Pranav B Prem

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bengaluru has quashed multiple excise duty demands raised against a manufacturer of cement concrete pavers and kerb stones, holding that Section 11D of the Central Excise Act, 1944 cannot be invoked unless an amount is explicitly collected as representing excise duty, and that freight and transportation charges cannot be added to assessable value when sales are made on an ex-factory basis.

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The Bench comprising Dr. D.M. Misra (Judicial Member) and Pullela Nageswara Rao (Technical Member) also set aside interest and penalties imposed by the department, holding that the dispute involved interpretation of exemption and valuation provisions and did not warrant penal consequences.

The case arose from an investigation conducted by the Central Excise department against a Tumkur-based manufacturer engaged in the production of cement concrete interlock pavers and kerb stones. The assessee was availing Small Scale Industry (SSI) exemption under Notification No. 8/2003-CE, which permits duty-free clearances up to an aggregate value of ₹1.5 crore in a financial year.

Based on intelligence inputs, the department alleged that during the period from November 2010 to December 2014, the assessee had collected excise duty amounting to ₹66.83 lakh while availing SSI exemption, recoverable under Section 11D. It was further alleged that excise duty of ₹28.75 lakh was short-paid by excluding freight and transportation charges from assessable value, that duty of ₹17.41 lakh was not discharged for a subsequent period, and that the assessee had suppressed facts with intent to evade duty, justifying invocation of the extended period of limitation and imposition of penalties. The Commissioner of Central Excise confirmed the demands along with interest and penalties, leading to the filing of appeals before the Tribunal.

On the applicability of Section 11D, the Tribunal rejected the department’s contention that the assessee had collected excise duty in the guise of an “all-inclusive price” during the SSI exemption period. The Bench noted that none of the excise invoices issued during the exemption period reflected any amount as excise duty, nor was duty calculated or separately recovered from buyers. It held that merely describing the price as “inclusive of duties wherever applicable” does not amount to collection of duty as required under Section 11D.

The Tribunal observed that Section 11D applies only when an amount is collected “as representing duty of excise”, and not where a consolidated price is charged without showing duty separately. It further noted that while retaining exemption benefits without reducing prices may raise a commercial issue, such profiteering is not covered under Section 11D. Accordingly, the demand of ₹66.83 lakh raised under Section 11D was set aside.

On the issue of valuation, the Tribunal examined whether freight, transportation and loading or unloading charges were includable in the assessable value under Section 4 of the Central Excise Act. It found that, except for limited supplies made to two customers, the majority of clearances were on an ex-factory basis, with transportation arranged on behalf of buyers and charges shown separately in invoices.

In such circumstances, the Tribunal held that transportation costs incurred after removal from the factory gate cannot be included in the assessable value. It further observed that the department had failed to produce sufficient evidence to generalise isolated FOR-site contracts to all clearances. Consequently, the demand of ₹28.75 lakh on inclusion of freight charges was held to be unsustainable.

With respect to the alleged non-payment of duty amounting to ₹17.41 lakh, the Tribunal noted that the duty had already been discharged—partly in cash and partly through CENVAT credit—within the stipulated time. The delay related only to filing of returns, which the assessee attributed to lapses on the part of its Chartered Accountant. Considering the assessee’s status as an SSI unit and the fact that the duty had been appropriated by the department, the Tribunal condoned the delay and set aside the related penal consequences.

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The Tribunal also ruled that the extended period of limitation could not be invoked, as there was no suppression or misrepresentation of facts. Transportation charges were disclosed separately in invoices, and duty was paid wherever applicable after crossing the SSI threshold. Since the dispute involved interpretation of valuation and exemption provisions, penalties imposed under the Act were held to be unsustainable. Allowing the appeals, the CESTAT Bengaluru set aside the impugned order in its entirety, quashing all duty demands, interest and penalties.

Cause Title: M/s. Designer Pavings and Tiles Private Limited Versus The Commissioner of Central Excise Bengaluru II Commissionerate

Case No: Central Excise Appeal No. 21053 of 2016

Coram: Dr. D.M. Misra (Judicial Member) and Pullela Nageswara Rao (Technical Member)