Treatment of freight or equalised freight in assessment of excise duty
Treatment of freight or equalised freight in assessment of excise duty
In central excise the duty is levied and collected on all excisable goods which are produced or manufactured in India and purposefully all the elements which has no relation or connection with the manufacturing and production of the goods are kept out from scheme of the central excise act for the purpose of assessment. One of such element is freight or transportation charges collected by the manufacturer for the purpose of delivery of the goods at the buyer's premises. The law in this regard well settled i.e. the freight charges is to be excluded from the assessable value and it was held in plethora of the judicial pronouncement that the freight charges is not integral part of the goods and cannot be included in the price of the goods. when manufacturers gets fixed charges of transportation from the buyers irrespective of the destination of the goods it is called equalised freight. In fact freight or equalised freight denotes the same thing i.e charges for transporting the good from the factory gate to the buyers place and being so they should get equal treatment for the purpose of excise.
The term equalised freight or freight has not been defined in the central excise Act but according to Advance Law Lexicon Dictionary
Freight means the charges levied for the carriage of the goods including transhipment charges, if any' [Indian Railways Act (24 of 1989), S.2 (17)]
So, freight is only a charge for the purpose of transportation of the goods from one place to another place and it has noting to do with the manufacturing or production of the goods and being so it cannot be included in the price of the goods and no duty cannot be demanded on this amount. Now let us see the provisions of law in this regard. Sec-4 of the Central Excise Act deals with valuation of excisable goods for the purpose of charging of duty of excise. The relevant portion is as follows:-
SECTION 4. Excisable Valuation of goods for purposes of charging of duty of excise.-
(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall -
(a) in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value;
(b) In any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed.
Explanation. - For the removal of doubts, it is hereby declared that the price-cum-duty of the excisable goods sold by the assessee shall be the
price actually paid to him for the goods sold and the money value of the additional consideration, if any, flowing directly or indirectly from the buyer to the assessee in connection with the sale of such goods, and such price-cum-duty, excluding sales tax and other taxes, if any, actually paid, shall be deemed to include the duty payable on such goods.
When we read the section we find that for the purpose of excise duty the only relevant thing is transaction value. The terms transaction value has been further define in this section itself which is as follows:-
Sec. 4. (3)(d) "transaction value" means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods.
From the above definition of the transaction value it is clear that the relevant thing is price paid' or payable' for the goods and any amount which the seller gets by reason of or in connection' with the sale. Since freight charges and equalised freight charges is not paid for the goods
Rather it is paid for removal of the good from one place to another place it cannot be included in the transaction value and no duty liability arise on the collection of this amount. The only exception is the situation when goods are sold at the buyer's premises and the "place of removal" is not the factory gate. Here it was held that transportation cost and freight charges are included in the assessable value and accordingly duty was demanded and paid. As held in the following judicial pronouncements.,
1. Escorts Jcb Ltd. Vs CCE New Delhi [2000 (118) E.L.T. 650 (Tribunal)]
2. Ambuja Cement Ltd. Vs. Union of India [2009 (236) E.L.T 431 (P & H)]
Even Rule 5 of the central excise valuation (Determination of price of excisable goods) rule 2000 says that even in a situation when place of delivery is other than the place of removal then too the value of excisable goods shall be' transaction value excluding cost of transportation. Rule 5 of the above said rule read as follows;-
RULE-5 -, Where any 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 up to the place of delivery of such excisable goods.
Explanation 1. - "Cost of transportation" includes -
(i) The actual cost of transportation; and
(ii) In case where freight is averaged, the cost of transportation calculated in accordance with generally accepted principles of costing.
Explanation 2. - For removal of doubts, it is clarified 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 the excisable goods.
So law is quite clear and i.e. the freight has to be excluded from the transaction value during the assessment for the purpose of payment of excise duty. The Hon'ble supreme court in the matter Baroda Electric Meters Ltd. Vs Collector of Central Excise[1997 (94) E.L.T 13 S.C] while dealing the equalised freight charges clearly held that excise is a duty on the manufacture and not a tax on transportation and so no duty can be demanded on transportation charges' the relevant portion is as follows:-
"The Tribunal accepted the position that equalised freight was charged by the appellant from everyone, but proceeded to say that even though freight cannot be a part of the assessable value that wherever freight actually paid was less than the amount collected by way of freight and transportation charges the difference was appropriated by the appellant and, therefore, the same would be a part of the assessable value. In our opinion, the Tribunal proceeded on an incorrect premise. It was clearly held in Indian Oxygen Ltd. v. Collector of Central Excise - 1988 (36) E.L.T. 723 (S.C.) = 1988 (Supp.) SCC 658, that the duty of excise is a tax on the manufacturer and not a tax on the profits made by a dealer on transportation. In view of that decision, the view taken by the Tribunal cannot be sustained".
In fact when ex-factory price is available that should be taken for assessment and freight or equalised freight charges are not includable in the assessable value, the judicial pronouncement are well settled, some of them are as follows:-
(1) JBM Industries Ltd. v. CCE, New Delhi - 2002 (143) E.L.T. 379 (Delhi)
(2) CCE, Nagpur v. Sigma Transformers & Electricals - 2004 (170) E.L.T. 377 (Mumbai)
(3) CCE, Bhopal v. Laxmi Engineering - 2005 (179) E.L.T. 342 (Delhi)
(4) Welspun Gujarat State Rohran Ltd. v. CCE, Vadodara-II - 2006 (194) E.L.T. 430 (Mumbai)
(5) Lav Kush Textiles v. CCE, Jaipur-II - 2006 (194) E.L.T. 288 (Delhi)
(6) Indica Chemicals (P) Ltd. v. CCE, Meerut-I - 2006 (195) E.L.T. 279 (Delhi).
It has been held that freight or equalised freight are foreign element for the purpose of assessment of duty and even if some profit is earned on the freight charges the same cannot be included in the assessable value. The Hon'ble tribunal in the matter of Transformer's and Electricals Kerala Ltd vs. CCE Kochin [ 2007 (213) ELT 398], has held that for the purpose of duty ex-factory price is the only relevant factor which includes all elements of the transaction value. The relevant Para is as follows:-
"We have gone through the records of the case carefully. The appellants manufacture Transformers. As per their contract with customers, delivery has to be made at their premises. But, ex-factory price is available. The transportation and insurance are separately collected. Excise duty is on the manufacture. The expenses incurred on account of transportation and insurance beyond the factory gate are not includible in the assessable value.
The law is well settled and that is the element of freight cannot be included in the assessable value unless the contract is FOR and the sale has occurred at the buyer's premises. The Hon'ble tribunal in the matter of Hindustan Petroleum Corporation Ltd. Vs. CCE Manglore [2007 (207) ELT 605]., has held that the delivery charges should not be included in the assessable value.
The above said judicial principle has been upheld by the Hon'ble Apex court also and the appeal of the department in the above said case was dismissed by the Hon'ble Supreme Court. [Commissioner Vs. Hindustan Petroleum Corporation Ltd. - 2007 (213) ELT A116 (S.C.)].,
This principle was also followed in Mirza Pur Electrical Industry Ltd. Vs. CCE Allahabad [2009 (235) ELT 879]. Where it was held by the Hon'ble tribunal that the basis of the freight charges is a contract and it cannot be part of the assessable value.
So, treatment of freight or equalised freight charges for the purpose of assessment is well settled i.e. it is not required to be included in the assessable value of the goods except the situation when goods are sold at the buyer's place in terms of Rule 5 of the central excise valuation ( determination of price of excisable goods) Rule 2000.
In central excise the duty is levied and collected on all excisable goods which are produced or manufactured in India and purposefully all the elements which has no relation or connection with the manufacturing and production of the goods are kept out from scheme of the central excise act for the purpose of assessment. One of such element is freight or transportation charges collected by the manufacturer for the purpose of delivery of the goods at the buyer's premises. The law in this regard well settled i.e. the freight charges is to be excluded from the assessable value and it was held in plethora of the judicial pronouncement that the freight charges is not integral part of the goods and cannot be included in the price of the goods. when manufacturers gets fixed charges of transportation from the buyers irrespective of the destination of the goods it is called equalised freight. In fact freight or equalised freight denotes the same thing i.e charges for transporting the good from the factory gate to the buyers place and being so they should get equal treatment for the purpose of excise.
The term equalised freight or freight has not been defined in the central excise Act but according to Advance Law Lexicon Dictionary
Freight means the charges levied for the carriage of the goods including transhipment charges, if any' [Indian Railways Act (24 of 1989), S.2 (17)]
So, freight is only a charge for the purpose of transportation of the goods from one place to another place and it has noting to do with the manufacturing or production of the goods and being so it cannot be included in the price of the goods and no duty cannot be demanded on this amount. Now let us see the provisions of law in this regard. Sec-4 of the Central Excise Act deals with valuation of excisable goods for the purpose of charging of duty of excise. The relevant portion is as follows:-
SECTION 4. Excisable Valuation of goods for purposes of charging of duty of excise.-
(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall -
(a) in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value;
(b) In any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed.
Explanation. - For the removal of doubts, it is hereby declared that the price-cum-duty of the excisable goods sold by the assessee shall be the
price actually paid to him for the goods sold and the money value of the additional consideration, if any, flowing directly or indirectly from the buyer to the assessee in connection with the sale of such goods, and such price-cum-duty, excluding sales tax and other taxes, if any, actually paid, shall be deemed to include the duty payable on such goods.
When we read the section we find that for the purpose of excise duty the only relevant thing is transaction value. The terms transaction value has been further define in this section itself which is as follows:-
Sec. 4. (3)(d) "transaction value" means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods.
From the above definition of the transaction value it is clear that the relevant thing is price paid' or payable' for the goods and any amount which the seller gets by reason of or in connection' with the sale. Since freight charges and equalised freight charges is not paid for the goods
Rather it is paid for removal of the good from one place to another place it cannot be included in the transaction value and no duty liability arise on the collection of this amount. The only exception is the situation when goods are sold at the buyer's premises and the "place of removal" is not the factory gate. Here it was held that transportation cost and freight charges are included in the assessable value and accordingly duty was demanded and paid. As held in the following judicial pronouncements.,
1. Escorts Jcb Ltd. Vs CCE New Delhi [2000 (118) E.L.T. 650 (Tribunal)]
2. Ambuja Cement Ltd. Vs. Union of India [2009 (236) E.L.T 431 (P & H)]
Even Rule 5 of the central excise valuation (Determination of price of excisable goods) rule 2000 says that even in a situation when place of delivery is other than the place of removal then too the value of excisable goods shall be' transaction value excluding cost of transportation. Rule 5 of the above said rule read as follows;-
RULE-5 -, Where any 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 up to the place of delivery of such excisable goods.
Explanation 1. - "Cost of transportation" includes -
(i) The actual cost of transportation; and
(ii) In case where freight is averaged, the cost of transportation calculated in accordance with generally accepted principles of costing.
Explanation 2. - For removal of doubts, it is clarified 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 the excisable goods.
So law is quite clear and i.e. the freight has to be excluded from the transaction value during the assessment for the purpose of payment of excise duty. The Hon'ble supreme court in the matter Baroda Electric Meters Ltd. Vs Collector of Central Excise[1997 (94) E.L.T 13 S.C] while dealing the equalised freight charges clearly held that excise is a duty on the manufacture and not a tax on transportation and so no duty can be demanded on transportation charges' the relevant portion is as follows:-
"The Tribunal accepted the position that equalised freight was charged by the appellant from everyone, but proceeded to say that even though freight cannot be a part of the assessable value that wherever freight actually paid was less than the amount collected by way of freight and transportation charges the difference was appropriated by the appellant and, therefore, the same would be a part of the assessable value. In our opinion, the Tribunal proceeded on an incorrect premise. It was clearly held in Indian Oxygen Ltd. v. Collector of Central Excise - 1988 (36) E.L.T. 723 (S.C.) = 1988 (Supp.) SCC 658, that the duty of excise is a tax on the manufacturer and not a tax on the profits made by a dealer on transportation. In view of that decision, the view taken by the Tribunal cannot be sustained".
In fact when ex-factory price is available that should be taken for assessment and freight or equalised freight charges are not includable in the assessable value, the judicial pronouncement are well settled, some of them are as follows:-
(1) JBM Industries Ltd. v. CCE, New Delhi - 2002 (143) E.L.T. 379 (Delhi)
(2) CCE, Nagpur v. Sigma Transformers & Electricals - 2004 (170) E.L.T. 377 (Mumbai)
(3) CCE, Bhopal v. Laxmi Engineering - 2005 (179) E.L.T. 342 (Delhi)
(4) Welspun Gujarat State Rohran Ltd. v. CCE, Vadodara-II - 2006 (194) E.L.T. 430 (Mumbai)
(5) Lav Kush Textiles v. CCE, Jaipur-II - 2006 (194) E.L.T. 288 (Delhi)
(6) Indica Chemicals (P) Ltd. v. CCE, Meerut-I - 2006 (195) E.L.T. 279 (Delhi).
It has been held that freight or equalised freight are foreign element for the purpose of assessment of duty and even if some profit is earned on the freight charges the same cannot be included in the assessable value. The Hon'ble tribunal in the matter of Transformer's and Electricals Kerala Ltd vs. CCE Kochin [ 2007 (213) ELT 398], has held that for the purpose of duty ex-factory price is the only relevant factor which includes all elements of the transaction value. The relevant Para is as follows:-
"We have gone through the records of the case carefully. The appellants manufacture Transformers. As per their contract with customers, delivery has to be made at their premises. But, ex-factory price is available. The transportation and insurance are separately collected. Excise duty is on the manufacture. The expenses incurred on account of transportation and insurance beyond the factory gate are not includible in the assessable value.
The law is well settled and that is the element of freight cannot be included in the assessable value unless the contract is FOR and the sale has occurred at the buyer's premises. The Hon'ble tribunal in the matter of Hindustan Petroleum Corporation Ltd. Vs. CCE Manglore [2007 (207) ELT 605]., has held that the delivery charges should not be included in the assessable value.
The above said judicial principle has been upheld by the Hon'ble Apex court also and the appeal of the department in the above said case was dismissed by the Hon'ble Supreme Court. [Commissioner Vs. Hindustan Petroleum Corporation Ltd. - 2007 (213) ELT A116 (S.C.)].,
This principle was also followed in Mirza Pur Electrical Industry Ltd. Vs. CCE Allahabad [2009 (235) ELT 879]. Where it was held by the Hon'ble tribunal that the basis of the freight charges is a contract and it cannot be part of the assessable value.
So, treatment of freight or equalised freight charges for the purpose of assessment is well settled i.e. it is not required to be included in the assessable value of the goods except the situation when goods are sold at the buyer's place in terms of Rule 5 of the central excise valuation ( determination of price of excisable goods) Rule 2000.
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