Circular No. 287/3/97-CX dated 14/1/97

Sub-section (2) of Section 4 of the Central Excise Act, 1994 provides for exclusion of the cost of transportation from the "place of removal" to the "place of delivery, from the value of excisable goods, where the price thereof for delivery at the" place of removal" is not known and the value is determined with reference to the price for delivery at a place other than the "place of removal".

2. The Supreme Court in the case of Union of India Vs. Bombay Tyre International Ltd. (1983 ELT 1896), referring to the entitlement of the assessee to a deduction on account of the cost of transportation of the excisable article from the factory gate to the place or the places where it is sold, observed as under :-

"Where freight is averaged and the averaged freight is included in the wholesale cash price so that the wholesale cash price at any place or places outside the factory gate is the same as the wholesale cash price has to be deducted in order to arrive at the real wholesale cash price at the factory gate and no excise duty can be charged on it".
(Para 50).

3. Now a question has arisen how the deduction on account of freight has to be allowed in respect of multi-product, multi-factory companies where it may not be possible to work out separately product-wise and factory-wise freight charges to be deducted. Similar question was considered by the CEGAT in the case of M/s Indian Explosive Ltd. Vs. CCE [1989 (40) ELT 190 (T)] and it was held as follows:-

"Deductions on account of freight and transit insurance should be allowed pro-rata on average basis after verifying the claims of the appellants made on the basis of 6 categories of products; for this purpose, the total cost of transportation of the two factories for a year or a quarter, as convenient could be taken together, the pro-rata cost for exempted, non-excisable and specific rated products transported deducted therefrom and the balance amount allocated to individual ad valorem rated products on weight basis, sale-unit basis.

4. The matter has been further examined and it is felt that in multi- products and multi-location factories if equalised freight cannot be worked product wise, the principle laid down by the CEGAT in above said decision may be followed to work out equalised freight / averaged freight for the purposes of Section 4(2) of Central Excise Act, 1944.

5. For removal of any doubt, it is further clarified that the deduction of equalised freight from the price prevalent at other place of removal as defined under clause (iii) to section 4(4)(b) would not arise on and after 28.9.96. The clarification given against the fourth point of doubt in Board"s F.No. 6/31/96-CX.I (circular No. 251/85/96-CX) dated 14.10.96 may be referred to.

Sd/-
(S.C. Bhatia)
Under Secretary (Cx.1)

F.No. 6/55/96-Cx.l

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