Excess Freight Charges Collected from Customers Not Subject to Excise Duty: CESTAT

Court Name : CESTAT Ahmedabad

Parties : Kashyap Sweetners Limited Vs Commissioner of Central Excise & ST

Decision Date : 24 July 2023

Judgement ref : Excise Appeal No. 11361 of 2014-DB

Imagine you're a business owner, and you've been collecting excess freight charges from your customers. The Excise Department comes knocking, claiming that these charges are part of the transaction value of goods and hence, subject to excise duty. You're puzzled. You've always considered these charges as separate from the value of goods.

That's exactly what happened to a business in a recent case before the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT). But here's the good news: CESTAT ruled in favor of the business. It held that excess freight charges collected from customers are not subject to excise duty.

The tribunal emphasized that these charges are not part of the transaction value of goods and hence, not dutiable. In this case, the Excise Department failed to provide any evidence that the excess freight charges were included in the value of goods.

So, if you ever find yourself in a similar situation, remember this ruling. It underscores the importance of understanding the nuances of excise duty. Always ensure your charges are well-documented and can withstand scrutiny. And remember, you have the right to challenge any demands if you believe you've been wrongly accused.

FINAL ORDER NO. 11559-11561/2023

RAMESH NAIR :

The issue involved in the present case is that whether the excess

amount collected from the customers over and above the actual freight is

liable to be added in the assessable value/ transaction value for the purpose of charging excise duty or otherwise.

2. Shri Mehul Jiwani, learned Chartered Accountant appearing on behalf

of the appellant submits that firstly, the freight as a whole in not includable in the transaction value from the place of removal to place of delivery. In support, he placed reliance on the following judgments:-

(a) M/S Ispat Industries Limited 2015 (324) E.L.T. 670 (S.C.)

(b) GP Petroleums Limited 2019 (5) TMI 1018 CESTAT Ahmedabad

(c) Emco Limited - 2016 (12) TMI 1385 - CESTAT Mumbai

(d) Miraj Pipes & Fittings Pvt. Ltd. 2019 (7) TMI 1792 CESTAT New

Delhi

(e) Order No. A/10755/2022 Dated 30/06/2022 Passed By CESTAT

Ahmedabad in case of Savita Oil Technologies Limited

2.1 without prejudice he further submits that even if freight is includable

in the transaction value for the purpose of charging duty, excess freight

collected over and above the actual freight paid to the transporter is nothing but on account of profit on transportation and the same is not part of the transaction value of the goods, therefore the same is not includable in the assessable value. He placed reliance on the following judgments:-

(a) Baroda Electric Meters - 1997 (94) E.LT 13 (SC)

(b) Mercedes Benz India Pvt. Limited - 2010 (260) E.L.T. 149 (TRI.

Mumbai)

(c) Jost's Engineering Co. Limited. 2017 (8) TMI 213 CESTAT MUMBAI

(d) Balkrishna Paper Mills Limited. - 2018 (5) TMI 300 CESTAT Mumbai

(e) M/S. Marpol Pvt Limited - 2017 (2) TMI 247 CESTAT Mumbai

(f) Transformers and Rectifiers (India) Limited - 2021 (8) TMI 759

CESTAT

(g) Indo Amines Limited - 2018 (11) TMI 489 CESTAT Mumbai

(h) Indian Oil Corporation Limited - 2013 (291) ELT 449 (Tri. Ahmd.)

(i) Indian Sugar & General Engg. Corpn. - 2016 (333) E.L.T. 109 (Tri.

Del.)

(j) PRS Rolling Mills Pvt. Limited - 2012 (281) E.L.T. 560 (Tri-Del)

2.2 He further submits that this issue has been decided in the appellant’s

own case for the other unit, in their favour and the said order has not been

reviewed by the department and thus attained finality. Thus, department

cannot be permitted to take contrary stand in the subsequent cases. In this

support, he placed reliance on the following cases:-

(a) Surcoat Paints (P) Limited - 2008 (232) ELT. 4 (S.C.)

(b) Suntrack Electronics (P) Limited - 2003 (156) E.L.T. 163 (S.C.)

(c) Jayaswals Neco Limited - 2006 (195) E.LT. 142 (S.C.)

(d) Birla Corporation Limited - 2005 (186) E.L.T. 266 (S.C.)

2.3 Without prejudice he further submits that there is not only cases of

excess recovery of freight but there are cases where the appellant have paid

excess freight and collected from the customer the lesser amount of freight

as compared to the actual. He submitted a chart which is reproduced

below:

He submits that despite the clear figures given above, the Adjudicating

Authority has not considered the transactions where the lesser freight was

collected from the customers. It is his submission that overall the demand

should be on the net difference of excess freight and lesser freight collected from the customers.

3. Shri Rajesh Nathan, learned Assistant Commissioner, (AR) appearing

for the Revenue reiterates the findings of the impugned order.

4. We have carefully considered the submissions made by both the sides

and perused the record. We find that limited issue to be addressed is

whether the excess paid freight as compared to the actual should be

included in the transaction value for the purpose of charging excise duty.

This issue is no longer res-integra as held by the Hon’ble Supreme Court in

the case of Baroda Electric Meters (supra) which is reproduced below:-

“[Order].

- 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.

2. Consequently, the appeals are allowed and the impugned judgment of the

Tribunal is set aside.”

5. As held in the above judgment by the apex court that excess amount

of freight from the customer is profit on account of transportation and not

part and parcel of the value of the goods therefore, same cannot be included

in the assessable value. We observe that this judgment was given with

reference to un-amended Section 4 and Rules made thereunder prior to

01.07.2000. However, in the identical case for the period post 01.07.2000,

in various judgments a view was taken that the Baroda Electric Meters

(supra) prevails even after amended Section 4 and Rules made thereunder

after 01.07.2000.

6. Accordingly, In view of the various judgments cited by learned

Chartered Accountant, excess freight collected by the appellant from the

customers shall not be included in the transaction value for charging excise

duty. Since we have decided the matter on the merits of the case, we are

not going to address various alternate submissions made by learned

Chartered Accountant. Accordingly, the impugned orders are set-aside and

the appeals are allowed.

(Pronounced in the open court on 24.07.2023)

(Ramesh Nair)

Member (Judicial)

(C L Mahar)

Member (Technical)

-------------------------------------------------------------------------

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,

WEST ZONAL BENCH : AHMEDABAD

REGIONAL BENCH - COURT NO. 3

EXCISE Appeal No. 11361 of 2014-DB

[Arising out of Order-in-Original/Appeal No VAP-EXCUS-000-APP-439-440-13-14 dated

03.01.2014 passed by Commissioner of Central Excise, Customs and Service Tax-VAPI]

Kashyap Sweetners Limited …. Appellant

Plot No. 20 B & C, Phase-i, GIDC,

VAPI, GUJARAT

VERSUS

Commissioner of Central Excise & ST, Vapi .... Respondent

4th Floor...Adharsh Dham Building, Opp. Town Police

Station, Vapi-Daman Road, Vapi, Gujarat-396191

WITH

EXCISE Appeal No. 11360 of 2014-DB

[Arising out of Order-in-Original/Appeal No VAP-EXCUS-000-APP-439-440-13-14 dated

03.01.2014 passed by Commissioner of Central Excise, Customs and Service Tax-VAPI]

Jitendra Pandey …. Appellant

Commercial Manager Cum Authorized Signature,

Kasyap Sweetners Ltd Plot No. 20 B & C, Phase-i,

GIDC, VAPI, GUJARAT

VERSUS

Commissioner of Central Excise & ST, Vapi .... Respondent

4th Floor...Adharsh Dham Building, Opp. Town Police

Station, Vapi-Daman Road, Vapi, Gujarat-396191

AND

EXCISE Appeal No. 11362 of 2014-DB

[Arising out of Order-in-Original/Appeal No VAP-EXCUS-000-APP-441-442-13-14 dated

03.01.2014 passed by Commissioner of Central Excise, Customs and Service Tax-VAPI]

Kashyap Sweetners Limited …. Appellant

Plot No. 20 B & C, Phase-i, GIDC,

VAPI, GUJARAT

VERSUS

Commissioner of Central Excise & ST, Vapi .... Respondent

4th Floor...Adharsh Dham Building, Opp. Town Police

Station, Vapi-Daman Road, Vapi, Gujarat-396191

APPEARANCE :

Shri Mehul Jiwani, Chartered Accountant for the Appellants

Shri Rajesh Nathan, Assistant Commissioner, (AR) for the Respondent

CORAM: HON’BLE MR. RAMESH NAIR, MEMBER (JUDICIAL)

HON’BLE MR. C.L. MAHAR, MEMBER (TECHNICAL)

2

EXCISE Appeal No. 11360, 11361 & 11362 of 2014-DB

DATE OF HEARING : 22.06.2023

DATE OF DECISION: 24.07.2023