Excess Freight Charges collected from customers Not Subject to Excise Duty: CESTAT

Kashyap Sweetners Limited Vs Commissioner of Central Excise & ST (CESTAT Ahmedabad)

Introduction: In a precedent-setting decision by the CESTAT Ahmedabad, it was ruled that excess freight charges collected from customers do not have to be included in the transaction value for calculating excise duty. This article aims to explore and dissect the specifics and the implications of this ruling in the case of Kashyap Sweeteners Limited Vs Commissioner of Central Excise & ST.

Analysis: In this landmark case, the primary question posed was whether the surplus amount gathered from customers, exceeding the actual freight, should be added to the assessable value for charging excise duty. The appellant’s representative contended that the freight, in its entirety, should not be included in the transaction value from removal to delivery. Furthermore, any excess freight collected is considered profit on transportation, separate from the transaction value of the goods.

This point was further solidified by past rulings such as those in the cases of M/S Ispat Industries Limited, GP Petroleums Limited, and many others. As a part of his argument, the appellant’s representative also highlighted cases where the freight paid was higher than the freight charged from the customers, suggesting that the net difference should be considered for any potential demand.

Ultimately, the CESTAT, after careful consideration of submissions from both sides, concluded that any excess paid in freight as compared to the actual should not be included in the transaction value for calculating excise duty. This decision upholds the precedent set by the Supreme Court in the case of Baroda Electric Meters and others.

Conclusion: The CESTAT’s ruling has potentially significant implications for the treatment of freight charges in excise duty calculations. The verdict affirms the principle that excise duty is a tax on manufacture, not on profits made from transportation. By excluding excess freight from the transaction value, the CESTAT has drawn a clear line between the value of goods and profits made from ancillary activities like transportation. This ruling may bring clarity and relief to industries where freight charges form a significant part of their operational expenses.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

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)