Transportation Cost-assessable Value

The Central Board of Excise & Customs had issued Central Excise Manual containing supplementary instructions relating to Central Excise on 1st September, 2001. It is stated in the chapter 8 relating to Export under claim for rebate that goods shall be assessed to the duty in the same manner as the goods for home consumption. The value shall be “ transaction value” and should conform to section 4 of the Central Excise Act, 1944. Section 4 of the Central Excise Act, 1944 states that when duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shalla) in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for sale, be the transaction value; b) in any other case, including the case where the goods are not sold, the value shall be determined in accordance with the Central Excise Valuation ( Determionation of Price of Excisable Goods) Rules, 2000. “Place of Removal” means – (i)

a factory or any other place or premises of manufacture of the excisable goods; (ii) a warehouse or any place or premises wherein the excisable goods have been permitted to be deposited without payment of duty, from where such goods are removed; “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 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. Central Excise Manual of supplementary instructions as is stated above states that whatever elements which enrich the value of goods before their marketing and were held by Hon’ble Supreme Court to be includible in “value” under the erstwhile section 4 would continue to form part of section 4 value even under new system. The Hon’ble Supreme Court had decided in the case of MRF that “ all factors which contribute to the marketability of product must form part of assessable value till the goods reach customer’s hand”. As we are exporting our product on FOB basis which means seller has to bear all the risks and cost till the goods pass the Ship’s rail in the port of shipment so in a FOB

contract for sale as it is in our case local transportation cost are necessary cost for making the product marketable & hence it will be included in the assessable value. Further, Section 2(h) of the Central Excise Act defines the term “sale” as under : “ Sale and purchase with their grammatical variations and cognate expressions mean any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration.” Section 4 of Sale of Goods Act, 1930, defines Sale and agreement to sale as under : A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. When the transfer of property in the goods is to take place subject to certain conditions to be fulfilled, the contract is called agreement to sell. An agreement to sell becomes a sale when the conditions are fulfilled subject to which property in the goods is to be transferred. In the case of FOB contract goods are delivered to the possession of the buyer after the ship’s rail in the port of shipment. So as per section 2(h) of the Central Excise Act, discussed above sale is completed only when goods passes the ship’s rail. Moreover in case of a FOB contract as the risk in the good is of buyer as he has to bear all the damages and loss of the goods till the ship’s rail so property in goods can be said to be transferred only when they passes the ship’s rail so as per Sale of Goods Act also sale is completed only after the goods passes the ship’s rail. From the analysis of the definition of “Transaction Value” as stated above it clearly emerges that apart from the price of goods any amount that the buyer is liable to pay by reason of or in connection with the sale will also form part of “Transaction Value”. As per above discussion of definition of “sale”, the sale is completed only after ship’s rail hence Transportation cost will be included in the assessable value as it will form part of amount in connection with the sale. Even if the department raises an objection regarding the above discussion & says that sale in our case is completed at our factory itself and transportation cost has to be excluded in the assessable value. Central Excise Valuation ( Determination of Price of Excisable Goods) Rules, 2001 states that in case delivery of goods is made by the assessee at a place other than the factory then exclusion of transportation cost is allowed only if assessee has shown them separately in their invoice. As in our case transportation cost is separately not shown in the invoice so they cannot be excluded. Moreover Central Excise Manual of supplementary instructions states that when the assessee includes all their costs incurred in relation to manufacture and marketing while fixing price payable for the goods and bills and collects an all inclusive price the transaction value will generally be the assessable value.

In conclusion from all the discussions above it is amply clear that in case of an FOB contract price transportation cost will form part of the assessable value.