The case involved M/s Kangaro Industries Ltd, a company engaged in the manufacture of staples in strips, which are cleared on payment of appropriate excise duty

The Chandigarh Bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) recently held that sale value is inclusive of freight outward for the purposes of assessing excise duty as the sales are made on a Free on Road ( FOR ) destination basis. The case involved M/s Kangaro Industries Ltd, a company engaged in the manufacture of staples in strips, which are cleared on payment of appropriate excise duty. M/s Kangaro Industries Ltd, based in Ludhiana, Punjab, had been availing of an exemption under a specific notification issued under Section 5A of the Central Excise Act, 1944. This notification provided tax benefits to certain units set up in Jammu & Kashmir, allowing them to claim refunds on the excise duty paid through the Personal Ledger Account ( PLA ) subject to certain value addition norms. The dispute arose when the Commissioner of Central Excise, Jammu, determined that the entire excise duty should be deducted while computing the value addition, and also ruled that freight outward and transit insurance should not be included in the sale value for excise duty purposes. Demystifying Audit Reports: A Deep Dive into Forms 10B and 10BB The key issue in this case was whether the freight outward charges should be included in the sale value when calculating excise duty. The CESTAT bench, comprising S. S. GARG, Member (Judicial), and P. Anjani Kumar, Member (Technical), examined whether the excise duty should be fully deducted while computing value addition, and whether freight outward and transit insurance should be included in the sale price for excise duty calculation. On the first issue, the tribunal reiterated its previous ruling that the refund mechanism under the notification is not an incentive but an extraordinary measure to implement the exemption. The tribunal clarified that the refunded amount is exempted from excise duty, and thus, only the excise duty paid should be deducted from the sale value to compute value addition. This position was consistent with the tribunal’s earlier decisions in similar cases involving the appellant. Regarding the inclusion of freight outward in the sale value, the tribunal referred to established precedents and held that freight and insurance charges are indeed part of the sale price when the sales are made on a FOR (Free on Road) destination basis. The tribunal had earlier stated that, “It is settled law that when the goods are on FOR destination sales and the freight is paid by the seller, the seller cannot claim deduction of freight and insurance from the sale price.” The tribunal further noted that the freight outward charges were shown under selling and distribution expenses in the appellant’s balance sheet, which supported their inclusion in the sale value. The ruling reaffirmed that the excise duty is to be assessed based on the total sale value, including freight outward, as these costs are integral to the sale transaction. The tribunal ultimately set aside the impugned orders issued by the Commissioner of Central Excise, Jammu, and ruled in favor of M/s Kangaro Industries Ltd, granting them consequential relief as per law. Demystifying Audit Reports: A Deep Dive into Forms 10B and 10BB This ruling by the CESTAT bench underscores the principle that freight and insurance charges are part of the sale value for excise duty purposes when the goods are sold on a ‘FOR destination’ basis. The decision provides clarity for businesses on how freight outward costs should be treated in the context of excise duty, ensuring that the assessment reflects the true nature of the sale transaction.