2025 (3) TMI 958 - AT - Central Excise

Calculation of Central Excise Duty - inclusion of freight charges in the transaction value for charging Central Excise Duty - suppression of facts or not - levy of penalty. Inclusion of freight charges in the transaction value for charging Central Excise Duty - HELD THAT - There is some ambiguity as regards nature of Purchase Orders (P.O.) which throw some light whether the sale was meant for ex-works or it was on FOR basis. It is obvious that in view of the judgments cited by the learned AR in the case of sale on FOR basis both the judgments Roofit Industries 2015 (4) TMI 857 - SUPREME COURT and Ispat Industries Ltd 2015 (10) TMI 613 - SUPREME COURT held that such amounts are required to be added to the assessable value. However if the sale was ex-works then relying on the judgment of Ispat Industries Ltd the same would not be included. It is a matter of fact which has not been brought out clearly in the impugned order and therefore it needs to be remanded back to the Original Adjudicating Authority who shall examine all the relevant documents to be provided by the appellant to come to the conclusion whether sale is exworks or ex-factory and thereafter based on the other observations in the earlier para decide whether the amounts of freight and insurance can be added to the transaction value or otherwise. Since both types of sale could be there he would have to redetermine the demand amount. Imposition of penalty under Rule 25(1) of Central Excise Rules read with section 11AC(c) of the Central Excise Act - element of fraud or collusion or any wilful misstatement or suppression of facts exists or not - HELD THAT - There is no positive evidence on record suggesting that the appellants have deliberately chose not to pay Excise Duty on freight charges and suppressed any information with intent to evade the payment of duty. Therefore the penalty invoked in terms of section 11AC(c) of the Act is not sustainable. Conclusion - i) The matter required further factual determination and the case remanded for re-examination by the Original Adjudicating Authority. ii) Penalty invoked in terms of section 11AC(c) of the Act is not sustainable. Appeal allowed by way of remand.

ISSUES PRESENTED and CONSIDERED

The primary issue in this case is whether freight charges should be included in the transaction value for the purpose of charging Central Excise Duty. The determination hinges on whether the sale was conducted on an ex-works basis or on a FOR (Free on Rail/Road) basis, with delivery at the buyer's premises. Additionally, the imposition of penalties under Rule 25(1) of the Central Excise Rules, read with section 11AC(c) of the Central Excise Act, was also contested.

ISSUE-WISE DETAILED ANALYSIS

Inclusion of Freight Charges in Transaction Value

Relevant Legal Framework and Precedents: The legal framework is guided by the Central Excise Act and relevant rules, alongside precedents set by the Supreme Court in cases such as CCE, Aurangabad Vs Roofit Industries and CCE, Mumbai-III Vs Emco Ltd, which support the inclusion of freight charges when sales occur at the buyer's premises. Conversely, the case of CCE, Nagpur Vs Ispat Industries Ltd suggests that buyer's premises cannot be considered a place of delivery for inclusion purposes.
Court's Interpretation and Reasoning: The Tribunal noted the ambiguity in the nature of purchase orders, which could indicate either ex-works or FOR sales. The Tribunal emphasized the need to ascertain the factual basis of each transaction to determine the applicability of freight charges to the transaction value.
Key Evidence and Findings: The Tribunal found that the existing records did not clearly establish whether the sales were ex-works or FOR. The appellant argued that freight charges were not includable as they were separately shown in the invoice and based on an agreed price, not actual costs. The respondent countered that delivery on a FOR basis necessitates inclusion of freight charges.
Application of Law to Facts: The Tribunal determined that clarity was required on whether the sales were ex-works or FOR, as this distinction directly impacts the inclusion of freight charges. The Tribunal decided to remand the matter to the Original Adjudicating Authority for further examination of relevant documents to ascertain the nature of the sales.
Treatment of Competing Arguments: The Tribunal considered the appellant's reliance on the Ispat Industries Ltd case and their argument about separate invoicing of freight charges. The respondent's reliance on the Larger Bench decision in Ramco Cements Ltd was also noted, which supported the inclusion of freight charges on a FOR basis.
Conclusions: The Tribunal concluded that the matter required further factual determination and remanded the case for re-examination by the Original Adjudicating Authority.

Imposition of Penalty

Relevant Legal Framework and Precedents: Penalties were examined under Rule 25(1) of the Central Excise Rules and section 11AC(c) of the Central Excise Act, which necessitate evidence of fraud, collusion, or willful misstatement for penalties to be applicable.
Court's Interpretation and Reasoning: The Tribunal found no evidence of deliberate intent to evade duty by the appellants. The Tribunal noted the ongoing legal debate and differing judicial opinions on the inclusion of freight charges, which suggested a lack of clarity rather than deliberate evasion.
Key Evidence and Findings: The Tribunal acknowledged the appellant's argument that the department had prior knowledge of their transactions through periodic show cause notices, and that their understanding was based on existing legal precedents.
Application of Law to Facts: The Tribunal applied the legal requirement for penalties and found that the appellants' actions did not meet the threshold for fraud or willful evasion.
Treatment of Competing Arguments: The Tribunal considered the appellant's reliance on the Ispat Industries Ltd case and the lack of clear evidence of intent to evade duty as significant factors against imposing penalties.
Conclusions: The Tribunal concluded that penalties under section 11AC(c) were not sustainable due to the absence of evidence for intent to evade duty.

SIGNIFICANT HOLDINGS

Core Principles Established: The Tribunal emphasized the necessity of a clear factual determination regarding the nature of sales (ex-works vs. FOR) to decide on the inclusion of freight charges in the transaction value. Additionally, it underscored the requirement for clear evidence of intent to evade duty for the imposition of penalties.
Final Determinations on Each Issue: The Tribunal remanded the case to the Original Adjudicating Authority for further examination of the sales nature and relevant documentation. It also held that penalties were not justified due to the lack of evidence for willful misstatement or intent to evade duty.

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