TRANSPORTATION CHARGES ARE NOT ALWAYS DEDUCTABLE FROM THE TRANSACTION VALUE

PRABHAT KUMAR, ADVOCATE RAJESH KUMAR & ASSOCIATES Rule 6 of the Central Excise Rules

2002 gives liberty to the assessee to do self assessment of his goods for the purpose of levy of the excise duty. Considering the past experience, indeed it is a great freedom to the assessee, simultaneously a silent duty is casted on the assessee to do the self assessment in a fair and accurate manner. Before the Excise duty is paid, the duty has to be assessed correctly. Sometimes the goods are sold by the manufacturer to the buyer at a place different from factory gate. The place can be Depot or place of consignment agent. Some time goods can be sold at some other place, like at the doorstep of the buyer (FOR), or at some business exihibition or at gateway port (FOB value) or at the premises of the job worker of the buyer. The present paper examines the deductibility of freight expenses paid by the manufacturer for transporting the goods from factory gate to such place of sale, from assessable value. Central excise duty is required to be paid based on Value of the goods as defined in Section 4 of the Central Excise Act. Section 4 sub-clause 1 of the act says that in certain circumstances the excise duty has to be assessed and paid on the basis of the transaction value. Section 4 Sub-clause 1 of the central excise act read as follows: Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall - (a) in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value; (b) in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed. Explanation. - For the removal of doubts, it is hereby declared that the price-cum-duty of the excisable goods sold by the assessee shall be the price actually paid to him for the goods sold and the money value of the additional consideration, if any, flowing directly or indirectly from the buyer to the assessee in connection with the sale of such goods, and such price-cum-duty, excluding sales tax and other taxes, if any, actually paid, shall be deemed to include the duty payable on such goods. When we analyse the above said section we find that in order to assess the excisable goods on the basis of transaction value the goods has to be sold by the assessee. Once the goods are sold, the next relevant question is that which is the place of removal of the said goods? In other words where is the point of sale located? Section 4 sub Clause 3(c) defines the term the place of removal and it reads as follows: place of removal- means (i) factory or any other place or premises of production or manufacture of the excisable goods; (ii) warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without [payment of duty;] (iii) depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory; from where such goods are removed; If the sale is completed at the factory gate (place of removal being factory date) then obviously the transportation cost will not be the part of the transaction value even if the assessee arranges and paid transportation charges on behalf of the buyer. The above said view is given in numerous judicial pronouncements, some of them are as follows: Sanghvi Cylinders Vs. CCE [2006 (199) ELT 866 (CESTAT)] Lavkush Textile Vs. CCE [2006 (194) ELT 288 (CESTAT)] Albright & Wilson Vs. CCE [2007 (214) ELT 313 (CESTAT)] But if the sale is done at some other places and the manufacturer carried the goods to the buyers place in that case the cost of transportation should be part of the transaction value because here the place of removal of the goods is different from factory gate as held in Ambuja Cements Vs. Union of India [2009 (236) ELT 431 (High Court of P& H)]. Now let us see how central excise act defines the word sale and the term place of removal. Section 2 (h) of the act defines sale and it reads as follows: sale and purchase, with their grammatical variations and cognate expressions, mean any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration; So as per the definition mentioned above possession of the goods has to be transferred by one person to another and if the possession of the goods is given somewhere else than the factory premises then transportation charges has to be included in the transaction value. The contracts made FOR between the buyer and seller, where title of the goods passes at buyers place squarely falls in this heading. Here the manufacture has to deliver the goods free of costs to the buyers place and naturally the transportation charges became part of the price of the goods. Even the sale of goods Act, 1930 says that for the purpose of sale the title in the goods has to be passed into the buyer. So in all cases where possession is given and title in the goods is passed somewhere else than the manufacturing unit the transportation charges should be included in the transaction value. Section 4(3)(c)(iii) clearly says that the place of removal may be any place or premises from where the excisable goods are to sold after their clearance from the factory. Once it is clear that the place of removal can be any place where the sale occurs the transportation charges has to be included in the transaction value but in all cases where sale is completed within the factory or at the factory gate transportation charges is not includable in the transaction value. The Honble Tribunal in Escorts JCB Ltd. CCE [2000 (118) ELT 650 (CEGAT)] observed as follows: place where excisable goods are sold can be place of removal. A place where the goods are sold can be place where the property in goods sold passes from buyer to seller. If the goods are sold only when they reach the destination, that will be place of removal. The same view was confirmed in CCE Vs. Prabhat Zarda factory Ltd. [2000 (119) ELT 191 (CEGAT) 5 members bench]. Apart from place of removal even if the definition of the transaction value is examined it clearly says that it includes apart from the price of the goods any amount which the buyer is liable to pay by reason of or in connection with the sale. In all the cases where place of removal is different from the manufacturers factory the buyer is liable to pay the transportation charges because the seller incurred such expenses by reason or in connection with the sale. Section 4 (3)(d) of the act define the term transaction value and it reads as follows: transaction value means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods. Area of confusion:- The law regarding inclusion or exclusion of transportation charges are quite unambiguous and confusion some time appears only due to improper interpretation of the statutes. Sometimes show cause notice is issued by the department in a mechanical manner without appreciating the fact that in some cases cost of transportation is included in the price of the goods and the same is part of the transaction value. Rule 5 of the central excise valuation (determination of the price of excisable goods) rules, 2000 provides exclusion of transportation charges from the transaction value but if the explanation 2 to this rule is read carefully it clearly says that the cost of transportation from the factory to the place of removal, where the factory is not the place of removal shall not be excluded. Rule 5 of the above said rules read as follows: Where any excisable goods are sold in the circumstances specified in clause (a) of sub-section (1) of section 4 of the Act except the circumstances in which the excisable goods are sold for delivery at a place other than the place of removal, then the value of such excisable goods shall be deemed to be the transaction value, excluding the cost of transportation from the place of removal upto the place of delivery of such excisable goods. Explanation 1. - Cost of transportation includes - (i) the actual cost of transportation; and (ii) in case where freight is averaged, the cost of transportation calculated in accordance with generally accepted principles of costing. Explanation 2. - For removal of doubts, it is clarified that the cost of transportation from the factory to the place of removal, where the factory is not the place of removal, shall not be excluded for the purposes of determining the value of the excisable goods.] So the transaction value includes all the expenses which are necessary for the goods to be sold and in a given circumstances if the place of removal is somewhere else than the factory then transportation charges are necessary for selling the goods to the buyer and it will be included in the transaction value. Thus in the circumstances where manufacturer sells goods some other place than factory gate, the transportation charges paid by the manufacturer in transporting the goods to the other place (place of removal) is not excludible from the assessable value.

TRANSPORTATION CHARGES ARE NOT ALWAYS DEDUCTABLE FROM THE TRANSACTION VALUE

By: Prabhat Kumar (Advocate)

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