Many a times the manufacturer of goods (Central Excise assessee) provides other services to the buyer and charges an amount for those services provided. The services may be like transportation of goods to the buyer premises, transit insurance of the goods, interest charges for the credit given to the buyer, Installation of the goods in the buyer’s premises etc. It may happen that cost incurred by the manufacturer assessee in providing these services is much less than what is charged by the manufacturer assessee for these services. The question is whether excess charges collected by the manufacturer assessee should be included in assessable value of the goods under Section 4 of the Act?
Under Section 4 of the Central Excise Act, 1944, the Central Excise duty has to be paid on the transaction value of the goods. Transaction value means the price actually paid or payable for the goods, at the time and place of removal. Thus when any amount is paid for transportation or insurance or interest for credit or for any other services, these are payments not for the goods but for the services provided by the manufacturer and hence these charges are not to be included in the assessable value under section 4 of the Act. Even when the amount paid is in excess to the cost incurred by the manufacturer supplier, the excess amount is profit earned by the manufacturer in course of providing these services. These profits are not in connection with the sale of goods but in connection with the services provided and hence this profit earned in not includible in the assessable value of the goods.
In Indian Oxygen Ltd. V/s Collector of Central Excise [1988 (36) ELT 723 (SC)] the Hon’ble Supreme Court held that duty of Excise is a tax on manufacturer, and not a tax on the profits made by a dealer on transportation and hence these profits earned are not includible in the assessable value. In Baroda Electric Meters Ltd. V/s Collector of Central Excise [1997 (94) ELT 13 (SC)], the Supreme Court affirmed this judgment and held that excess freight amount collected by the manufacturer is not includible in the assessable value of the goods.
In Empire Ind. Ltd. V/s collector of Central Excise [1997 (95) ELT 653], the Tribunal held that profit earned in a post-clearance activity, which has nothing to do with activity of manufacture is not includible in the assessable value of the goods. In this particular case the tribunal concluded that excess transportation charges collected over actual cost incurred is not includible in the assessable value. The tribunal, in this case, also held that interest charges collected for delayed payment by the buyer is not includible in the assessable value. In Sri Kaliswari Fire Work V/s Collector of Central Excise [1998 (98) ELT 93], the question of excess insurance charges come before the Tribunal, where in it held that excess insurance charges collected over actual incurred by the manufacturer is not includible in the assessable value.
In S.R. Jhunjhunwala V/s Collector of Central Excise [1999 (114) ELT 890], the Tribunal clarified the position of law and held that,
“ It is also found that the collector has held that only deduction of actual amounts of transportation costs and insurance charges are deductible under section 4 of the Act. However, this view is no more good law and stands settled against the department by the Supreme Court judgment reported in 1997 (94) ELT 13, Baroda Electric Meters V/s Collector cited and relied upon by the learned consultants. Though the judgment dealt with excess realisation of transport cost over actual, the same principle is applicable to the insurance charges also, as they have already been held to be non includible in the Supreme Court judgment Union of India V/s Bombay Tyre International 1983 (14) ELT 1896. The Supreme Court held that duty of Excise is on manufacture and not a tax on profit made on transportation. Therefore we hold that the amount received by the appellant in excess of actual transportation charges incurred by them in not includible in the assessable value.”
The Tribunal is following this position of law consistently and reaffirmed this view in many cases like Gomati Engineering Works V/s CCE [1998 (27) RLT 849], in Farm Fresh Foods Pvt. Ltd. V/s CCE [1998 (113) ELT 441] and in numerous other cases. In recent times also the Tribunal declared the same position of law in Transpect Industries Ltd. V/s Collector of Central Excise [2003 (162) ELT 1095], wherein the tribunal held that excess freight and insurance charges are not includible in the assessable value. In Appollo Tyre Ltd. Ltd. V/s CCE [2003 (160) ELT 836], the tribunal reiterated that duties of excise being leviable on manufacture only and such amounts being profits made on transportation is not includable in the assessable value. In Majestic Auto V/s Commissioner of Central Excise [2004 (166) ELT 172], the tribunal held that freight collected in excess of the actually freight charges incurred is not includible in the assessable value. Thus the law is well settled on this point and it is being consistently followed by the Hon’ble Tribunal.
On the basis of the ratio of these judgments, it can be argued that expenses incurred by the manufacturer and charged from the buyer, including any profit earned on there activities are not includible in the assessable value. It may be noted that the activity must be a post manufacturing and post clearance activity. Further the charges must be genuine and it mustn’t depress the assessable value.
It may be mentioned that the assessee must show these charges separately from the price of the goods. When these charges are shown separately or billed separately, the onus is on the department to establish that these transactions are not genuine or artificially depressing the prices. On the point of onus of proof the Tribunal held in CCE V/s Majestic Auto Ltd. [2002 (146) ELT 327] wherein it held,
“ In the present case, we are concerned with the determination of value under Section 4 of the Act as it was pointed out by both the sides. It is settled position of law that duty of excise is a tax on the manufacturer and not a tax on the profit made by a dealer on transportation. The department has not shown any evidence to show that the excess freight was nothing but part of the value of the goods and accordingly the differential amount was not includible in the assessable value.”
Thus it is clear that the onus is on the department to establish that excess charges are nothing but part of assessable value. However, when these charges are not shown separately, the onus in on the assessee to establish that these are permissible deduction under Section 4 of the Central Excise Act. In view of these, it is suggested that a separate bill should be raised for any other services provided by the manufacture assessee to the buyer of the goods.
Written by:- Advocate Rajesh Kumar. The author can be contacted on The author can be contacted on firstname.lastname@example.org , Web: www.rajeshkumar.co.in