IS freight & insurance included while calculating excise duty, vat & cst?

As you are aware that excise duty is required to be paid on “Transaction Value” which is defined in clause (d) of Explanation VI to Section 4 of the Central Excise Act, 1944. However, from this definition, we do not get clarity on inclusions and exclusions of charges while calculating excise duty. The definition is reproduced below for your ready reference: (d) “transaction value” means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods. Now the practical question to answer is whether charges of outward freight and insurance are required to be included in the “Transaction Value”, when such charges are shown separately in the excise invoice or recovered separately by issuing Debit Notes. I have observed that in most of the excise audits (EA-2000), department auditors are raising this point and asking assessees to pay excise duty on charges of outward freight and insurance when shown separately in excise invoice or recovered separately by issuing Debit Notes. In this connection, I wish to refer the most recent decision of the Hon’ble Supreme Court in the case of CCE, Mumbai-III v/s EMCO Ltd. reported in 2015-TIOL-163-SC-CX (matter was heard on July 31, 2015) wherein it is held that charges of outward freight and insurance are to be included only when such charges are incurred before the “place of removal”. Thus, if such charges are incurred after “place of removal” of manufactured goods, then in that case, such charges are to be excluded from “Transaction value”. Thus, now it becomes very important to understand the meaning of the term “place of removal”. The term “place of removal” is defined in clause (c) of Explanation VI to Section 4 of the Central Excise Act, 1944. The definition is reproduced below for your ready reference:

As you are aware that excise duty is required to be paid on “Transaction Value” which is defined in clause (d) of Explanation VI to Section 4 of the Central Excise Act, 1944. However, from this definition, we do not get clarity on inclusions and exclusions of charges while calculating excise duty. The definition is reproduced below for your ready reference: (d) “transaction value” means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods. Now the practical question to answer is whether charges of outward freight and insurance are required to be included in the “Transaction Value”, when such charges are shown separately in the excise invoice or recovered separately by issuing Debit Notes. I have observed that in most of the excise audits (EA-2000), department auditors are raising this point and asking assessees to pay excise duty on charges of outward freight and insurance when shown separately in excise invoice or recovered separately by issuing Debit Notes. In this connection, I wish to refer the most recent decision of the Hon’ble Supreme Court in the case of CCE, Mumbai-III v/s EMCO Ltd. reported in 2015-TIOL-163-SC-CX (matter was heard on July 31, 2015) wherein it is held that charges of outward freight and insurance are to be included only when such charges are incurred before the “place of removal”. Thus, if such charges are incurred after “place of removal” of manufactured goods, then in that case, such charges are to be excluded from “Transaction value”

As you are aware that excise duty is required to be paid on “Transaction Value” which is defined in clause (d) of Explanation VI to Section 4 of the Central Excise Act, 1944. However, from this definition, we do not get clarity on inclusions and exclusions of charges while calculating excise duty. The definition is reproduced below for your ready reference: (d) “transaction value” means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods. Now the practical question to answer is whether charges of outward freight and insurance are required to be included in the “Transaction Value”, when such charges are shown separately in the excise invoice or recovered separately by issuing Debit Notes. I have observed that in most of the excise audits (EA-2000), department auditors are raising this point and asking assessees to pay excise duty on charges of outward freight and insurance when shown separately in excise invoice or recovered separately by issuing Debit Notes. In this connection, I wish to refer the most recent decision of the Hon’ble Supreme Court in the case of CCE, Mumbai-III v/s EMCO Ltd. reported in 2015-TIOL-163-SC-CX (matter was heard on July 31, 2015) wherein it is held that charges of outward freight and insurance are to be included only when such charges are incurred before the “place of removal”. Thus, if such charges are incurred after “place of removal” of manufactured goods, then in that case, such charges are to be excluded from “Transaction value”. Thus, now it becomes very important to understand the meaning of the term “place of removal”. The term “place of removal” is defined in clause (c) of Explanation VI to Section 4 of the Central Excise Act, 1944. The definition is reproduced below for your ready reference: (c) “place of removal” means – (i) a factory or any other place or premises of production or manufacture of the excisable goods; (ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty; [(iii) a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory; from where such goods are removed; It can be seen from the above definition that “place of removal” is the place or premises from where the excisable goods are to be sold after their clearance from the factory and from where such goods are removed. Thus, ‘place of removal’, in any given case becomes a crucial determinative factor for the purpose of valuation. It may be noted that the Hon’ble Supreme Court in the above referred case has specifically mentioned that determination of “place of removal” depends on the facts of each case. Thus, in any given case, what is to be determined is the premises from where “sale” of manufactured goods is going to take place. In this connection, I would like to refer the latest Circular No. 988/12/2014-CX dated October 20, 2014 and Circular No. 999/6/2015-CX dated February 28, 2015 wherein it has been clarified that one has to refer Section 19 to Section 24 of the Sale of Goods Act, 1930 in order to determine the place where “sale” has taken place.