IMPORTANT POINTS
Freight charges between the manufacturer’s factory gate and rebated person’s depot are not deductible.
To attract the penalty provision criminal intent or ‘mens rea’ is a necessary constituent

JUDGMENT

Ganguly, J. —

1. These statutory appeals (Civil Appeal Nos. 1921-1923 of 2003) have been filed under Section 35-L (b) of the Central Excise Act, 1944 (the Act), against the judgment and final Order No. 353-355/2002-A, dated 8th August, 2002, passed by the Customs, Excise and Gold (Control) Appellate Tribunal, Bench-A, New Delhi.

2. The material facts are that the respondent- assessee, M/s. Pepsi Foods Ltd. is engaged, inter alia, in the manufacture of edibles, marketed under the names of Potato Chips, Baked Cheetos Balls, Monster Munch, etc. These are covered under Chapter Sub-Headings 2001.10 and 1904.10 of the Central Excise Tariff Act, 1985 (Act 5 of 1986). Uptill 12th January, 1998, as much as 96% of these products manufactured by the respondent, were sold to M/s. Frito-Lay India, a ‘related person’, and the balance of 4% were sold to independent wholesale buyers. From 12th January, 1998, the sale pattern between the two was changed, wherein M/s. Pepsi Foods Ltd. started manufacturing the aforesaid products on behalf of M/s. Frito-Lay India.

3. By a communication dated 15th December, 1997 addressed to the Assistant Commissioner, Central Excise, Division Jalandhar, the respondent stated that it had been paying excise duty on its manufactured excisable goods after taking into account inter alia, the costs of raw materials, packing materials, conversions and their profit margin. Subsequently it calculated and paid the differential duty, on the price at which the final products were sold by M/s. Frito-Lay India to its wholesale dealers. It enclosed certificate of a chartered accountant in support of its calculations. In its submission of Annexure-A as required under Rule 173C (3A) of Central Excise Rules, 1944, it mentioned that the sale of the products occurred at its factory gate. It was also evident from the letter that the final products were entering the market stream when they were being sold by M/s. Frito-Lay India to their wholesale dealers.

4. The Revenue, however, accepted the incidence of sale at the time of purchase of the final products by the whole sellers from M/s. Frito- Lay India and not, as submitted by the respondent-assessee, at the factory gate. Resultantly, a show-cause notice dated 13th November, 1998 was issued to the respondent and to that the respondent showed cause stating inter alia that the sale to the whole sellers was being effected from the depot of the related person, viz. M/s. Frito-Lay India. Dissatisfied with the reply, the Revenue demanded duty of Rs.12,26,215/-.

5. Aggrieved, the respondent moved the Commissioner of Central Excise (Appeals), Chandigarh. The Commissioner, however, held that the freight charges arising between the factory of the respondent and the depot of the related person were to be included in the sale price as the place of removal of the goods was the depot of the related person.

6. Aggrieved thereby, the respondent appealed to the Central Excise and Gold (Control) Appellate Tribunal, New Delhi. The Tribunal overruled the decision of the Appellate Authority inter alia stating that “...Merely because a deeming provision as contained in the 3rd proviso has to be applied regarding the price of the goods sold in the course of wholesale trade to a related person, it cannot be contended that there was no sale at all to the related person at the factory gate, as alleged by the Revenue. The place of removal, therefore, continues to be the assessee’s factory. The depot premises of the related person from where the goods are sold cannot be treated as place of removal for the purpose of Section 4 (4) (b). Therefore, the appellant is fully justified in contending that the cost of transportation from the place of removal, namely, factory to the place of delivery shall be excluded from the price to arrive at the assessable value in terms of Section 4 (2).”

7. Thus aggrieved, the Revenue appealed before this Court under Section 35-L (b) of the Act.

8. It is an admitted fact h