CESTAT Rules: Separate Freight Charges Not Taxable Under Excise Duty

CESTAT Rules: Separate Freight Charges Not Taxable Under Excise Duty

A recent decision by the Ahmedabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), presided over by Ramesh Nair (Judicial Member) and Raju (Technical Member), has clarified the treatment of freight and insurance charges for excise duty purposes. The case involved a company (referred to as the "appellant" or "assessee") that faced a dispute with the excise department.

The appellant had contracts to deliver excisable goods (goods subject to excise duty) to Indian Oil Corporation Ltd. (IOCL) and Hindustan Petroleum Corp. Ltd. (HPCL) at specific locations. The agreed-upon price for the goods was fixed and did not include any freight charges. These transportation costs were billed separately in the invoices issued by the appellant.

The excise department argued that the freight and insurance charges collected by the appellant should be included in the "transaction value" of the goods. The transaction value is the basis for calculating excise duty. By including these charges, the department aimed to increase the amount of excise duty payable by the appellant.

The appellant, determined to contest the department's stance, presented a compelling case. Firstly, they highlighted the concept of "separate pricing." The excisable goods left their factory at a pre-determined price, a fixed amount that did not include any freight costs whatsoever. Secondly, transparency was emphasised through the purchase orders issued by IOCL and HPCL. These orders explicitly stated both the price of the goods themselves and the additional transportation cost as distinct items. Finally, the appellant pointed to their clear invoicing practices. The invoices provided to the buyers meticulously listed the price of the goods as a separate line item, with the transportation cost presented as another distinct item, leaving no room for misinterpretation.

The tribunal presided over by Ramesh Nair (Judicial Member) and Raju (Technical Member), sided with the appellant. They found no valid reason to disallow the deduction for the freight and insurance charges, particularly since the sales were for destination delivery (meaning the appellant was responsible for delivering the goods to the buyers' locations).

The tribunal acknowledged that the invoices explicitly separated the base price of the goods from the transportation costs. This transparency, coupled with the supporting evidence of separate pricing in the purchase orders, convinced the tribunal that the freight and insurance charges were bona fide expenses. As such, they ruled that these charges should not be included in the assessable value for calculating excise duty.