2025 (5) TMI 1905 - AT - Central Excise

Entitlement to refund of education cess and secondary higher education cess - duty paid on outward freight - assessable value - exemption Notification No. 56/2002-CE - HELD THAT - We further find that this Tribunal in the case of M/s Cadila Pharmaceuticals Ltd vs. CCE ST J K 2025 (1) TMI 1561 - CESTAT CHANDIGARH has also followed the decision of M/s Ind Swift Labs Ltd 2023 (9) TMI 962 - CESTAT CHANDIGARH case and dismissed the appeals of the assessee. Therefore issue on refund of education cess and secondary higher education cess by following the ratios of the above cited decisions we hold against the appellant. Regarding refund on account of duty paid on outward freight - We find that in the present case the sale was effected on FOR basis and no separate freight charge was charged from the buyer and the freight was included in the assessable value as shown in the invoices which have been produced before us. We also find that this issue is covered by the judgment of the Hon ble High Court of Himachal Pradesh in the case of M/s Inox Air Products Pvt Ltd 2024 (4) TMI 32 - HIMACHAL PRADESH HIGH COURT wherein the Hon ble High Court has held that when there is FOR sale and the assessable value includes freight charge also in that situation the assessee is entitled to the CENVAT Credit of service tax. Thus duty paid on outward freight element which is included in assessable value we hold that the appellant is entitled to get the refund of the same. Both the appeals are partially allowed in the above terms.

Summary

The core legal questions considered by the Tribunal in these appeals are:

(i) Whether the appellant is entitled to refund of education cess and secondary & higher education cess paid under the Finance Acts, when such cesses were not explicitly covered under the exemption notification relied upon by the appellant;

(ii) Whether the appellant is entitled to refund of duty paid on the outward freight element included in the assessable value, particularly in the context of sales made on FOR (Free on Road) basis where freight charges are included in the invoice value and no separate freight charge is recovered from the buyer.

Issue (i): Refund of Education Cess and Secondary & Higher Education Cess

The relevant legal framework involves the Central Excise Tariff Act, 1985, the Central Excise Rules, 1944, and notifications issued under these statutes, particularly Notification No. 56/2002-CE dated 14.11.2002 relied upon by the appellant for area-based exemption. The appellant sought refund of duty paid under self-credit through PLA, including education cess and secondary & higher education cess, which were rejected by the adjudicating authority and Commissioner (Appeals) on the ground that these cesses, imposed under Finance Acts of 2004 and 2007, were not covered under the exemption notification.

The Tribunal relied heavily on precedents, especially the decision in M/s Ind Swift Labs Ltd vs. CCE, Chandigarh - II, which examined the scope of exemption notifications vis-`a-vis additional duties such as education cess and secondary & higher education cess. The Tribunal reiterated that Rule 8 of the Central Excise Rules authorizes exemption from duty leviable under the Act but the term 'duty' does not automatically include cesses imposed by separate Finance Acts unless specifically mentioned. The exemption notification in question did not refer to the Finance Acts imposing these cesses, which came into effect after the notification was issued.

The Tribunal noted binding precedents from coordinate benches and larger benches, including decisions in Modi Rubber Limited and Rita Textiles Private Limited, which held that exemption notifications must explicitly cover additional duties or cesses to be effective. The Tribunal also distinguished and rejected contrary decisions that were found to be per incuriam due to non-consideration of binding precedents.

The Tribunal further dismissed reliance on circulars issued by Customs and Central Board of Excise and Customs (CBEC) as these lacked the force of law and could not override statutory provisions or judicial pronouncements.

Applying these principles, the Tribunal concluded that education cess and secondary & higher education cess paid by the appellant were not exempt under the notification and hence refund claims were rightly rejected.

Issue (ii): Refund of Duty Paid on Outward Freight Included in Assessable Value

The second issue concerned the inclusion of outward freight charges in the assessable value of excisable goods sold on FOR basis and whether duty paid on such freight element is refundable.

The Tribunal examined the factual matrix where the sale was on FOR basis, no separate freight charge was billed to the buyer, and freight was included in the invoice value. The Tribunal referred to the judgment of the Hon'ble High Court of Himachal Pradesh in M/s Inox Air Products Pvt Ltd, which held that when goods are sold on FOR basis, the ownership and risk remain with the seller until delivery, and freight charges included in assessable value are eligible for CENVAT credit and refund.

The Tribunal also considered the CBIC circular dated 8.6.2018, which recognized the binding nature of judicial decisions and clarified the treatment of FOR sales in relation to input service credit of freight charges. The Tribunal cited Supreme Court rulings affirming the statutory status of Board instructions and their binding effect on departmental officers.

Further, the Tribunal noted that the decision in Ultra Tech Cement Ltd did not deal with FOR contracts and that decisions specifically addressing FOR sales supported the appellant's claim. The Tribunal also referenced a recent decision of the Customs, Excise and Service Tax Appellate Tribunal, Chennai, which accepted similar pleas by the appellant.

The Tribunal rejected the argument that the place of removal for Goods Transport Agency (GTA) services under FOR contracts is the manufacturer's premises and that such services were received beyond the place of removal, thereby not qualifying as input services. It held that credit on outward transportation services is eligible when freight charges are included in the taxable value.

Applying these legal principles and precedents to the facts, the Tribunal allowed the refund claim for duty paid on the outward freight element included in the assessable value.

Significant Holdings

On the first issue, the Tribunal held:

"The duty on NCCD, education cess and secondary and higher education cess are in the nature of additional excise duty and it would not mean that exemption notification dated 9-9-2003 covers them particularly when there is no reference to the notification issued under the Finance Act, 2001. ... In the absence of a notification containing an exemption to such additional duties in the nature of education cess and secondary and higher education cess, they cannot be said to have been exempted."

This establishes the core principle that exemption notifications must explicitly cover additional cesses imposed by Finance Acts to confer exemption or refund rights.

On the second issue, the Tribunal concluded:

"Therefore, we hold ... that the Tribunal was not justified in holding that place of removal for the GTA Services provided under FOR sale contract is the manufacturer's premises and not the place where the goods are sold; that the Tribunal was not justified in holding that the GTA services in the present case are being received beyond the place of removal and therefore not covered within the definition of Input Service under Rule 2(1) of CANVET Credit Rules, 2004."

This affirms that freight charges included in assessable value under FOR sales qualify for input service credit and refund.

Accordingly, the Tribunal partially allowed the appeals: refusing refund claims on education cess and secondary & higher education cess but granting refund of duty paid on outward freight element included in the assessable value.