Freight on Explosives Deliveries Includible in Assessable Value: CESTAT

The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that freight and related transportation charges for delivery of explosives at customers’ premises are includible in the assessable value when the sale effectively takes place at the buyer’s site. The bench of Angad Prasad, Member (Judicial) and A.K. Jyotishi (Technical Member) set aside the invocation of the extended limitation period and related penalty, restricting the demand to the normal period. During the audit, the department observed that the appellant had collected freight charges from customers but had not included the same in the assessable value for the purpose of payment of Central Excise duty. Although the purchase orders described the pricing as “ex-works,” the explosives—owing to their sensitive and hazardous nature—were mandatorily transported through specialized vehicles arranged by the appellant. The appellant was also responsible for transit insurance and bore the risk of damage until delivery at the buyer’s premises. Further, deliveries were subject to compliance with safety norms of the Petroleum and Explosives Safety Organization (PESO), and acknowledgment was obtained at the customer’s end. The department argued that in substance, the sale was completed only upon delivery at the buyer’s premises. Hence, the buyer’s premises constituted the “place of removal,” making freight charges includible in the assessable value. The appellant contended that the transportation arrangement was driven by statutory requirements and did not alter the character of the sale as an ex-factory transaction. It relied on the Supreme Court’s ruling in Supreme Court of India in CCE, Nagpur v. Ispat Industries Ltd to argue that the factory gate should ordinarily be treated as the place of removal. The company further argued that merely bearing transit risk or arranging insurance would not imply retention of ownership. It also submitted that VAT had been discharged at the time of clearance from the factory gate, indicating transfer of property in goods. On limitation, the appellant maintained that the issue was interpretational in nature and involved conflicting judicial precedents. Hence, extended period under Section 11A of the Central Excise Act, 1944 could not be invoked. The tribunal held that, given the peculiar nature of explosives and the statutory framework governing their movement, delivery at the buyer’s premises was integral to the sale. The Tribunal observed that even if the contracts described the transaction as ex-works, buyers could not practically take delivery at the factory gate because only the appellant was authorized to transport explosives in specialized vehicles. Therefore, the splitting of the transaction into (i) ex-factory sale and (ii) separate transportation contract was held to be artificial in the facts of the case. Relying on judicial precedents including the Larger Bench decision in Ramco Cements Ltd v. CCE, Puducherry, and Supreme Court rulings in Roofit Industries and Emco Ltd, the Tribunal concluded that the transaction was akin to an FOR (Free on Road) sale. Accordingly, the place of removal shifted to the buyer’s premises, and all costs up to that point—including freight and insurance—were includible in assessable value. On merits, therefore, the demand was held sustainable. However, the Tribunal accepted the appellant’s plea on limitation. It noted that the issue of includibility of freight and determination of “place of removal” had seen conflicting judicial views over the years. One line of cases followed Ispat Industries, while another relied on Roofit Industries and Emco Ltd. The Bench held that in such a scenario of interpretational uncertainty, the appellant’s conduct could not be branded as deliberate suppression or intent to evade duty. The variation in contract structures—where some public sector buyers insisted on composite pricing while others required separate freight billing—was found insufficient to establish mala fide intent. The Tribunal also observed that the appellant could have reasonably believed that freight would not form part of value under Rule 5 of the Central Excise Valuation Rules, 2000. The invocation of the extended period was declared unsustainable. The demand was restricted to the normal period of limitation, and penalty under Section 11AC was set aside. While upholding the inclusion of freight in the assessable value on merits, the Tribunal set aside the impugned order to the extent it invoked extended limitation and imposed penalty. The matter was remanded to the adjudicating authority solely for re-computation of duty within the normal limitation period. Case Details Case Title: Salvo Explosives & Chemicals Ltd Versus Commissioner of Central Tax Medchal - GST Citation: JURISHOUR-190-CESTAT-2026(Hyd) Case No.: Excise Appeal No. 31225 of 2017 Date: 27.02.2026 Counsel For Appellant: Ch. Sumanth, Advocate Counsel For Respondent: V.R. Pavan Kumar, AR Click Here To Read Order Read More: ESOP, IT Support and Promotional Expenses Allowable as Business Deductions: ITAT

Freight on Explosives Deliveries Includible in Assessable Value: CESTAT

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