Case: Collector Of Central Excise, Meerut Vs. Surya Roshni Ltd

The respondent manufactures electric bulbs and tubes. The bulbs and tubs are sold FOR destination. The price charged includes two per cent towards transit risk insurance. For the purposes of the assessable value of the bulbs and tubes, the respondent claimed a deduction on account of equalised freight based on the elements of transportation charges, insurance charges, octroi and taxes. The respondent filed a statement of actual expenses for the year in question, namely,, duly certified by a Cost Accountant. It showed that the deduction on account of insurance charges was actually on account of "transit losses/breakages replenished to customers". The deduction on this account, claimed in the sum of Rs., was disallowed by the assessing authority and in appeal. The Central Excise and Gold (Control) Appellate Tribunal, however, in a brief order, said that transit insurance was eligible for deduction while determining assessable value according to its earlier orders. It, therefore, allowed the appeal.

Court's reasoning:
5.We are unable to accept either submission. In the case of transportation what is includible is the cost of taking out insurance to cover the goods transported; in other words, to cover oneself against a possible loss by paying a premium to an insurance company. The payment made by the respondent to its customers for breakages and losses cannot tantamount to insurance. Nor can, by any means, such compensation be treated as a part of the cost of transportation; it is a clear case of making up to the customer by means of a credit note the monies that it has lost on account of breakages or losses in transit.