The cost of transportation from factory to depot not excisable

The Central Excise Act was amended by  the Finance Act, 1996, whereby no amendment was made in Section 4(2) of the Act of 1944 but Clause (i­a) was inserted after clause (i) under sub clause(a) of sub­section(1)of Section 4, whereby, by deeming clause, it has been provided that where the price at which such goods are ordinarily  sold by  the  assessee is  different  for different  places  of removal,  each  other  price  shall  subject  to  the existence  of  other circumstances specified in clause(a), be deemed  to be  the normal price   of   such   goods   in   relation   to   each   such   place   of   removal. The department contended that, after the amendment, the cost Incurred up to the place of delivery is liable for excise duty.

The landmark judgment of Hon’able Apex Court, in case of UOI & ors. Vs. Bombay Tyre International Ltd., was relied upon whereby it was held that wholesale price actually charged by the manufacturer consists of not  merely his manufacturing cost and his manufacturing profit but includes, in addition, a whole range of expenses and an element of   profit,  which  is  known  as  “post­manufacturing   expenses”  and “post manufacturing profit”. Further held   that new   Section   4 provides by sub­section (2) that where the price of excisable goods for delivery at the place of removal is not known and the value is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery has to be excluded from such price. In para­50 of the said judgment, after considering the various aspects of the matter, held as follows:

“But the assessee will be entitled to a deduction on account of the cost of transportation of the excisable article from the factory gate to the place or places where   it   is   sold.   The   cost   of   transportation will include   the   cost   of   insurance   on   the   freight for transportation of the goods from the factory gate to the place or places of delivery”.

Then in  para­51, it  has  been  held  that where  freight is averaged and the averaged freight is included in the wholesale cash price so that the wholesale cash price at any place or places outside the   factory  gate  is  the   same  as  the   wholesale   cash  price  at  the factory gate,  the averaged freight included in such wholesale cash price has to be deducted in order to arrive at the real wholesale cash price at the factory gate and no excise duty can be charged on it.

In accordance with the said judgment of the  Hon’ble   Supreme   Court, even after insertion of clause (i­a) in Section 4(1)(a) by  the Act of 1996 ,  the cost of  transportation from factory to depot cannot be included in the value of the goods.

For more detail please refer the judgment of JHARKHAND HIGH COURT in the case of M/s Bihar Sponge Iron Limited Vs. Union of India and others.