It is a very basic principle of the
law that the law has to be read the way it is written. Once we accept this
principle then can the officials in position resort to interpretation even if
the language in the law is explicit & does not leave any room for
interpretation. There is a separate issue of CENTRAL EXCISE VALUATION
(DETERMINATION OF PRICE OF EXCISABLE GOODS) RULES, 2000 but even after this if
it is not clear to the assessee & the authorities that how valuation is to
be carried out then is it not a telling comment on the competence of the CBEC
in itself. Why then CBEC is not able to address the issue & settle the
same.
This is a series in
relation to the rebate on export of goods. The Rebate sanctioning authorities
are restricting the rebate in cash on the FOB value of exports rather than
permitting the rebate on the assessable value stated in the ARE-1 duly
authenticated by the jurisdictional excise authority. The authorities are
resorting to the Valuation Rules, 2000 for doing so. However, the following
appears very explicitly in the said rules.
Quote:
RULE 5.Where any excisable goods are sold in the circumstances
specified in clause (a) of sub-section (1) of
section 4 of the Act except the circumstances in which the excisable goods are
sold for delivery at a place other than the place of removal, then the value of
such excisable goods shall be deemed to be the transaction value, excluding the
cost of transportation from the place of removal upto the place of delivery of
such excisable goods.
Explanation 1. - “Cost of transportation” includes -
(i) the actual cost of transportation; and
(ii) in case where freight is averaged, the
cost of transportation calculated in accordance with generally accepted
principles of costing.
Explanation 2. - For removal of doubts, it is
clarified that the cost of transportation from the factory to the place of
removal, where the factory is not the place of removal, shall not be excluded
for the purposes of determining the value of the excisable goods.]
Thus it is crystal
clear from the valuation rules itself that freight is not deductible from the
assessable value if the factory is not the place of removal. There is
absolutely no ambiguity & room for interpretation in the law. The
Commissioner (Appeals), Mumbai-II held on the basis of facts that factory is
not the place of removal. However, the department filed appeal with the
Revisionary Authority, Government of India & the RA, GOI remanded the case
to the original authority for the limited purpose of determination of the place
of removal in spite of the facts being brought to the notice of the RA, GOI
that whether it is FOB/CNF or CIF contract the factory is not the place of
removal because goods have to be handed over after clearance by the customs
authorities under the ships rail. Therefore in accordance with the valuation rules,
the freight & insurance cannot be deducted from the assessable/transaction
value.
If we see the
definition of the transaction value then we have to resort to the CBEC circular
issued from F. No. M.F. (D.R.) F. No. 354/81/2000-TRU, dated 30-6-2000 &
the relevant extract reads as under:
Quote:
(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’.
Unquote:
From the above
definition of transaction value it is once again clear that outward handling
forms part of the transaction value. Once again there is no room for any
devious interpretation.
All this has been
brought to the notice of the jurisdictional Assistant/Deputy
Commissioner, Maritime Commissioner, Commissioner
(Appeals), Revision Authority, Government of India but not taken into
consideration. However, all of them are acting in collusion & ignoring the
explicit provisions of the law. This is outright cheating. The moot question is
that if the freight & insurance is not shown separately in the goods
removed for home sales & the assessee pays duty on the invoice amount less
the freight & insurance then will the same be acceptable to the assessing
authorities. Therefore how can they differentiate between home sales transaction
& the export transaction!
Not only
this, the officials in position are indulging into other whimsical
interpretations to solve their motive of depriving the exporter of legitimate entitlement.
The officials are assuming/presuming that the difference between ARE-1 &
the FOB value is freight & insurance when the FOB value is lower. However,
this is not the truth of the matter. The difference can be on account of
exchange rate, testing at the port, storage at the port etc. therefore the
presumption has no legal basis & cannot be used to the disadvantage of the
exporter for prosecution.
It has been
brought to the notice of all the authorities that there is difference in case
of FOB contracts also & in this case there is no freight & insurance
deduction therefore how can it be concluded that difference between FOB value
of exports & ARE-1 is on account of freight & insurance.
Not only
this, the adjudicating authorities are having a prejudiced mind to somehow
restrict rebate to a lower than the entitlement. If the FOB value in the
Shipping bill is higher than no action is taken to recover the duty &
refund the same. How this one track mind approach be accepted in the law!
The
department has no counter to the facts placed on record. However,
when law does not come to the rescue, cheating & abuse of authority is
resorted to & decisions are giving by ignoring the submissions placed on
record. This can only happen in India because there is absolutely no fear of
whatsoever nature because the authorities are sure that nobody will pay any
heed to the complaints of such misdemeanour & ever take action against
them. Thus there is binding legal precedent but no implementation of it, thus
reducing India to a banana republic.
The department is citing the case law 2002 (146) E.L.T. 31 (S.C.) ESCORTS
JCB LTD. Versus COMMISSIONER OF CENTRAL EXCISE, DELHI-II but the same is of no
relevance because in the case of exports there is no dispute that the factory
is not the place of removal & in accordance with valuation rules, 2000
& the definition of transaction value, the freight & insurance is part
of the assessable/transaction value.
We agree that the terms
of the contract are relevant. In case of C & F contract, the freight is the
liability of the seller & in case of CIF contract, the freight &
insurance is the liability of the seller. Therefore freight & insurance are
payable by the seller & thus includible in the assessable/transaction
value. Please note that the title to the goods does not pass to the buyer until
& unless he retrieves the original documents from the bankers after
effecting the payment or accepting the promissory note in case of shipments by
sea or obtains delivery order from the bank. Therefore title to the goods
remain with the seller until & unless the goods are paid for. The issue is
already settled in case 2004 (178) E.L.T. 1034 (Tri. - Chennai) MV MARKETING
& SUPPLIES Versus COMMR. OF CUS. (IMPORT), CHENNAI wherein it is held that
importer having not made the payment to supplier, hence, title of goods not
passed to importer. This decision is in converse applicable to exports.
It is right that the
Excise Act is applicable to the Indian Territory because excise is a tax on
manufacture collected at the time of the removal of the goods. However, there
is no case for limiting the sale to the geographical boundaries. If that is so
then there will be no high seas sale. It is very intriguing that the
authorities are not aware of the fact that there can be consignment sales i.e.
goods are placed in warehouse abroad & sold from there or given to the
consignment agent & invoice raised as & when the goods are sold. Not
only this, the authorities should know that there are contractual terms such as
DDP—Delivered Duty paid i.e. goods are custom cleared & duty is paid by the
seller; DDU-- Delivered Duty Unpaid; DEQ—Delivery Ex Quay & DES-Delivery Ex
Ship also exist. Therefore there cannot be any presumption that goods are sold,
once they are shipped. The export is not complete until & unless the
payment is realized under the Export Promotion policy. The exporter will have
to refund the entitlement if the realization is not made. The authorities
cannot ignore these provisions of the law. Therefore when the provisions are
explicitly clear in respect of the freight & insurance in the Valuation
rules regarding the deduction of the freight & in transaction value that
outward handling is part of it & the export is not complete until the
payment is realized then there is no way that any other view other than that
freight & insurance is part of the transaction/assessable value can be
taken.
This is the tenth part of the story. However, the
story of the abuse of authority does not end here. Further lampooning of the
system & abuse by the authorities will follow in the next write up. Till
then Good bye.
rajiv.pec@gmail.com
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