By TIOL News Service

MUMBAI, OCT 23, 2013: THE appellants are manufacturers of Iron and Steel products [Ch. 72 & 73]. During the scrutiny of the records of the appellant-assessee, it was observed that the appellant was clearing goods to various customers on FOR basis and the freight charges were shown to be included in the value of the goods and excise duty liability discharged on the same. However, in some cases, it was found that freight charges have been collected separately in the invoices even though the goods had to be delivered at the buyer's premises and Central Excise duty on the same was not being paid. Accordingly, a SCN dated 01/03/2012 was issued demanding Central Excise duty of Rs.8,02,17,457/- on the duty short paid on freight charges for the period February, 2007 to December, 2011.

The CCE, Raigad confirmed the demand with an equivalent amount of penalty and interest.

Before the CESTAT with a Stay application, the appellant submitted that at the customer's request, the appellant has to supply the goods and deliver it at the customer's premises. For delivery of the goods at the customer's premises, the buyers pay the appellant transportation rates at pre-fixed rates. In these cases, ex-factory prices of the goods are shown in the invoices on which excise duty liability is discharged and the freight is shown separately at the rates agreed upon between the appellant and the buyers and on these freight charges, no excise duty is discharged; that VAT liability is discharged on the value inclusive of freight; that the ‘place of removal' in these cases is the factory gate and, therefore, on the cost of transportation from the factory to the buyer's premises, excise duty is not liable to be demanded. It is also claimed that the availment of CENVAT credit on GTA services is shown in the monthly ER-1 returns submitted by the appellant to the department and hence extended period is not invokable.

The CESTAT in its order dated 05/08/2013 - (2009-TIOL-2595-CESTAT-DEL) held -

"CE - S.4 of CEA, 1944 - Valuation - There is no merit in the argument of the appellant that where the goods are delivered at the customers' premises at a pre-agreed rate of transportation, the cost of transportation should be excluded from the sale price to arrive at the assessable value - declaration made in the ER-1 return is only with respect to availment of CENVAT credit on the GTA services paid by the appellant and this ha s nothing to do with the valuation of excisable goods - Prima facie plea of time bar not sustainable - Pre-deposit ordered of Rs.4 Crores: CESTAT"

We had while reporting the Stay order mentioned - We will soon be back with more on this case…

True to what we had said, the appellant has taken the battle to a higher level - after all, it was an order for pre-deposit of four crores within a period of eight weeks!

The High Court after considering the submissions observed -

"10. …We find that the Tribunal in the impugned order has relied upon a Circular of the Board dated 30 June 2000, which interalia provides as under:-

"......However, exclusion of cost of transportation is allowed only if the assessee has shown them separately in the invoice and the exclusion is permissible only for the actual cost so charged from his buyer......."

However, the Tribunal has not explained in what manner the aforesaid observations in the Circular reproduced by it would assist the revenue's contention. The above observations, if at all appear to support the petitioner's case.

11. Besides, various decisions dealing with the identical issue rendered by the Apex Court as well as by the Tribunal was cited before the Tribunal. However, none of the decisions were discussed in the impugned order on the ground that all of them dealt with decision rendered in the context of old Section 4 of the Act i.e. prior to 1 July 2000. We find that the Tribunal decisions referred to in the impugned order do deal with the period post 1 July 2000 but most of them followed decisions of the Apex Court rendered in the context of old Section 4 of the Act.

13. Further, the impugned order holds that as the freight is included in the value of goods for payment of VAT, it must be included also for arriving at the value of the goods for purposes of the Act is not appropriate. Both the levies are different and the assessable value for purpose of excise must be only in terms of the Act alone and not on the basis of VAT Act. Moreover, the fact that in case of goods falling in category (b) above, the petitioner pays excise duty on freight does not make it necessary that the same would apply even in case of goods falling under category (c) above. The regime under the Act is transaction value and each transaction is to be separately assessed depending upon the terms of the contract and the time the ownership in goods is passed."

Holding that the Tribunal ought to have heard the appellant without insisting on any pre-deposit of duty, the order dated 05/08/2013 was modified and the requirement of pre-deposit was deleted; the Tribunal was directed to hear the appeal on merits. The High Court also clarified that the observations made are only prima facie observations for the purpose of disposing of the appeal and the CESTAT should decide the appeal on merits without in any manner being influenced by the same.

The appeal was allowed.

Round TWO begins!

(See 2013-TIOL-833-HC-MUM-CX)