2014 (12) TMI 237 - AT - Central Excise

Valuation of goods - Revenue entertained a view that inasmuch as the freight expenses retained by M/s. Dhampur Alco Chem Ltd. were more than the freight expenses incurred by them, the differential amount has to be treated as part of the assessable value of the goods cleared by sugar factory from their factory premises directly to the customers - Held that - Revenue has not produced any tangible evidence on record to show that the value of chemicals sold by M/s. Dhampur Sugar Mills Ltd. were being collected by M/s. Dhampur Alco Chem Ltd. under the guise of freight charges. It is also not the Revenue s case that excess freight recovered by M/s. Dhampur Alco Chem Ltd. was being transferred to M/s. Dhampur Sugar Mills Ltd. We also note that two appellants are public limited companies and as such, are independent legal entities in the eyes of law. They do not have any common Directors and are operating independently in their own fields. As such, any amount collected in excess by M/s. Dhampur Alco Chem Ltd. in the name of freight cannot be held to be a part of assessable value of the chemicals being manufactured and cleared by M/s. Dhampur Sugar Mills Ltd. - excess charges are not being collected by the manufacturer himself but as per the admitted position, the same are being collected by M/s. Dhampur Alco Chem Ltd. and there being no evidence of further movement of the said excess collection to M/s. Dhampur Sugar Mills Ltd., we find no merits in the Revenue s stand. Accordingly, the impugned orders are set aside - Decided in favour of assessee.

Summary

Issues: Appeal against demand of duty, interest, and penalties under Central Excise Act, 1944 for alleged inclusion of excess freight charges in assessable value of goods cleared by manufacturer through consignment agent.

Analysis:

1. Confirmation of Demand and Penalties:
The judgment pertains to two appeals arising from the same impugned order confirming a demand of duty, interest, and penalties against a manufacturer and its consignment agent. The lower authorities upheld the demand of duty amounting to Rs. 12,74,010, along with interest and penalties under Section 11AC of the Central Excise Act, 1944. Additionally, penalties were imposed on both the manufacturer and the consignment agent under Rule 173Q of the erstwhile Central Excise Rules, 1944.

2. Factual Background:
The manufacturer, engaged in chemical production, had appointed the consignment agent for procuring orders, handling transportation, and collecting payments from customers. The consignment agent procured orders, which were transferred to the manufacturer for direct clearance to customers. The consignment agent collected the value of goods along with freight charges from customers, deducted a commission, and transferred the balance to the manufacturer.

3. Disputed Issue:
The Revenue contended that the excess freight charges retained by the consignment agent should be considered part of the assessable value of goods cleared by the manufacturer. However, the appellant argued that the excess freight collected by the consignment agent should not be included in the assessable value of the goods.

4. Judgment Analysis:
The Tribunal analyzed the letters and agreements between the parties to determine the nature of the consignment arrangement. It was observed that the consignment agent was primarily responsible for procuring orders and handling transportation on behalf of customers. The invoices reflected the assessable value as per purchase orders, cleared directly from the manufacturer's factory gate, with duty paid on that value.

5. Legal Precedents:
The Tribunal referred to legal precedents, including the decision in Baroda Electric Meter Ltd. v. Collector, highlighting that excess charges collected, even by manufacturers themselves, do not form part of the assessable value unless evidence suggests otherwise. In this case, as the excess charges were collected by the consignment agent and not transferred to the manufacturer, the Tribunal found no merit in the Revenue's argument.

6. Conclusion:
Based on the lack of evidence showing that the excess freight collected was part of the assessable value of goods, the Tribunal set aside the impugned orders, allowing both appeals with consequential relief to the appellants. The judgment emphasized the independent legal status of the two companies involved and clarified the distinction between the consignment agent's collections and the manufacturer's assessable value.

This detailed analysis of the judgment provides insights into the legal reasoning behind the Tribunal's decision, addressing the issues raised by the parties and applying relevant legal principles to reach a conclusion in favor of the appellants.