CESTAT Hyderabad Says Sample Purchase Orders Cannot Establish All Sales Were FOR Sales

On 25 August, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad held that the Revenue cannot presume that all sales were on FOR (Free on Road) basis merely from sample purchase orders relied upon in the show cause notice.

Technical Member A.K. Jyotishi and Judicial Member Angad Prasad dismissed the Department's appeal against Eco-Care Building Products Pvt. Ltd. and upheld the dropping of the substantial portion of the differential Central Excise duty demand for the period from November 2012 to March 2017. The Bench held:

“We also find force in the submission of the respondent that adjudicating authority could not have gone beyond explicit charge made out in the SCN, wherein those sample purchase orders were the relied upon documents to allege that sales were on FOR basis, whereas, on adjudication, not all were found to be on FOR basis,”

The dispute arose in relation to Eco-Care Building Products Pvt. Ltd., which is engaged in the manufacture and supply of fly ash bricks.

The Department alleged that the company was supplying goods to customers on an FOR basis and that the customers' premises constituted the “place of removal”. On this basis, it sought to include transportation and loading charges in the assessable value for payment of Central Excise duty.

A show cause notice was issued demanding differential duty for the period from November 2012 to March 2017. The Department also invoked the extended period of limitation, alleging that Eco-Care Building Products had suppressed the non-inclusion of transportation and loading charges in the assessable value with an intention to evade duty.

During adjudication, however, the Commissioner examined the purchase orders relied upon by the Department and found that the nature of the sales was not uniform. In respect of eight customers, the transactions were found to be on an FOR basis, whereas the remaining transactions were treated as ex-factory sales. Accordingly, the substantial portion of the demand was dropped.

The Department challenged the order before the CESTAT. It argued that the Commissioner had examined purchase orders relating to only 18 customers, even though Eco-Care Building Products had made sales to several other customers against purchase orders. According to the Revenue, the Commissioner ought to have called for and examined all such purchase orders before dropping the demand.

Eco-Care Building Products, on the other hand, contended that the show cause notice itself relied only upon sample purchase orders and the adjudicating authority could not travel beyond the material forming the basis of the notice.

The company also pointed out that the notice recorded that nearly two-thirds of the sales were made without purchase orders and on oral orders, yet the Department proceeded on the assumption that those sales were also FOR sales.

The Tribunal agreed with the company. It noted that although purchase order numbers appeared in the statement of sales, that by itself could not mean that all those purchase orders were relied upon documents forming part of the show cause notice. If the Department considered the sample purchase orders to be insufficient or unrepresentative, it could have relied upon all the purchase orders while issuing the notice.

It therefore found no fault with the Commissioner examining the 18 purchase orders actually relied upon and separating the transactions into FOR sales and ex-factory sales.

The Bench also rejected the Revenue's challenge on limitation. It noted that Eco-Care Building Products had been subjected to departmental audits and that records concerning the transportation of goods had been examined.

More importantly, it observed that several judgments had taken different views on whether transportation costs could be included in the assessable value and whether the buyer's premises could constitute the place of removal.

It referred to the Board's Circular dated 8 June 2018, which recognised that, due to conflicting views, the controversy essentially involved the interpretation of law. It observed that “due to conflicting views, the whole issue is that of interpretation and therefore, extended period could not be invoked,” while upholding the finding on limitation.

Since the extended period of limitation was not invocable, the CESTAT held that penalty under Section 11AC of the Central Excise Act, 1944 was also not imposable.

Accordingly, the CESTAT found no infirmity in the adjudicating authority's order, dismissed the Department's appeal and allowed the cross-objections filed by Eco-Care Building Products Pvt. Ltd.

For the Revenue/Appellant: Shri V. Srikanth Rao, Authorised Representative (AR)

For the Respondent/Assessee: Dr. T. Satya Murthy, Advocate