Freight Charges Are Not Includible In Assessable Value Of Liquid Carbon Dioxide: CESTAT

The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has ruled that freight charges are not deductible from the assessable value of liquid CO2, despite the fact that they were separately charged in the invoices and the gas was sold at the time of clearance from the appellant's factory.

The two-member bench of Rachna Gupta (Judicial Member) and P. Venkata Subba Rao (Technical Member) has observed that the authorities below are held to have wrongly confirmed the duty demand against the appellant on the basis of the inclusion of freight charges in the assessable value.

The appellant/assesee is engaged in the manufacture of liquid carbon dioxide (CO2) and is also availing of the Cenvat Credit facility on inputs, capital goods, and input services under the provisions of the Cenvat Credit Rules, 2004. During the audit of records of the appellant for the financial years 2012–13 to 2016–17 and the audit of the freight income ledger for the month of March 2015, it was noticed that the appellant had collected "Freight Charges" from the buyers but had not included the same in the transaction value. From the perusal of the purchase order, the department observed that the appellant is supplying material (liquid CO2) on a "for destination basis" to the destination through their own vehicles.

It was also discovered that transportation costs were greatly exaggerated in order to reduce the assessable value of manufactured goods.The department formed the opinion that the ownership of the goods continued with the appellant until the goods reached their destination. The appellant was thus alleged to have excluded the freight charges with the sole intention to undervalue its manufactured product.

A show-cause notice was issued, proposing to recover the Central Excise Duty as being short-paid from the appellant, along with interest and penalty. The proposal was initially confirmed by the original adjudicating authority. The appeal filed by the assessee was dismissed by the Commissioner (Appeals).

The issue raised was whether the freight charges recovered by the appellant manufacturer from the purchasers of manufactured products for transporting the product in its own specialized tankers to the buyer's premises have to be included in the assessable value.

Rule 5 of the Valuation Rules clarifies that the cost of transportation from the "place of removal" up to the "place of delivery" of the excisable goods has to be excluded. In this connection, the phrase "place of removal" needs determination, however, taking into account the facts of this individual case.

The CESTAT noted that appellants mention freight charges separately in invoices issued to purchasers; there is nothing in the invoices or any other documents that shows that sales are on a FOR destination basis, despite the fact that the authorities below have given the finding that sales are on a FOR destination basis, but no evidence in this regard has been discussed.

The tribunal observed that manufactured liquid CO2 was to be transported by a specified tanker, and the appellant itself owns a fleet of tankers. Because of this, the appellant was arranging transportation of the liquid CO2 gas to their customers at their premises; however, the fact remains that there is no evidence that liquid CO2 was to be sold at the buyer's place.

The tribunal allowed the appeal filed by the assessee.

Case Title: Bathinda Industrial Gas Pvt. Ltd. Versus Commissioner of CGST

Citation: Excise Appeal No. 52053 Of 2019

Date: 30.11.2022

Counsel For Appellant: Advocate A K Prasad

Counsel For Respondent: Authorised Representative Rakesh Agarwal

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