Section 4 of central excise act.

Should transportation charges be included in transaction value u/s 4 of Central Excise Act for the purpose of calculation of Excise Duty. this transportation charges is recovered from the customer. Can anyone please answer my question (with reference to case law if any)? Thanks

Replies (4)

Sunil ji,

Cost of transportation is included in the transaction value upto the place of removal...thus it can be recovered from the customer.

Lets c the others reply.

Aakanksha is correct. I just elaborate. If place of removal is factory, cost of tranporation is not to be included in the transaction value, provided the same is charged separately in the invoice. If place of removal is depot/consignment agent's premises, then cost of transportation from factory to such depot/consignment agent form part of transaction value.

If factory gate is place of removal then transportation charges is not to be included in valuation in terms of section 4 of the act.However if the factory gate is not the place of removal then transpotation charges  are not excluded from the transaction value(sec.5 of the central excise valuation rules,2000).It is suppoted by judicial pronouncements also(Ambuja cements vs UOI 2009(236)ELT431P&H High Court.

I want to add and elaborate that whether transaction value should include transportation charges or not depends upon two factors :

1> Place of Removal ; and

2> Terms of Sale Contract

As per Excise Valuation Rules, transaction value will include transportation charges upto the place of removal. Now deciding factor would be which place would be "place of removal". The answer to this question lies in "terms of sales". There may be following conditions prevailing :

1> The seller delivers goods at factory gate and neither transportation is his responsibility nor he charges for the same as part of sale price. In this case, answer is no.

2> The seller delivers goods from factory and price includes transportation charges upto customers' doorstep and all transit risk including transit insurance is responsibility of the seller and terms of sales speaks of these terms. In such case sale transaction is completed at the doorstep of the customer and, therefore, place of removal will be customers' doorstep and, therefore, transportation charges will form part of transaction value.

3> If the goods are sold from depot and neither transportation is his responsibility nor he charges for the same as part of sale price. In this case, sales takes place at depot itself and, therefore, depot would be place of removal and, therefore, transportation charges upto depot will form part of transaction value.

4>The seller delivers goods from  depot and price includes transportation charges from depot upto customers' doorstep and all transit risk including transit insurance is responsibility of the seller and terms of sales speaks of these terms. In such case sale transaction is completed at the doorstep of the customer and, therefore, place of removal will be customers' doorstep and, therefore, transportation charges upto customer's place will form part of transaction value.

I trust, this will further clarify the issue in the mind of querist.

CA Dilip Kumar Agarwal

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