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Determination of Assessable value - Equalisation of freight in cases of
multi product, multi factory companies
Circular
No. 287 dated 14th January 1997
Sub-Section
(2) of Section 4 of the Central Excise Act, 1944 provides for exclusion of the
cost of transportation from the place of removal to the place of delivery, from
the value of excisable goods, where the price thereof 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.
2.
The Supreme Court in the case of Union of India Vs. Bombay Tyre
International Ltd. (1983 ELT 1896), referring to the entitlement of the assessee
to a deduction on account of the cost of transportation of the excisable article
from the factory gate to the place or the places where it is sold, observed as
under:
"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. " (Para 50)
3.
Now a question has arisen how the deduction on account of freight has to
be allowed in respect of multi-product, multi-factory companies where it may not
be possible to work out separately product-wise and factory-wise freight charges
to be deducted. Similar question was considered by the CEGAT in the case of M/s
Indian-Explosive Ltd. Vs. CCE [1989 (40) ELT 190 (t) and it was held as follows:
Deductions
on account of freight and transit insurance should be allowed pro-rata on
average basis after verifying the claims of the appellants made on the basis of
6 categories of products; for this purpose, the total cost of transportation of
the two factories for a year or a quarter, as convenient could be taken
together, the pro-rata cost for exempted, non-excisable and specific rated
products transported deducted therefrom and the balance amount allocated to
individual and valorem rated products on weight basis, sale-unit basis.
4.
The matter has been further examined and it is felt that in
multi-products and multi-location factories if equalised freight cannot be
worked product wise, the principle laid down by the CEGAT in above said decision
may be followed to work out equalised freight/averaged freight for the purposes
of Section 4 (2) of Central Excise Act, 1944.
5.
For removal of any doubt, it is further clarified that the deduction of
equalised freight/ averaged freight from the price prevalent at other place of
removal as defined under clause (ii) to section 4 (4) (b) would not arise on and
after 28.9.96. The clarification given against the fourth point of doubt in
Board's F. No. 6/31/96-CX.1 (circular No. 251/85/96-CX) dated 14.10.96 may be
referred to.
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