Freight/Insurance Amount Is Not Includible In Assessable Value Of Goods For Charging Excise Duty: CESTAT

The Ahmedabad Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the freight or insurance amount is not included in the assessable value of the goods for charging excise duty.

The bench of Ramesh Nair (Judicial Member) and Raju (Technical Member) found no valid reason for disallowing the deduction for the freight and insurance paid inasmuch as the sales are for destination.

The appellant/assessee entered into a contract with IOCL and HPCL. As per the contract, the appellant is responsible for the delivery of goods to the destination of a different location, as mentioned in the contract. The case for the department is that the freight and insurance charges collected by the appellant, in addition to the price of the goods, are included in the transaction value, and excise duty is charged on such freight and insurance charges. The two show cause notices were issued to the appellant, and the demand was subsequently confirmed by the Original Adjudicating Authority.

The appellant submitted that the excisable goods were removed from the factory gate of the appellant. The price of the excisable goods is firm and fixed, and freight charges are not included. The purchase order specifically provides for charges that pertain to freight over and above the price of excisable goods. The freight charges shown separately in the invoices cannot be added to the assessable value. There is no evidence on record to show the department that the said charges are nothing but an arrangement for depressing the assessable value. In the absence of any such evidence, the amount shown separately in the invoices as freight charges cannot be included in the transaction value.

The issue raised was whether the freight or insurance charged separately in the sale invoices of excisable goods is included in the assessable value of such excisable goods.

The tribunal noted that the buyers of the goods, Indian Oil Corporation Ltd. and Hindustan Petroleum Corp. Ltd., have issued purchase orders specifying the price for the goods separately and also specifying the transportation cost for the supply of goods. Accordingly, the appellant has supplied the goods and raised invoices for the price of the goods and the transportation. Thus, it amounts to showing the cost of transport separately in the invoices.

The CESTAT held that the basic price and the freight/insurance components are clearly indicated separately in the invoices, and therefore the criterion, i.e., the cost of transportation, should be in addition to the basic price of the goods. The freight and insurance will be allowable as a deduction from the composite price. Thus, the contention of the Department to include the freight or insurance amount in the assessable value does not meet the test of law and is hence not legally sustainable.

Counsel For Appellant: Nimish K Oza

Counsel For Respondent: Ajay Kumar Samota

Case Title: Panama Petrochem Ltd. Versus Commissioner of C.E. & S.T.-Daman

Case No.: Excise Appeal No. 10576 of 2016- DB

Click Here To Read The Order