2026-VIL-1067-CESTAT-KOL-CE
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CENTRAL EXCISE CESTAT Cases

Central Excise - Inclusion of freight charges in assessable value for excise duty in ex-works contracts - Appellant, engaged in manufacturing boiler equipment, entered into separate contracts for supply of equipment on ex-works basis and transportation thereof to customer premises. The appellant raised separate invoices for supply of equipment excluding transportation charges, and paid excise duty accordingly - Revenue authority sought to include transportation charges in the assessable value contending that ownership remained with the appellant until erection at customer site, making the customer premises the place of removal - Whether freight charges can be included in the assessable value for payment of excise duty when goods are sold on ex-works basis with separate contracts and invoices for transportation undertaken on behalf of the buyer – HELD – The freight charges cannot be included in the assessable value for payment of excise duty in such cases. Under Section 4 of the Central Excise Act, 1944 during the relevant period, place of removal is restricted to the factory or warehouse of the manufacturer. Ex-works is an international trade term where the seller's obligation is fulfilled by making goods available at their own premises, and title and risk pass to the buyer at the factory gate itself. The provision does not enable any other premises except the factory or warehouse to be treated as place of removal - Appellant’s scope of the contract is to only supply the equipment at the factory gate, from where the risk and title passes on to the buyer. The Appellant has further executed another contract for transportation of the equipment to the customer’s premises, and erection & commissioning of the equipment, for which a separate consideration is charged. Therefore, it is evident that the transportation charges are charged beyond the place of removal, viz. factory gate, since the contract for supply of equipment is Ex-works / FOR Works which involves only making the goods available at the factory gate - For the period prior to the amendment on 14.05.2003, there is no extended place of removal and the factory premises alone can be the place of removal. The provision does not enable any other premises except the factory or warehouse of the manufacturer, to be treated as the place of removal. Thus, in terms of Rule 5 of the Valuation Rules, the transportation cost beyond the factory gate would not be includible in the assessable value of the final products cleared by the Appellant – Further, even after the amendment, the buyer's premises cannot be considered as place of removal for ex-works supplies as the specified premises must be relatable to the manufacturer and not to third parties like buyers - The appellant raised separate invoices for supply without transportation elements, which is not disputed. According to Rule 5 of the Valuation Rules, when goods are sold for delivery at a place other than the place of removal, the value excludes transportation cost provided it is charged separately and shown distinctly in invoices, which is precisely the case here. The transportation cost incurred post-clearance from factory cannot be included in assessable value - The demands of duty, interest and penalty in the impugned order are set aside. The appeal is allowed - Application of Rule 8 of Valuation Rules to goods sold on ex-works basis in turnkey projects - Appellant supplied manufactured equipment on ex-works basis to customers at the factory gate, after which the customers provided these goods back to the appellant for erection and commissioning at the project site under separate contracts - Whether Rule 8 of the Valuation Rules applies to goods sold on ex-works basis under turnkey projects when the goods are provided back by the customer for erection and commissioning at the project site – HELD - The essential condition for applying Rule 8 is that goods must not be sold by the assessee but used for consumption by the assessee or on its behalf. However, in the present case, the goods were already sold by the appellant to the customers at the factory gate on ex-works basis. Once goods are sold, there cannot be any captive consumption of the very same goods by the appellant. The subsequent provision of sold goods by the customers to the appellant for erection and commissioning does not transform the nature of the transaction to captive consumption - In turnkey projects involving substantial civil works, the finally erected equipment acquires the character of immovable property. Turnkey projects like power plants involving assembly, installation and erection of components on civil structures at site are not considered excisable goods for central excise duty purposes - The Department cannot in any way attempt to levy excise duty on any value beyond the transaction value of the manufactured goods, viz. value of bought out components, erection and commissioning value of the boilers etc., by treating it as captive consumption, since boilers are an immovable property. Thus, the demand confirmed in the impugned order by adopting Rule 8 of the valuation Rules is not sustainable and set aside - Invocation of extended period of limitation for overlapping demands and interpretational issues - Revenue authority issued multiple show cause notices with overlapping periods invoking the extended period of limitation on the same valuation issues - Whether extended period of limitation can be invoked where show cause notices are issued for identical issues covering overlapping periods, and where the issues are interpretational in nature – HELD - Once the first show cause notice invoking extended period of limitation was issued, the facts were brought into the knowledge of the Department. Accordingly, invocation of extended period of limitation in subsequent notices covering overlapping periods is legally untenable – Further, extended period of limitation cannot be invoked for non-disclosure of information which is not required to be disclosed in statutory returns or forms. The information regarding transportation charges as a separate element may not be required disclosure in regular returns. Most significantly, all issues involved in the case are interpretational in nature, relating to the correct understanding and application of provisions, without any malafide intent on the part of the appellant. The extended period of limitation is a severe remedy which cannot be invoked for mere interpretational issues that are genuinely open to debate - The demands confirmed in the impugned order by invoking the extended period of limitation are not sustainable and are set aside - Interest and penalty demands ancillary to unsustainable principal excise duty demand - Whether interest and penalty can be sustained when the principal demand for excise duty is found to be unsustainable – HELD - Where the principal demand itself is not sustainable, the ancillary demands for interest and penalty do not survive. The interest and penalty are consequential to the principal demand and have no independent basis to stand once the underlying demand is set aside. Penalty cannot be levied where the taxpayer has taken a reasonable interpretation of law, even if subsequently found to be incorrect.
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