2010 (7) TMI 392 - AT - Central Excise

Valuation Freight/transportation expenses - going through the sales contract, find that in each supply order, which is against the DGS&D rate contract, there is a clause that the goods are to be dispatched by road at the consignors risk on freight paid basis - during transportation from the factory gate to the buyer s premises, the risk of loss of goods or damaged to the goods, is of the respondent not of the buyer, we are of the view that in such a situation, the sale has taken place at the buyer s premises only, as it is only after handing over the goods in good condition at the buyer s premises, that the consideration for the transfer of property in goods would be received by the Respondent - in accordance with the provisions of Rule 7 of the Central Excise Valuation Rules, the assessable value of the goods would be their value at the buyer s premises, which naturally would include the element of freight from the factory upto that premises - duty was payable on the assessable value including the expenses of freight from the factory gate to the buyer s premises

Summary

Issues:
1. Inclusion of freight charges in assessable value for excisable goods sold on FOR basis.
2. Interpretation of "place of removal" in Central Excise Valuation Rules.
3. Application of extended period for invoking duty demands.

Issue 1: Inclusion of Freight Charges
The case involved disputes regarding the inclusion of freight charges in the assessable value of excisable goods sold on a FOR basis to Government Departments. The Department argued that since the sales were on FOR destination basis and the risk during transit was on the respondent, the sale took place at the buyer's premises, justifying the inclusion of freight expenses in the assessable value. On the other hand, the respondent contended that the sale occurred at the factory gate as per the Sale of Goods Act, and therefore, the freight charges to the buyer's premises should not be included. The Tribunal analyzed the sales contracts and found that the risk during transportation was on the respondent, leading to the conclusion that the sale indeed took place at the buyer's premises. Consequently, the assessable value was determined to include freight expenses from the factory gate to the buyer's premises.

Issue 2: Interpretation of "Place of Removal"
The Tribunal examined the concept of "place of removal" under Section 4(3)(c) of the Central Excise Valuation Rules. It was noted that prior to a specific amendment, the place of removal was defined as the factory gate or other premises where goods were sold after clearance. Rule 7 of the Valuation Rules stipulated that if goods were sold from a location other than the factory gate, the assessable value would be based on the sale price at that location. In this case, since the goods were sold after removal from the factory, the assessable value was determined to include freight expenses to the premises where the goods were sold, aligning with the provisions of Rule 7.

Issue 3: Application of Extended Period
Regarding the question of limitation, the Tribunal found that most show cause notices fell within the normal limitation period except for one issued invoking the extended period for non-disclosure of contract details. The extended period was deemed applicable in this instance as the respondent had not previously disclosed the contract terms to the Department. Consequently, the duty demands raised in the show cause notices were confirmed, and the appellant was directed to pay interest on duty along with a penalty under the Central Excise Act.

In conclusion, the Tribunal set aside the impugned order, confirming the duty demands and imposing penalties on the appellant, thereby allowing the Revenue's appeals.