Leave out freight, insurance in excise calculation, says SC

The Supreme Court has held that freight and insurance charges are not to be taken into account in determining the value of goods for imposing excise duty. A Bench headed by Justice S B Sinha, while dismissing the Commissioner of Central Excise’s appeal, asked the (Excise) Department to pay Rs 25,000 to a manufacturer of electronic metres, Accurate Meters Ltd, towards the counsel’s fee.

“... [W]e have no doubt ... That the tribunal (Customs, Excise and Service Tax Appellate Tribunal) (was) correct in the view that the amount claimed by way of transportation charges and insurance cannot be considered for determining the value of the electric metres supplied,” the Bench stated.

The tribunal in its ruling had turned down the Excise Department’s plea. The apex court judgment had come on an appeal by the Central Excise Department against Accurate Meters Ltd, which had entered into contracts with various state electricity boards (SEBs) for supplying electric metres.

While the value of goods was to be fixed at the factory gate, it was decided between the parties that average freight and insurance were to be charged and not on actuals.

According to the court, there were two separate contracts — one for the sale of electric metres and the other governing the transportation of goods. Stating that the charges for transporting goods were not on the basis of actuals, the Bench observed that Accurate Meters was bound to transport the goods at the rates specified in the tender.

Alleging that the goods were actually delivered to the purchasers at their premises and not at the factory gates, the department had sought to levy excise duty of Rs 9.13 lakh plus penalty on the grounds that the company had failed to pay duty on freight and insurance.