdictional excise authorities at Jamshedpur, which has not been done in this case.  The Tribunal set aside the order and remand the matter back to the Adjudicating Authority to conduct necessary verification of the claim of the appellant.