The Supreme Court of India (SC) in a recent decision in CCE, Aurangabad v. M/s Roofit Industries Ltd (Civil Appeal No. 554 of 2004) has confirmed inclusion of freight, insurance and unloading charges in assessable value for excise duty under Section 4 of the Central Excise Act, 1944 where the terms of delivery was at the premises of the buyer. The SC set aside the Custom Excise and Service Tax Appellate Tribunal (Tribunal) order while arriving at this position of law and distinguishing its earlier decision in the matter of Escorts JCB Ltd v. CCE [2002 (146) ELT 31 (SC)].
Roofit Industries Ltd entered into various agreements for execution of work orders for Government authorities and private contractors which involved designing, manufacturing, providing at site, laying, jointing and testing of PSC pipes of specified sizes.
It was alleged that the place of removal of finished goods was the buyer's premises and not the factory gate and therefore, freight, insurance and unloading charges could not be deducted from the price of excisable goods for excise duty payment.
The SC observed that in the impugned case, terms and conditions of the work order clearly indicated that the goods were to be delivered at the place of the buyer and the acceptance of supplies were to be effected at that place only. The price of the goods was inclusive of the cost of material, central excise duty, loading, transportation, transit risk and unloading charges etc. Transit damage / breakage was on account of the assessee, which clearly implied that ownership of the goods remained with the assessee till the goods had reached the destination. From these facts, the SC concluded that the sale of goods had not taken place at the factory gate. Consequently, the Tribunal order was set aside and the department’s appeal was allowed, restoring the order passed by the Adjudicating Authority, which included the said expenses in assessable value for payment of excise duty.
The said decision strengthens the importance of determination of place of removal for the purpose of levy of excise duty on goods manufactured.
The intention of the parties acts as a key determinant to decide if the ‘place of removal’ is factory premise or the customer premises. Contracts should be appropriately worded to define the situs of transfer of ownership.