Per Justice U.L. Bhat :

The dispute in the appeal relates to the period from 17.8.87 to 8.3.89. Appellant was filing price lists during a part of the period and during the remaining period appellant was following Invoice Price Procedure under Rule 173-C (11) of the Central Excise Rules. Appellant was collecting 1% of the price towards transit insurance charges but the charges actually paid to the insurer were much less. This was admitted by one of the partners of the appellant in his statement before the Superintendent of Central Excise. Accordingly, show cause notice was issued deciding the above facts, proposing demand of difference between the insurance charges collected from buyers and charges paid to the insurer and proposing imposition of penalty. Appellant resisted the notice on the ground of limitation. Overruling this contention, the Additional Collector confirming the demand imposed penalty of Rs. 1,500/-.

2. Learned counsel for the appellant contended that the claim of the department is not sustainable on merits. Shri Sanjeev Srivastava, JDR pointed out that no contention on merits was raised in reply to the show cause notice. Since there is no dispute on facts, we allowed the appellant to raise this contention.

3. The show cause notice proceeds merely on the ground that the appellant collected 1% of the price as insurance charges and paid much less to the insurer. The show cause notice did not allege any deliberate depression of the price by adjusting a part of the price as transit insurance charges. The question of transit insurance arises only where the manufacturer arranges transport of the goods to the premises of the buyer. This is a separate activity of not having direct relationship with the activity of manufacture. Appellant has been collecting insurance charges at the same rate from all customers, situated at different places. This would indicate that the charges collected were equalised charges. In the case of Baroda Electric Meters Ltd. [1997 (22) RLT 5 (S.C.) = 1997 (94) ELT 13] Supreme Court held that the difference between the equalised freight charges collected from buyers and the freight actually paid to the transporter cannot be included in the assessable value. The same principle would apply in the case of equalised insurance charges also. The Tribunal has held so in Final Order No. 553/97-A dated 2.4.97. Following this view we hold that there is no justification to demand duty on the differential amount.

4. For the reasons indicated above the impugned order is set aside and the appeal is allowed.