Nirmal Seeds Private Limited Vs Commissioner of Central Excise (Bombay High Court)
During the course of audit, the Department noticed that in some of sale invoices issued by the appellant showed that they were deducting freight charges from the total invoice amount with a note that consignee to pay. On detail scrutiny of all the documents, it was found that the freight amount is reduced from the contract price on the ground that it was paid by the consignee i.e. the dealer.
It is the case of the Revenue that the appellant is reimbursing the freight amount to their consignees to the extent freight is paid by the consignee. Besides, it was also found that the appellant was also issuing credit notes for reimbursement of freight charges. Thus, the case of the Revenue is that the freight is ultimately paid by the appellant i.e. the consignor even in the cases where invoices show balance freight amount to be paid by the consignee-dealer.
It was held on facts by Tribunal that the manner of invoicing and the internal accounts maintained by the appellant shows that the entire arrangement has been made with dealers so as to reduce its service tax liability. It upheld demand, invocation of extended period of limitation and imposition of penalty.
We find that all the authorities under the Act on facts, have come to the conclusion that the arrangement arrived at between the appellant and its dealers was so as to reduce the payment of service tax obligation of the appellant. This factual finding of the authorities was based on detailed scrutiny of the invoices and documents, in particular, the ledger account maintained by the appellant which shows the amount, which was reduced from the invoice is also accounted as freight reimbursement. It was in these facts that the authorities have held that the freight paid by the dealers was for and on behalf of the appellant. Thus, the appellant would be liable for payment of service tax.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
1. This appeal under Section 83 of the Finance Act, 1994 r/w Section 35G of the Central Excise Act, 1944 (the Act) challenges the order dated 28th February, 2017 passed by taxguru.in the Customs, Excise and Service Tax Appellate Tribunal (the Tribunal).
2. The appellant has urged the following two questions of law for our consideration :
(i) Whether in the facts and circumstances of the case and in law, the Tribunal is justified in confirming the demand of service tax from the appellants on freight charges in terms of Rule 2(1)(d)(v) of Service Tax Rules, 1994?
(ii) Whether in the facts and circumstances of the case and in law, the Tribunal is correct in invoking extended period of limitation and upholding the imposition of equivalent penalty under Section 78 of the Finance Act, 1994 along with interest?
3. The appellant is engaged in production of seeds and fertilizers (“said goods” for short). The appellant supplies its said goods to its dealers, who in turn sell it to the ultimate consumers. At the time of entering into sale, the price of the goods includes freight charges to be paid by the appellant. The appellant has no separate written contract / agreement between itself and its dealers with regard to the sale including regarding payment of freight charges incurred while transporting the goods from its premises to the dealer’s premises.
4. During the course of audit, the Department noticed that in some of sale invoices issued by the appellant showed that they were deducting freight charges from the total invoice amount with a note that consignee to pay. On detail scrutiny of all the documents, it was found that the freight amount is reduced from the contract price on the ground that it was paid by the consignee i.e. the dealer. The show cause notice reproduced details of the sample invoices and the corresponding documents which form the basis of the show-cause notice are as under :-
