Per: P.G. Chacko
This matter arises in pursuance of the Hon’ble High Court’s remand order in Writ Petition No. 1614 of 2010, dated 17.3.2010.
2. The appellant is engaged in the manufacture of motor vehicles, which are marketed through dealers. During the period of dispute, the appellant, in agreements entered into with their dealers, sold their cars ex-factory. It was the liability of the buyers to take delivery of the vehicles at the factory gate. However, apparently for the sake of convenience of the dealers, the appellant undertook the transportation of the vehicles to the dealers’ premises through transporters and the cost of transportation incurred by the appellant was to be made good by the buyers. Contextually, it may also be noted that the transportation of the vehicles was undertaken in terms of collateral agreements between the appellant and the transporters. In the invoice issued to the dealer, the appellant showed freight separately, which was paid by the buyer. The freight so paid by the buyer to the appellant was pre-determined, considering numerous factors. We are told that the cars were transported in trucks of various capacities and that, at times, the truck might not be carrying cars of its full capacity and also (by way of an illustration) that the truck laden with cars to its full capacity at the factory gate (Pune) might be transporting some of the cars to a dealer at Bangalore and the remaining cars to a dealer at Cochin. These and other factual circumstances are said to have been taken into account in determining the freight to be shown in the invoices to be recovered from the buyers. In this process, in some cases, the freight collected from the dealer turned out to be more than the actual cost of transportation incurred by the assessee, that is the amount paid to the transporter. In other cases, the freight collected by the assessee from the dealer was less than what was paid by the former to the transporter as actual cost of transportation. The former category of clearance of goods to dealers is the subject-matter of this case. The department issued periodical show-cause notices covering the total period from May, 2005 to March, 2007 to the appellant demanding differential duty on the excess freight collected by them from their dealers over and above the actual cost of transportation incurred by the appellant. Some of these show-cause notices alleged that the appellant had contravened the provisions of Section 4(1)(a) of Central Excise Act, 1944 read with Rule 5 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 by excluding the excess freight from transaction value while determining the assessable value of the goods for the purpose of payment of duty. Other show-cause notices alleged contravention of provisions of Section 4(1)(b) of the Act read with Rule 5 ibid by the appellant inasmuch as they failed to determine the assessable value correctly, which resulted in short-payment of duty. Undervaluation was also generally alleged. Apart from demanding differential duty from the assessee, these show-cause notices also demanded interest on duty under Section 11AB of the Act and proposed penalties under Rule 25 of the Central Excise Rules, 2002. The demand of duty and other proposals were contested by the party. In adjudication of the dispute, the original authority confirmed the demand of duty against the assessee under Section 11A of the Act with interest thereon under Section 11AB of the Act and also appropriated the payments earlier made by the assessee under protest, towards this demand. However, no penalty was imposed on the assessee. An appeal filed by the assessee against the demand of duty and interest thereon was rejected by the Commissioner (Appeals). The present appeal is directed against the appellate Commissioner’s decision.
3. Learned Counsel for the appellant has submitted that what was collected by them from the dealers in excess of the actual cost of transportation was only a profit on transportation and hence the same was not liable to be included in the assessable value of the goods under Section 4 of the Act. It is submitted that the Hon’ble Supreme Court’s decision in Baroda Electric Meters Ltd. Vs. Collector of Central Excise - 1997 (94) ELT 13 (SC) would squarely cover the present valuation issue in favour of the appellant. The learned Counsel has also relied on the Tribunal’s decision in Kothari Sugar and Chemicals Vs. Commissioner of Central Excise - 2005 (192) ELT 447 (Tri-Chennai) and TCP Ltd. Vs. Commissioner of Central Excise - 2008 (230) ELT 181 (Tri-Chennai), wherein this Tribunal followed Baroda Electric Meters case (supra) and set aside demands of duty raised on excess freight collected by the assessees from their customers in respect of excisable goods sold at factory gate. According to the learned Counsel, this appeal is liable to be allowed in view of the said case law.
4. The learned Special Consultant for the Revenue has vehemently contested the above arguments. According to him, the decision of the Hon’ble Supreme Court in Baroda Electric Meters case (supra) is the relevant only for the period prior to 1.7.2000, the date on which the concept of ‘transaction value’ replaced that of normal (deemed) value. It is argued that the view taken in Baroda Electric Meters case (supra) may not be valid for the period from 1.7.2000. For the same reason, the learned Consultant has sought to distinguish Kothari Sugar and Chemicals case (supra) as well as the case of TCP Ltd. (supra). A further reason cited by the learned Consultant against following the above decisions of the Tribunal is that, in those cases, the distinction between the erstwhile deemed value and the present transaction value was not discussed. According to the learned Consultant, the Tribunal’s decision in Kothari Sugar and Chemicals case (supra), on the question whether the excess freight collected by the assessee from the buyer was includable in the assessable value of the goods sold to the latter is sub silentio in so far as the period from 1.7.2000 is concerned. In this context, the learned Consultant has also referred to a decision of the Hon’ble Bombay High Court vide Sheel Thermoplastics Ltd. and Another Vs. Union of India and Another - 1988 (36) ELT 106 (Bom), wherein it had been held thus – ‘where in a case, a particular point of law involved in the decision is not perceived by the court or present to its mind, although such a point was logically involved in the facts and a decision is given without pronouncing on the point, the point passes sub silentio.’ According to the learned Consultant, the Tribunal’s decision in Kothari Sugar and Chemicals case (supra) on the valuation dispute for the period from 1.7.2000 should be considered sub silentio and hence not liable to be followed as a precedent. The learned Consultant has also claimed support from Standard Alkali Vs. Commissioner of Central Excise - 2010 (252) ELT 65 (Tri-Mum), wherein a distinction was found between the concept of normal value (deemed price) which was in vogue prior to 1.7.2000 and the concept of transaction value which was introduced on the said date. The learned Consultant has also referred to Trac Air Conditioning Systems Ltd. Vs. Commissioner of Central Excise - 2005 (180) ELT 327 (Tri-Bang) read with Trac Air Conditioning Systems Ltd. Vs. Commissioner of Central Excise - 2006 (198) ELT 148 (Tri-Bang), the former being a final order passed by the Bench and the latter being a corrective order passed on ROM application filed by the appellant. The endeavor of the learned Consultant is to show that the ratio of Baroda Electric Meters (supra) is not applicable to the facts of the present case.
5. We have given careful consideration to the submissions. It is not in dispute that the amounts collected by the assessee from their dealers towards freight were separately shown in the relevant invoices. Again it is not in dispute that these amounts were more than the respective costs of transportation paid by the assessee to the transporters. The impugned demand of duty is on the differential amount, which, according to the Revenue, is not ‘cost of transportation’ but an ‘additional consideration’ paid by the buyer to the seller. In this connection, the Revenue would rely on Rule 5 and 6 of the Central Excise Valuation Rules, 2000. Rule 5, with its explanation, reads 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.’
The argument advanced on behalf of the Revenue is that any amount not coming within the ambit of ‘cost of transportation’ as defined under Explanation 1 would not be liable to be excluded, under Rule 5, from assessable value. What is excludable from the assessable value is the ‘actual cost of transportation’ actually incurred by the assessee i.e. actually paid to the transporters. Anything collected from the buyer in excess of this amount is not ‘cost of transportation’ but an additional consideration paid by the buyer to the assessee and hence liable to be included, under Rule 6, in the assessable value. Rule 6 referred to by the learned Consultant reads as under: -
‘Where the excisable goods are sold in the circumstances specified in clause (a) of sub section (1) of section 4 of the Act except the circumstance where the price is not the sole consideration for sale, the value of such goods shall be deemed to he the aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee.’
6. As against the above view of the Revenue, the case of the appellant is that the amounts collected by the assessee from their dealers toward freight represent ‘profit on transportation’ and therefore, the decision of the Hon’ble Supreme Court in Baroda Electric Meters case (supra) would be squarely applicable. The learned Consultant for the Revenue has contested this proposition made by the Counsel by pointing out that the view taken by the apex court was relevant only for a period prior to 1.7.2000 when the concept of normal value (deemed price) of excisable goods prevailed. It has been argued that the ratio of the apex court’s decision cannot be applied to a case for the period after 1.7.2000. This argument is based on a professed distinction between ‘normal value’ and ‘transaction value’. In this connection, the learned Consultant has also referred to the definition of ‘transaction value’ given under Section 4(3)(d) of the Central Excise Act. On a perusal of this definition, we find that ‘transaction value’ 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. The definition has an inclusive portion also but the same has not been pressed into service in this case. The question to be considered in the instant case is whether the excess freight collected by the assessee from their dealers would qualify to be ‘an amount that buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with, the sale.’
7. We have perused the agreement between the assessee and one of the dealers and we find that the sale of goods took place at factory gate and the dealer was liable to take delivery of the goods at factory gate. In other words, the dealer was liable to incur the cost of transportation from the factory gate to his own premises. It is also on record that the cost of transportation was initially incurred by the assessee and subsequently recovered from the buyer. What was actually paid by the assessee to the transporter will, of course, be the actual cost of transportation and the same was liable to be excluded from the assessable value even as per Rule 5 relied on by the Revenue. The question which now arises for consideration is whether the amount collected by the assessee from the dealer in excess of the actual cost of transportation should be held to be includable in the assessable value of the goods by virtue of Rule 5. The rule only provides that actual cost of transportation has to be excluded from the assessable value where the goods are sold in the circumstances specified under Section 4(1)(a) of the Act. In the present case, the place of delivery is the factory gate and, even according to the Revenue, the cost of transportation from the factory gate to the buyers- premises is liable to be excluded from the assessable value of the goods. The rule does not provide for inclusion of any excess freight in the assessable value in the circumstances specified under Section 4(1)(a) of the Act. We do not think that the proposal to include the excess freight in the assessable value is corollary to exclusion of the actual cost of transportation from the assessable value. It has been argued that the excess freight collected by the appellant from their dealers is an additional consideration flowing directly or indirectly from the latter to the former and hence should be included in the assessable value of the goods under Rule 6. The term ‘additional consideration’ appears to be referable to the additional amount referred to in the definition of ‘transaction value’ given under Section 4(3)(d) of the Act. This definition indicates that, in addition to the amount charged as price of the excisable goods, 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 would also be includable in transaction value. We find that the excess freight collected by the appellant from their dealers was not an amount which the dealers were liable to pay to, or on behalf of the assessee, be reason of, or in connection with, the sale inasmuch as the relevant agreement of sale did not provide for such payment, the transportation of the goods having been undertaken under a separate agreement between the assessee and the transporter concerned. The buyer was not a party of this agreement. If any excess amount was collected by the assessee from a dealer towards freight, it cannot be considered to be an amount collected by the assessee by a reason of, or in connection with, the sale of the goods. It would be an amount collected by the assessee in connection with the transportation of the goods. The nexus is not between the amount and the sale of the goods but between the amount and the transportation. This aspect was noted by their lordships in the case of Baroda Electric Meters (supra) and it was held that any excess amount collected by the assessee from their customers would be a profit made on transportation and hence such amount would not be includable in the assessable value of the goods since the duty of excise was a tax on manufacture and not on any profit made on transportation. The character of the excess amount collected by the assessee from their dealers stands determined vide Baroda Electric Meters (supra) and therefore, in our considered view, the Revenue is precluded in the present case from contending that such amount represents additional consideration flowing directly or indirectly from buyer to the seller. We are also of the view that the decision of the Hon’ble Supreme Court with regard to the nature of the excess freight would not have been different, had their lordships considered the case for any period after 1.7.2000. The reason is that the crucial question is one of fact rather than of law. The question of fact as to the nature of the excess freight stands determined for all times by the apex court and, accordingly, we hold that the excess freight collected from the dealers was only a profit on transportation and not an ‘additional consideration’ within the meaning of this expression used in Rule 6, nor an ‘additional amount’ within the meaning of the definition of ‘transaction value’ under Section 4(3)(d) of the Act. In this view of the matter, we further hold that the distinction drawn by the learned Consultant for the Revenue between ‘normal value’ and ‘transaction value’ is not relevant in this case.
8. According to the learned Consultant, the Tribunal’s decision in Kothari Sugar and Chemicals (supra) is sub silentio for the period from 1.7.2000. On a perusal of the Tribunal’s order, we come across the crucial finding which reads thus – ‘the excess amounts collected for, or in connection with, the transportation of the goods to the buyers’ premises could be treated as part of the assessee’s profits on transportation and hence, in terms of the apex court’s decision, they should be excluded from the assessable value of the goods.’ It is crystal clear from the finding of the Tribunal that the amount was recognized as having been collected for, or in connection with, transportation of the goods from the factory gate to the buyers’ premises. Obviously, no nexus was found between the said amount and sale of the goods to the buyer. Therefore, one can discern that the concept of transaction value was also borne in mind when the decision was rendered in Kothari Sugar and Chemicals case (supra). The plea of sub silentio is, therefore, not acceptable. For the same reason, we are not in a position to give any weightage to the reliance placed by the learned Consultant on Standard Alkali case (supra) and Trac Air Conditioning Systems (supra). In the circumstances, the suggestion made by the learned Consultant that the issue may be referred to a Larger Bench is not acceptable.
9. In the instant case, for the reasons already noted above, the ratio of the apex court’s decision in Baroda Electric Meters case has got to be followed as a binding precedent. Accordingly, the impugned order is set aside and the appeal is allowed with consequential relief.