The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ), Regional Bench in Allahabad, has held that insurance charges collected by a manufacturer are to be excluded from the assessable value and are therefore exempt from excise duty.
The order came in response to the Excise Appeal filed by M/s GSC Toughened Glass against the order issued by the Commissioner ( Appeals ), Central Goods and Services Tax ( CGST ), Noida.
The appellant, a manufacturer of toughened glass, laminated glass and insulated glass, challenged the findings of the Commissioner ( Appeals ) regarding the disclosure of ‘Other Income’ related to insurance charges.
The case revolved around the period from December 2006 to January 2008 when an audit revealed that the appellant had disclosed insurance charges of Rs.5,82,065 recovered in excess from the customers under the head ‘Other Income’ but had not deposited excise duty on the same. A letter was issued to the appellant directing them to deposit the excise duty/service tax on the sale under ‘Business Auxiliary Service’ along with interest.
The appellant, in their response letter, argued that the excess amount could not be included in the transaction value, and consequently, excise duty was not payable. According to the appellant, this response was accepted by the Revenue as no Show Cause Notice ( SCN ) was issued for the mentioned period.
However, a subsequent audit for the period from February 2008 to January 2009 raised objections, and during the audit for April 2008 to March 2010, it was observed that the appellant had collected excess insurance charges from customers, but no excise duty was paid on the same. A Show Cause Notice was issued proposing to demand duty amounting to Rs.2,05,507.88/- along with interest and penalty.
The Commissioner ( Appeals ) dropped the proceedings initiated in the Show Cause Notice. The Revenue filed an appeal against the same. The Commissioner ( Appeals ) allowed the appeal and annulled the Order-In-Original. This decision was contested by the appellant before the CESTAT.
The appellant, represented by Shri Nishant Mishra, argued that the excess amount recovered by the appellant should not form part of the assessable value. He emphasised that there was no allegation or finding that manufactured goods were not cleared at the factory gate, or that the appellant and buyers were related persons, or that the price was not the sole consideration for sale.
It was also submitted that the assessable value is the transaction value and that insurance charges cannot be included in the assessable value.
The respondent revenue, Commissioner of Central Excise, Gautam Budh Nagar, represented by Shri Santosh Kumar argued that the excess insurance charges collected by M/s GSC Toughened Glass should be considered as part of the assessable value. It was also contended that the amount, when appropriated by the appellant, represented a profit element subject to excise duty. The Commissioner ( Appeals ) supported this view, leading to the appeal before CESTAT.
The bench, referring to the precedent set by the Hon’ble Supreme Court in the case of Baroda Electric Meters Ltd. V/s Collector of Central Excise reported in ( 1997 ) 11 Supreme Court Cases 697, stated that the issue is not more res integra and has already been decided by the Hon’ble Supreme Court.
The CESTAT held that excess amounts represent a profit element and, as such, cannot be subjected to excise duty, which is leviable on the manufacture of goods and not on profit.
This CESTAT emphasised that excise duty is a tax levied on the manufacture of goods and not on the profits made by a dealer. Manufacturers can exclude insurance charges from the assessable value.
In result, the two-member bench comprising Mr. P.K. Choudhary ( Judicial Member ) and Mr. Sanjiv Srivastava ( Technical Member ) set aside the Order-In-Appeal and reinstated the Order-In-Original upholding the principle that excise duty does not extend to profit elements. The appeal filed by the appellant was allowed with consequential relief, if any, as per the law.
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