Excise duty is payable on the manufacturing or production of the goods. The amount of excise duty to be paid depends upon the assessable value of the goods. The duty is to be paid on the removal of the goods from the factory premises or any other places or premises as prescribed in the central excise rules 2002. Sometimes the manufacturer enters in to a contract with the buyer and as per the contract the goods is to be sold at the buyer premises, these contracts are known as F.O.R. destination contract and here the title of the goods are passes to the buyer at his premises only. In these cases the manufacturer incurs cost of transportation and this cost has to be included in the cost of production and being so it is included in the assessable value of the goods.
The issue of valuation has been dealt by the Central Excise Valuation Rules 2000. Rule 4 of the above said rules says that value of the excisable goods shall be value of “such goods” sold by the assessee for delivery. Being so the element of sale has to be kept in mind at the time of inclusion or exclusion of the freight charges in the assessable value. If the goods are sold at the factory gate freight charges cannot be included in the assessable value. On the other hand if sale is completed at the buyer’s premises as in the case of F.O.R. contract it has to be included in the assessable value. The place of removal as explained in the central excise rules can be at any place and it is not necessarily be the factory gate. This issue has puzzled in judiciary since long time and has been properly settled. The Hon’ble Supreme Court in Escort JCB case [2000 (118) ELT 650 (S.C.)] held that the place where goods are sold and property of the goods passes from buyer to seller can be the place of removal of the goods. The view was considered and affirmed by the Hon’ble Supreme Court in Prabhat Zarda Factory Ltd case later on.
In case of F.O.R. possession is given to the buyer only at the destination and sales takes place only at the buyer premises. Here the place of removal is the buyer premises and freight charges are to be included in the assessable value. On the other hand if the sale takes place at the factory gate but as per contract goods is to be only delivered at buyers premises the freight charges cannot be part of the assessable value. The following decisions support the present issue.
1. Ambuja Cement Vs. Union of India [2009 (336) ELT 431 (H.C.)]
2. Lafarge India Ltd Vs. Commissioner of Central excise, Raipur [2014 (307) ELT 7]
3. Hard Castle Petrofer Pvt. Ltd. Vs. CCE, Jamu [2014 (304) ELT 576 (Tri. Delhi)].
4. Circular No. 988/12/2014-CX dated 20-10-2014.
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