Freight, Insurance Includable In Assessable Value For Excise Duty If Delivery at Buyer's Premises: CESTAT Ahmedabad

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad Bench, has held that freight and insurance charges are includable in the assessable value for excise duty where goods are delivered at the buyer's premises and not at the factory gate, thereby upholding the demand of duty, interest, and penalty.

Referring to Section 4 of the Central Excise Act, 1944, the tribunal observed, "Above provisions clearly indicate that when excisable goods are not sold at the factory gate but the sale actually happens at any other place (which in this case is the customer's premises), the cost of transportation shall be included in the value for the purpose of charging excise duty."

A coram comprising Judicial Member Dr. Ajaya Krishna Vishvesha and Technical Member Satendra Vikram Singh found that invoices, in this case, reflecting “door delivery," indicated that the goods were delivered at the buyer's premises.

The dispute arose after the department, during the audit, found that Nishant Organics Pvt Ltd had collected freight and insurance charges from customers but excluded them from the assessable value while paying excise duty.

A show cause notice was issued demanding a duty of over Rs. 2.69 lakh along with interest and penalty, which was confirmed by the adjudicating authority and upheld by the Commissioner (Appeals).

Before the tribunal, the taxpayer company argued that the freight and insurance amounts were merely reimbursements and relied on judicial precedents to contend that such charges are not includable where the sale is on an ex-factory basis.

Rejecting this, the tribunal held that in the absence of any separate agreement showing that transportation was arranged on behalf of the buyer, the delivery terms in the invoices were determinative.

“There is nothing on record to show that the appellant was under obligation by way of any separate agreement/contract or a letter from the buyer for arranging transportation and transit insurance on their behalf. In absence of any such evidence/ document, we have no doubt that the finished goods were delivered at the customer's premises as indicated in invoices and therefore, the amount of freight and insurance charges collected by the appellant from their buyers is includable in the assessable value for charging the excise duty”

On limitation, the tribunal upheld invocation of the extended period, noting that the non-inclusion of freight and insurance charges was detected during the audit and not disclosed in statutory ER-1 returns.

The tribunal also sustained the penalty under Section 11AC, while granting the statutory option to pay a reduced penalty of 25% subject to compliance within the prescribed time.

Accordingly, the tribunal dismissed the appeal and affirmed the impugned order.

For Appellant: Advocate P V Sheth, Advocate

For Respondent: R R Kurup, Superintendent