CESTAT Upholds Inclusion of Freight in Excise Valuation for FOR Sales, Remands Ramco Cements Case for Recalculation [Read Order]

The case involved M/s The Ramco Cements Ltd., which was in appeal against two separate Orders-in-Original passed by the Commissioner of Central Tax, Guntur. The department had demanded excise duty of over Rs. 11.6 crore, along with interest and penalties, for the period from 2007 to 2013.

The core issue was that Ramco Cements, while selling cement on an FOR destination basis (where the seller bears the cost of freight), was paying excise duty on a value that excluded the transportation charges collected from customers. The department contended that this was incorrect as per Section 4(3)(c)(iii) of the Central Excise Tariff Act, 1985.

Want a deeper insight into the Income Tax Bill, 2025? Click here

The central legal question before the tribunal was the determination of the "place of removal" for excise valuation. The appellant, M/s The Ramco Cements, relied heavily on the Supreme Court's judgment in Ispat Industries Ltd., arguing that the place of removal is always the factory gate or depot, thereby making freight charges excludable from the assessable value. They cited several other CESTAT decisions that had followed this principle.

The department, on the other hand, countered by referencing a Larger Bench decision of this very Tribunal in the appellant's own case (The Ramco Cements Ltd Vs CCE, Puducherry), along with other recent orders. They argued that for FOR contracts, the judgments in Roofit Industries Ltd. and Emco Ltd. were more applicable, which would establish the customer's premises as the place of removal, thus necessitating the inclusion of freight in the transaction value.

The CESTAT bench, comprising Mr. A.K. Jyotishi (Technical Member) and Mr. Angad Prasad (Judicial Member), sided with the department's primary contention. They agreed that in cases of FOR destination sales, the place of removal is the customer's premises, and consequently, the freight element is not excludable from the assessable value for the purpose of determining excise duty.

The tribunal also upheld the invocation of the extended period of limitation, noting that the appellant was aware of the provisions and had not fully disclosed the terms of its sales agreements with the department.

How to Audit Public Charitable Trusts under the Income Tax Act Click Here

However, the tribunal found merit in two of the appellant's contentions that had not been adequately addressed by the adjudicating authority. Firstly, it noted that for sales made on the basis of Retail Sale Price (RSP) or Maximum Retail Price (MRP), the question of adding freight separately would not arise, as the freight element is inherently included in such declared prices.

Secondly, the tribunal observed that the appellant should be given an opportunity to prove the actual quantum of freight collected, which they claimed was significantly lower than the figure used by the department to compute the duty demand.

While upholding the legal principle that freight is includable for FOR sales, the CESTAT allowed the appeals partly by way of remand. The matter was sent back to the original adjudicating authority to re-determine the duty liability, specifically to exclude sales made under RSP/MRP and to verify the actual freight charges collected by M/s The Ramco Cements from its customers.

Support our journalism by subscribing to Taxscanpremium. Follow us on Telegram for quick updates