Freight charges paid by the buyer directly to the transporter on a 'to-pay' basis, which do not benefit the manufacturer, are not includible in the assessable value for Central Excise duty.

Per Mr. VASA SESHAGIRI RAO

Brief facts are that the appellant M/s. Tulsyan NEC Ltd., having their factory at No. 39, Dr. Hari Krishna Road, Ambattur, Chennai holders of the Central Excise Registration No. AABCT 3720E XM001 are the manufacturers of Hot Re-rolled products of Non-alloy steel, falling under Chapter Sub-Heading 7214.90 of the Schedule to the Central Excise tariff Act, 1985.

2. It appears that the appellant had been selling their goods through their consignment agents located outside Tamil Nadu on a stock transfer basis. The consignment agents raise bills on their ultimate customers at a higher value which includes transportation charges from the factory to consignment agents premises, loading and unloading charges, agency commission etc., and thereafter prepare a statement called sale pattis on a monthly basis and send the same along with relevant bills to their principal, M/s. Tulsyan NEC Ltd. The Department was of the view that after amendment to Section 4 of Central Excise Act, 1944, the price charged by the consignment agents on the customers is the basis on which duty should be discharged at the rates as applicable.

3.1 Whereas the appellant explained that freight could not be added, for the simple reason that the goods in question being voluminous iron rods (TMT Bars), used for construction purposes and the same were being transported through a lorry on ‘To- pay basis’, directly to the site of the buyer. As the value of freight for the transportation of the TMT Bars was not known at the time of clearance, the appellant took the stand that such freight amounts alone could not be added with reference to the other expenses incurred by the consignment agent and thus consequently, there was no shortfall in payment of duty.

3.2 However, the Department did not agree to this mode of valuation, and adopted the freight element together with the sale value and other charges, etc. to arrive at the assessable value in the hands of the manufacturer.

3.3 Two Show Cause Notices were issued for two consecutive periods demanding the alleged short payment of duties as follows: -

4. As per the Order-in-Original No.09/2017 as upheld by the Order-in-Appeal No. 462/2017(CTA-I) dated 13.12.2017, the duty demanded is Rs. 15,92,458/-. In addition, interest under Section 11AB and a penalty of Rs.8,00,000/- under rule 25 of the Cenvat Credit Rules, 2002 were imposed. The Department further appropriated a sum of Rs. 1,85,000/- paid earlier by the assessee- appellant.

5.1 Being aggrieved by the impugned order, the appellant filed the instant appeal on the following grounds: -

i. The freight charges in question were not Incurred by them and thus there could be no question of adding such notional amount to the value of the product;

ii. The goods were dispatched from the factory gate on To-pay basis mostly to the site of the buyer and such goods were directly paid by the ultimate customer,

iii. The aspect of a sale through a consignment agent was only in connection with the sales tax and VAT Laws;

iv. The two SCNs would have to be considered differently for the assessment;

v. With reference to the period before 14.05.2003, the depot, premises or a consignment agent’s place was not construed as a place of removal and after the above amendment from 14.05.2003, the place of removal definition incorporated the premises of the consignment agent as the additional place of removal;

vi. The valuation of the product prior to