COMMISSIONER OF CUSTOMS AND C.E.NAGPUR Vs. M/S. ISPAT INDUSTRIES LTD.
Supreme Court of India (Division Bench (DB)- Two Judge)
Appeal (Civil), 637 of 2007, Judgment Date: Oct 07, 2015
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 637 OF 2007
COMMISSIONER OF CUSTOMS …APPELLANT
AND CENTRAL EXCISE, NAGPUR
VERSUS
M/S. ISPAT INDUSTRIES LTD. …RESPONDENT
J U D G M E N T
R.F. Nariman, J.
1. The issue involved in the present appeal is whether, by virtue
of a transit insurance policy in the name of the manufacturer, excise
duty is liable to be recovered on freight charges incurred for
transportation of goods from the factory gate to the buyer’s premises,
treating the buyer’s premises as the place of removal.
2. M/s Ispat Industries Limited, the respondent herein, is engaged
in the manufacture of H.R. sheets/coils, C.R. sheets/coils, and
Galvanized/colour coated/sheets, falling under Chapter 72 of the First
Schedule to the Central Excise Tariff Act, 1985. Intelligence
revealed that M/s Ispat were indulging in evasion of central excise
duty by a mis-declaration that their factory gate was the place of
removal, and not the buyer’s premises, consequent to which freight
charges recovered from their buyers was sought to be added in
determining the amount of central excise duty payable by them. The
period involved in the present appeal is from 28.9.1996 to 31.3.2003.
Five show cause notices were issued to the respondents stating that
the property in goods manufactured by them remained with Ispat while
the goods were in transit as Ispat had taken out an insurance policy
to cover the risk of loss or damage to the goods while in transit.
Purchase orders as well as agreements with transporters did not
suggest that the transporters were taking delivery on behalf of the
buyers. All this was corroborated by a statement made by Shri S.P.
Dahiwade, Deputy General Manager, stating that the ownership of the
goods in transit remained with Ispat. It was thus stated that the
buyer’s place or the place of delivery should be treated as the place
of removal of the goods for the purpose of Section 4 of the Central
Excise Act, and this being so, the necessary consequence would be that
the freight charges paid by the buyers to Ispat ought to be included
in the excise duty payable by Ispat.
3. In reply to the five show cause notices, M/s. Ispat stated that
all their prices were ex-works, and that the goods were cleared from
the factory on payment of central or local sales tax. Most of their
sales were against Letters of Credit opened by the customer or through
Bank discounting facilities. Invoices were prepared at the factory
directly in the name of the customers, and the name of the Insurance
Company as well as the number of Transit Insurance Policy were both
mentioned. Based on the details mentioned in the invoice, the lorry
receipt was prepared by the transporter and was in the buyer’s name.
This receipt carried a caution notice as well a notice to the effect
that deliveries were to be made to the buyer alone, and to nobody
else.
4. M/s. Ispat further stated that these transactions were entered
in their sales register and were booked as sales, the stock or
inventory of finished goods being reduced by such sales. In the event
that there was an insurance claim, recovery was credited to the
customer’s ledger account against the recovery due from the customer
in respect of the sale of the said goods. Excise invoices were
prepared at the time that the goods left the factory in the name and
address of the customers, and once the goods were handed over to the
transporter, the respondent did not reserve any right of disposal of
the goods in any manner. It had no right to divert the goods so
handed over to the transporter and meant for a particular customer to
anybody else.
5. The learned Commissioner, by his order dated 3.10.2003, held
that as the insurance agreement with the transporter was entered into
by Ispat who had taken out an Insurance Policy to cover risk to the
loss or damage of the goods while in transit, the property in goods
remained with Ispat and was not transferred to the buyer at the
factory gate. It was also held that in the order acceptance form, it
was mentioned that the transport would be by Ispat. Thus, Ispat had
assumed responsibility of transportation of the goods up to the door
of the customers. Further, that the purchase orders as well as the
agreement with the transporters did not suggest that the transporters
were taking delivery on behalf of the buyer. Above all, Shri S.P.
Dahiwade, Deputy General Manager, Excise, had clearly admitted in his
statement dated 5.2.2001, that till the material is delivered to the
customer, ownership of the goods remains with Ispat. Further, since
payment terms were 30 days after the receipt of the material and not
30 days after dispatch of the material, it is clear that property in
the goods remained in Ispat until payment was made. The Commissioner,
therefore, held:
“In the facts and circumstances of the case as discussed
above, the charges framed under the said Show Cause Notices
remain substantiated.
i) I hold Customers premises as actual place of removal instead of
factory gate of M/s. Ispat of terms of sub clause (iii) of
Section 4(4) (b) of Central Excise Act, 1944 and in term of Sub
Clause (3) (c) of Section 4 of the Central Excise Act, 1944 for
the period from 28.09.96 to 30.06.2000 and from 01.07.2000
onwards respectively.
ii) I confirm demand of Central Excise duty amounting to Rs.
2,43,31,003/- (Rs. Two Crores Forty Three Lakhs Thirty One
Thousand Three only), (Rs.2,16,09,006.00/- + Rs.1,77,828/- +
Rs.8,97,780/- + Rs.12,91,700/-) and I order recovery of the same
from them under Rule 9(2) of the Central Excise Rules, 1944 read
with Section 38A of the Central Act, 1944 and the first proviso
to Section 11A of the Central Excise Act, 1944 by invoking
extended period of limitation of five years.
iii) I impose Penalty of Rs.2,43,31,003/- (Rs. Two Crores Forty Three
Lakhs Thirty One Thousand Three only), upon them under Rule 173Q
and 9(2) of the erstwhile Central Excise Rules, 1944 read with
Section 11AC of the Central Excise Act, 1944.
iv) I order recovery of appropriate interest from them under Section
11AB of the Central Excise Act, 1944.”
6. On appeal by the respondents herein, CESTAT, by its judgment
dated 24.7.2006, reversed the order of the Commissioner holding that,
on the facts of the case, this Court’s judgment in Escorts JCB Ltd. v.
CCE, (2003) 1 SCC 281 concluded the issue in favour of Ispat. CESTAT
also relied upon a Board’s circular dated 3.3.2003 which acknowledged
that the question of ownership of goods in transit cannot be
determined solely with reference to an Insurance Policy taken out by
the manufacturer. As regards the statement of Shri Dahiwade,
according to CESTAT, such statement would not carry the revenue much
further as whether the property in the goods passed at the factory
gate to the buyer was a question of law which was determined in favour
of Ispat by the aforesaid judgment of this Court in Escorts JCB’s
case. It was further held that at least two of the Commissioner’s
grounds, namely, that the payment terms were 30 days after receipt of
the materials and that the order acceptance form shows that it was the
obligation of Ispat to arrange transportation of goods to the buyer’s
premises, were beyond the show cause notices issued as no such charge
was leveled against Ispat in any of the five show cause notices
mentioned hereinabove.
7. Shri A.K. Panda, learned senior counsel appearing on behalf of
the revenue, extensively read from the order of the learned
Commissioner and stated that the facts in the present case being
different from the facts in Escorts JCB’s case, the Tribunal was in
error in relying on Escorts JCB’s case. According to learned counsel,
the circular dated 3.3.2003 which referred to both the Escorts JCB’s
case and to Prabhat Zarda Factory Ltd. v. Commissioner of Central
Excise, 2002 (146) ELT 497 (S.C.), clearly laid down that for the
period in question Section 4 of the Central Excise and Salt Act, 1944
made it clear that since the buyer’s place was in fact the place of
removal of Ispat’s goods, freight payments being payments made prior
to the goods being sold to the buyers are liable to be included in the
central excise duty payable by M/s. Ispat. He relied on two recent
judgments delivered by this Court to buttress his submissions.
8. Shri S.K. Bagaria, learned senior counsel appearing on behalf of
Ispat, painstakingly took this Court through Section 4 of the Central
Excise and Salt Act as originally enacted together with all the
amendments made thereto, up to date. According to learned counsel, the
period involved in the present case divides itself into two periods –
the period from 28.9.1996 to 30.6.2000 and the period 1.7.2000 to
31.3.2003. According to learned counsel, on a correct construction of
Section 4 as it stood at the relevant time in both periods and on a
reading of Rule 5 of the Central Excise Rules, it is clear that the
buyer’s premises can never in law be the place of removal of excisable
goods. So far as the first period is concerned, the place of removal
can extend only up to a manufacturer’s depot or other premises from
which the manufacturer is to sell his goods, and no further. So far as
the second period is concerned, after Section 4 was substituted
completely by the Amendment Act which came into force on 1.7.2000,
even a depot or other premises could not be considered to be a place
of removal, the only place of removal being the factory premises of
the manufacturer. This being so, learned counsel argued that he ought
to succeed on first principle as all the show cause notices and the
findings of the Commissioner are based on the fact that in the present
case the buyer’s premises is the place of removal of goods. He
argued that this would involve conceptual confusion inasmuch as the
place of removal can never be equated with the place of delivery and
the place of removal alone is relevant for the purpose of Section 4
throughout its chequered history. He further argued that on facts his
case came within the ratio of Escorts JCB and not within the ratio of
two other judgments of this Court, namely, Commissioner Central
Excise, Mumbai-III v. M/s. Emco Ltd., dated July 31, 2015 in Civil
Appeal 3418 of 2004 and Civil Appeal 8966 of 2011, and CCE & Customs
v. Roofit Industries Ltd., (2015) 319 E.L.T. 221 (S.C.). He also
argued that the learned Commissioner was in error because he had
ignored altogether the reply made by the assessee which would show
that the assessee’s facts are in pari materia with the facts in
Escorts JCB and not the facts in either Emco or Roofit Industries,
supra. He further supported the Tribunal’s judgment by stating that
not only did the Commissioner not give any heed to Ispat’s reply, but
that it also entered into areas which were no part of the show cause
notices, and thus several findings of the Commissioner were rightly
held by the Tribunal to be beyond the show cause notices issued in the
present case.
9. As this case involves the correct interpretation of Section 4 as
it stood at the relevant time, it is necessary to recapitulate the
history of the said provision insofar as it relates to freight charges
being part of excise duty.
10. Section 4, as it stood before the 1973 amendment made to the
Central Excise and Salt Act, provided as follows:-
“Section 4. Where under this Act, any article is chargeable with
duty at a rate dependent on the value of the article, such value
shall be deemed to be—
(a) the wholesale cash price for which an article of the like
kind and quality is sold or is capable of being sold at the time
of the removal of the article chargeable with duty from the
factory or any other premises of manufacture or production for
delivery at the place of manufacture or production, or if a
wholesale market does not exist for such article at such place,
at the nearest place where such market exists, or
(b) where such price is not ascertainable, the price at which an
article of the like kind and quality is sold or is capable of
being sold by the manufacturer or producer, or his agent, at the
time of the removal of the article chargeable with duty from
such factory or other premises for delivery at the place of
manufacture or production, or if such article is not sold or is
not capable of being sold at such place, at any other place
nearest thereto.
Explanation.—In determining the price of any article under
this section, no abatement or deduction shall be allowed except
in respect of trade discount and the amount of duty payable at
the time of the removal of the article chargeable with duty from
the factory or other “premises aforesaid.”
11. It will be seen that the value of an article chargeable with
excise duty is deemed to be the wholesale cash price for which an
article of the like kind and quality is sold or capable of being sold
at the premises of manufacture or production. In A.K. Roy v. Voltas
Ltd., (1973) 3 SCC 503, this Court had occasion to deal with the said
provision and in para 22 thereof stated:-
“… The section postulates that the wholesale price should be
taken on the basis of cash payment thus eliminating the interest
involved in wholesale price which gives credit to the wholesale
buyer for a period of time and that the price has to be fixed
for delivery at the factory gate thereby eliminating freight,
octroi and other charges involved in the transport of the
articles.” [at para 22]
12. By an amendment Act of 1973, which came into force on 1.10.1975,
Section 4 was substituted as follows:-
“Section 4. Valuation of excisable goods for purposes of
charging of duty of excise. – (1) Where under this Act, the duty
of excise is chargeable on any excisable goods with reference to
value, such value, shall, subject to the other provisions of
this section, be deemed to be –
a) The normal price thereof, that is to say, the price at which
such goods are ordinarily sold by the assessee to a buyer in
the course of wholesale trade for delivery at the time and
place of removal, where the buyer is not a related person and
the price is the sole consideration for the sale:
Provided that –
i) Where, in accordance with the normal practice of the
wholesale trade in such goods, such goods are sold by the
assessee at different prices to different classes of buyers
(not being related persons) each such price shall, subject to
the existence of the other circumstances specified in clause
(a), be deemed to be the normal price of such goods in
relation to each such class of buyers;
ii) Where such goods are sold by the assessee in the course of
wholesale trade for delivery at the time and place of removal
at a price fixed under any law for the time being in force or
at a price, being the maximum, fixed under any such law,
then, notwithstanding anything contained in clause (iii) of
this proviso, the price or the maximum price, as the case may
be, so fixed, shall, in relation to the goods so sold, be
deemed to be the normal price thereof;
iii) Where the assessee so arranges that the goods are generally
not sold by him in the course of wholesale trade except to or
through a related person, the normal price of the goods sold
by the assessee to or through such related person shall be
deemed to be the price at which they are ordinarily sold by
the related person in the course of wholesale trade at the
time of removal, to dealers (not being related persons) or
where such goods are not sold to such dealers, to dealers
(being related persons), who sell such goods in retail;
b) Where the normal price of such goods is not ascertainable for
the reason, that such goods are not sold or for any other
reason, the nearest ascertainable equivalent thereof determined
in such manner as may be prescribed.
(2) Where, in relation to any excisable goods the price
thereof for delivery at the place of removal is not known and
the value thereof is determined with reference to the price for
delivery at a place other than the place of removal, the cost of
transportation from the place of removal to the place of
delivery shall be excluded from such price.
(3) The provisions of this section shall not apply in respect
of any excisable goods for which a tariff value has been fixed
under sub-section (2) of section 3.
(4) For the purposes of this section, -
(a) “assessee” means the person who is liable to pay the
duty of excise under this Act and includes his agent;
(b) “place of removal” means –
(i) a factory or any other place or premises of
production or manufacture of the excisable goods; or
(ii) a warehouse or any other place or premises wherein
the excisable goods have been permitted to be deposited
without payment of duty,
from where such goods are removed.”
13. It will be seen that three important changes have been made in
the amended Section 4 so far as the present case is concerned. First,
the value of excisable goods is deemed to be the “normal price”
thereof that is the price at which such goods are ordinarily sold by
the assessee to a buyer in the course of wholesale trade. Where the
goods are sold at different prices to different classes of buyers,
each such price shall be deemed to be the normal price. “Place of
removal” has been defined for the first time to mean not only the
premises of production or manufacture of excisable goods but also a
warehouse or any other place or premises wherein such goods have been
permitted to be deposited without payment of duty and from where such
goods are ultimately removed. Interestingly, in Section 4(2), which
is introduced for the first time, where in relation to excisable goods
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, the cost of transportation
from the place of removal to the place of delivery is statutorily
excluded. As the law stood thus, this Court in Union of India v.
Bombay Tyre International Ltd., (1984) 1 SCC 467, after extracting the
substituted Section 4 by the Amendment Act of 1973, held:-
“Where the excisable article or an article of the like kind and
quality is not sold in wholesale trade at the place of removal,
that is, at the factory gate, but is sold in the wholesale trade
at a place outside the factory gate, the value should be
determined as the price at which the excisable article is sold
in the wholesale trade at such place, after deducting therefrom
the cost of transportation of the excisable article from the
factory gate to such place. The claim to other deductions will
be dealt with later.” [at para 27]
The Court further went on to say:
“Where the sale in the course of wholesale trade is effected by
the assessee through its sales organisation at a place or places
outside the factory gate, the expenses incurred by the assessee
upto the date of delivery under the aforesaid heads cannot, on
the same grounds, be deducted. But the assessee will be entitled
to a deduction on account of the cost of transportation of the
excisable article from the factory gate to the place or places
where it is sold. The cost of transportation will include the
cost of insurance on the freight for transportation of the goods
from the factory gate to the place or places of delivery.” [at
para 50]
14. This view of the law was reiterated in Government of India v.
Madras Rubber Factory Ltd., (1995) 4 SCC 349. Interestingly, in
paragraph 39 of the judgment, cost of transportation from the factory
gate to the place of removal not forming part of excise duty was
conceded by the revenue.
15. Section 4 as substituted by the 1973 Amendment Act suffered a
further amendment in 1996. The amendments carried out were to have
effect from 28.9.1996, which is also the starting point on facts in
the present case. Three important changes were made to Section 4.
First a new sub-section (ia) was added to Section 4(1) which reads as
follows:-
“(ia) Where the price at which such goods are ordinarily
sold by the assessee is different for different places of
removal, each such price shall, subject to the existence of
other circumstances specified in clause (a), be deemed to be the
normal price of such goods in relation to each such place of
removal;”
Also, for the first time, “the place of removal” had one more
category added to it. Section 4(4)(b)(iii) and 4(4)(ba) state as
follows:-
“(4)(b)(iii) a depot, premises of a consignment agent or any
other place or premises from where the excisable goods are to be
sold after their clearance from the factory and,
“(4)(ba) “time of removal”, in respect of goods removed from
the place of removal referred to in sub-clause (iii) of clause
(b), shall be deemed to be the time at which such goods are
cleared from the factory;”
16. It will thus be seen that where the price at which goods are
ordinarily sold by the assessee is different for different places of
removal, then each such price shall be deemed to be the normal value
thereof. Sub-clause (b)(iii) is very important and makes it clear
that a depot, the premises of a consignment agent, or any other place
or premises from where the excisable goods are to be sold after their
clearance from the factory are all places of removal. What is
important to note is that each of these premises is referable only to
the manufacturer and not to the buyer of excisable goods. The depot,
or the premises of a consignment agent of the manufacturer are
obviously places which are referable only to the manufacturer. Even
the expression “any other place or premises” refers only to a
manufacturer’s place or premises because such place or premises is
stated to be where excisable goods “are to be sold”. These are the
key words of the sub-section. The place or premises from where
excisable goods are to be sold can only be the manufacturer’s premises
or premises referable to the manufacturer. If we are to accept the
contention of the revenue, then these words will have to be
substituted by the words “have been sold” which would then possibly
have reference to the buyer’s premises.
17. It is clear, therefore, that as a matter of law with effect from
the Amendment Act of 28.9.1996, the place of removal only has
reference to places from which the manufacturer is to sell goods
manufactured by him, and can, in no circumstances, have reference to
the place of delivery which may, on facts, be the buyer’s premises.
18. By an Amendment Act which came into effect on 1.7.2000, Section
4 was substituted yet again as follows:-
“Section 4. Valuation of excisable goods for purposes of
charging of duty of excise. – (1) Where under this Act, the duty
of excise is chargeable on any excisable goods with reference to
their value, then, on each removal of the goods, such value
shall –
a) In a case where the goods are sold by the assessee, for
delivery at the time and place of the removal, the assessee
and the buyer of the goods are not related and the price is
the sole consideration for the sale, by the transaction
value;
b) In any other case, including the case where the goods are
not sold, be the value determined in such manner as may be
prescribed.
2) The provisions of this section shall not apply in respect
of any excisable goods for which a tariff value has been
fixed under sub-section (2) of section 3.
3) For the purpose of this section,-
a) “assessee” means the person who is liable to pay the duty
of excise under this Act and includes his agent;
b) Person shall be deemed to be “related” if –
i) they are inter-connected undertakings;
ii) they are relatives;
iii) amongst them the buyer is a relative and a distributor of
the assessee, or a sub-distributor of such distributor; or
iv) they are so associated that they have interest, directly or
indirectly in the business of each other.
Explanation. – In this clause –
i) “inter-connected undertakings” shall have the meaning
assigned to it in clause (g) of section 2 of the Monopolies
and Restrictive Trade Practices Act, 1969 (64 of 1969); and
ii) “relative” shall have the meaning assigned to it in clause
(41) of section 2 of the Companies Act, 1956 (1 of 1956);
c) “place of removal” means –
i) a factory or any other place or premises of production or
manufacture of the excisable goods;
ii) a warehouse or any other place or premises wherein the
excisable goods have been permitted to be deposited without
payment of duty,
from where such goods are removed;
d) “transaction value” means the price actually paid or
payable for the ‘goods, when sold, and includes in addition
to the amount charged as price, any amount that the buyer
is liable to pay to, or on behalf of, the assessee, by
reason of, or in connection with the sale, whether payable
at the time of the sale or at any other time, including,
but not limited to, any amount charged for, or to make
provision for, advertising or publicity, marketing and
selling organization expenses, storage, outward handling,
servicing, warranty, commission or any other matter; but
does not include the amount of duty of excise, sales tax
and other taxes, if any, actually paid or actually payable
on such goods.”
19. A cursory reading of the substituted provision makes it clear
that the concept of “normal value” has given way to the concept of
“transaction value”. Thus, no longer is there a normative price for
purposes of valuation of excisable goods. The actual price that is
paid or payable on each removal of goods becomes the transaction
value. Interestingly, it will be noticed that under Section 4(3)(c),
the place of removal is defined as it had been defined in the
substituted Section 4 (by the 1973 Amendment) before its further
amendment in 1996. What is conspicuous by its absence in the present
Section is Section 4(2) and sub-section (b)(iii) in the previous
Section 4 (after its amendment in 1996). It is clear therefore that
for the second period in question in the present case, namely,
1.7.2000 to 31.3.2003, the depot, premises of a consignment agent or
any other place from which excisable goods are to be sold after their
clearance from the factory are no longer places of removal. Also, the
definition of “transaction value” makes it clear that freight or
transportation expenses are not included in calculating the excise
duty payable.
20. It is necessary also to refer to Rules 5 and 7 of the Central
Excise Valuation (Determination of Price of Excisable Goods) Rules,
2000 which came into force on the same date as the amendment to
Section 4 i.e. 1.7.2000. These Rules read as under:-
“Rule 5.
Where any excisable goods are sold in the circumstances
specified in clause (a) of sub-section (1) of section 4 of the
Act except the circumstances in which the excisable goods are
sold for delivery at a place other than the place of removal,
then the value of such excisable goods shall be deemed to be the
transaction value, excluding the actual cost of transportation
from the place of removal upto the place of delivery of such
excisable goods provided the cost of transportation is charged
to the buyer in addition to the price for the goods and shown
separately in the invoice for such excisable goods.
Rule 7.
Where the excisable goods are not sold by the assessee at the
time and place of removal but are transferred to a depot,
premises of a consignment agent or any other place or premises
(hereinafter referred to as "such other place") from where the
excisable goods are to be sold after their clearance from the
place of removal and where the assessee and the buyer of the
said goods are not related and the price is the sole
consideration for the sale, the value shall be the normal
transaction value of such goods sold from such other place at or
about the same time and, where such goods are not sold at or
about the same time, at the time nearest to the time of removal
of goods under assessment.”
21. The actual cost of transportation from the place of removal up
to the place of delivery of excisable goods is excluded from the
computation of excise duty provided it is charged to the buyer in
addition to the price of goods and shown separately in the invoices
for such goods. Interestingly, despite the substituted Section 4 not
providing for a depot or other premises as a place of removal, Rule 7
deals with the normal transaction value of goods transferred to a
depot or other premises which is said to be at or about the same time
or the time nearest to the time of removal of goods under assessment.
22. To complete the picture, by an Amendment Act with effect from
14.5.2003, Section 4 was again amended so as to re-
include sub-clause (iii) of old Section 4(3)(b) (pre 2000) as Section
4(3)(c)(iii). This amendment reads as follows:-
“(3)(c)(iii) a depot, premises of a consignment agent or any
other place or premises from where the excisable goods are to be
sold after their clearance from the factory;”
Also, Rule 5 of the Central Excise Rules was substituted, with
effect from 1.3.2003, to read as follows:
“Rule 5. Where any excisable goods are sold in the
circumstances specified in clause (a) of sub-section (1) of
section 4 of the Act except the circumstances in which the
excisable goods are sold for delivery at a place other than the
place of removal, then the value of such excisable goods shall
be deemed to be the transaction value, excluding the cost of
transportation from the place of removal upto the place of
delivery of such excisable goods.
Explanation 1 – “Cost of transportation” includes –
i) the actual cost of transportation; and
ii) in case where freight is averaged, the cost of
transportation calculated in accordance with generally
accepted principles of costing.
Explanation 2 – For removal of doubts, it is clarified that the
cost of transportation from the factory to the place of removal,
where the factory is not the place of removal, shall not be
excluded for the purposes of determining the value of the
excisable goods.”
23. It is clear, therefore, that on and after 14.5.2003, the
position as it obtained from 28.9.1996 to 1.7.2000 has now been
reinstated. Rule 5 as substituted in 2003 also confirms the position
that the cost of transportation from the place of removal to the place
of delivery is to be excluded, save and except in a case where the
factory is not the place of removal.
24. It will thus be seen that, in law, it is clear that for the
period from 28.9.1996 up to 1.7.2000, the place of removal has
reference only to places from which goods are to be sold by the
manufacturer, and has no reference to the place of delivery which may
be either the buyer’s premises or such other premises as the buyer may
direct the manufacturer to send his goods. As a matter of law
therefore the Commissioner’s order and Revenue’s argument based on
that order that freight charges must be included as the sale in the
present facts took place at the buyer’s premises is incorrect.
Further, for the period 1.7.2000 to 31.3.2003 there will be no
extended place of removal, the factory premises or the warehouse (in
the circumstances mentioned in the Section), alone being places of
removal. Under no circumstances can the buyer’s premises, therefore,
be the place of removal for the purpose of Section 4 on the facts of
the present case.
25. It now remains to deal with some of the judgments cited at the
Bar. Escorts JCB Ltd. v. CCE, (2003) 1 SCC 281, was strongly relied
upon by Shri Bagaria and sought to be distinguished by Shri Panda.
The facts of Escorts JCB’s case are similar to the facts in the
present case. The show cause notice in that case alleged that freight
and transit insurance were charged from buyers but no central excise
duty was paid by mis-declaring the place of removal as the factory
gate instead of the buyer’s premises. It will be noted that just as in
the present case, the price was “ex-works” and exclusive of freight
insurance etc. After setting out Section 4 post its amendment in
1996, this Court held:-
“A perusal of the orders passed by the authorities and CEGAT
shows that since transit insurance was arranged by the assessee,
therefore it was inferred and held that the ownership of the
goods was retained by the assessee until it was delivered to the
buyer on the reasoning that otherwise there would be no occasion
for the seller, namely, the assessee to take risk of any kind of
damage to the goods during transportation. To us, the whole
reasoning seems to be untenable. The two aspects have been mixed
up — one relating to the transaction of sale of the goods and
the other arranging for the transit insurance for the buyer and
charging the amount expended for the purpose from him
separately.” [at para 8]
“From the above passage it is clear that ownership in the
property may not have any relevance insofar as insurance of
goods sold during transit is concerned. It would therefore not
be lawful to draw an inference of retention of ownership in the
property sold by the seller merely by reason of the fact that
the seller had insured such goods during transit to the buyer.
It is not necessary that insurance of the goods and the
ownership of the property insured must always go together. It
may be depending upon various facts and circumstances of a
particular transaction and terms and conditions of sale. A
reference has also been made to Colinvauz's Law of Insurance,
6th Edn. by Robert Merkin to indicate that there may be
insurance to cover the interest of others, that is to say, not
necessarily the person insuring the interest must be the owner
of the property.” [at para 10]
26. This Court then went on to follow Bombay Tyre International’s
case and ultimately held:-
“In view of the discussion held above, in our view the
Commissioner of Central Excise and CEGAT erred in drawing an
inference that the ownership in the property continued to be
retained by the assessee till it was delivered to the buyer for
the reason that the assessee had arranged for the transport and
the transit insurance. Such a conclusion is not sustainable.”
[at para 12]
27. We are inclined to the opinion that the Tribunal was correct in
relying upon this judgment on the facts in the present case and on the
circular dated 3.3.2003, which specifically stated, following the said
judgment, that insurance of goods during transit cannot possibly be
the sole consideration to decide ownership or the point of sale of
goods.
28. Similarly in VIP Industries Ltd. v. Commissioner of Customs &
Central Excise, (2003) 5 SCC 507, this Court was faced with the
following question:-
“The question for consideration in both these appeals is whether
in cases where a manufacturer includes equalised freight in the
price of the goods and sells the goods all over the country at a
uniform price, the Department is entitled to compute value by
including the cost of transportation from the factory to the
depot. This question was decided by this Court in the case
of Union of India v. Bombay Tyre International Ltd. [(1984) 1
SCC 467 : 1984 SCC (Tax) 17 : 1983 ELT 1896] It was thereafter
confirmed in the case of Govt. of India v. Madras Rubber Factory
Ltd.[(1995) 4 SCC 349 : (1995) 77 ELT 433]” [at para 3]
29. Like the Escorts JCB’s case this judgment was also concerned
with Section 4 as it stood after the amendment of 1996 but before the
amendment of 2000. This Court held:-
“After the amendment, the Department sought to include in the
value the cost of transport from factory to the depot, even in
case where the manufacturer sold the goods at a uniform price
all over the country by including the element of equalised
freight. The Tribunal has upheld the view of the Department on
the reasoning that by this amendment the definition of the term
“place of removal” has been extended to include the depot. The
Tribunal has also held that Section 4(2) which excluded the cost
of transportation from the place of removal to the place of
delivery was not amended when the definition of the term “place
of removal” was extended. According to the Tribunal the result
was that only the transport charges from the place of removal to
the place of delivery were to be excluded from the value.
We have heard the parties at length. In our view, Section 4 has
to be read as a whole. Under Section 4(1)(a), the normal price
is the price at which goods are ordinarily sold by the assessee
to a buyer in the course of wholesale trade for delivery at the
time and place of removal, where the buyer is not a related
person and price is the sole consideration for sale. Therefore,
the normal price is the price at the “time of delivery” and “at
the place of removal”. Before the amendment, the place of
removal was only the factory or any other place or premises
where the excisable goods were produced or manufactured or a
warehouse or any other place or premises where any excisable
goods have been permitted to be deposited without payment of
duty. Thus, the price would be the price at that place. By the
amendment proviso (i-a) to Section 4(1)(a) has been added. Under
Section 4(1)(a)(i-a) where the price of the goods is different
for different places of removal, each such price was deemed to
be the normal price of such goods in relation to “such place of
removal”. Thus, if the place of removal was the factory, then
the price would be the normal price at the factory. If the place
of removal was some other place like a depot or the premises of
a consignment agent and the price was different then that
different price would be the price. It is because the newly
added proviso (i-a) to Section 4(1)(a) was now providing for
different prices at different places of removal that the
definition of the term “place of removal” had to be enlarged.
Thus the amendment was not negativing the judgments of this
Court. If that had been the intention it would have been
specifically provided that even where price was the same/uniform
all over the country, the cost of transportation was to be
added.
Thus in cases where the price remains uniform or constant all
over the country, it does not follow that value for the purpose
of excise changes merely because the definition of the term
“place of removal” is extended. The normal price remains the
price at the time of delivery and at the place of removal. In
cases of equalised freight it remains the same as per the
judgments of this Court set out hereinabove.
In our view, the amendments have made no difference to the
earlier position as settled by this Court. In this view of the
matter, we are unable to uphold the judgments of the Tribunal.
They are accordingly set aside. The appeals are allowed with
consequential relief. There shall be no order as to costs.”
[paras 5 to 8]
30. In Prabhat Zarda Factory Limited v. CCE, 2002 (146) E.L.T. 497
(S.C.), this Court held:-
“In these matters, the question is whether freight and insurance
charges are to be included in the assessable value for the
purposes of excise. This question is covered by the judgment of
this Court in the case of Escorts JCB Ltd. v. Commissioner of
Central Excise, Delhi-II [2002 (146) E.L.T. 31 (S.C.)]. The
only difference which has been pointed out is that in the
Escorts case (supra) the sale was at the factory gate whereas in
these cases, the sale is from the depot. Learned counsel for
the appellants admit that the freight and insurance charges up
to the depot would be includible in the assessable value for the
purposes of excise. However, the sale being at the depot, the
freight and insurance for delivery to the customers from the
depot would not be so includible as per the said judgment.”
This judgment, therefore, also holds that even in a depot sale,
freight and insurance for delivery to customers from the depot to
their premises cannot possibly be included, and followed the Escorts
JCB case supra.
31. With this we come to two recent judgments of this Court. In CCE
& Customs v. Roofit Industries Ltd., (2015) 319 E.L.T. 221 (S.C.),
this Court, after distinguishing the Escorts JCB’s case, stated:-
“The principle of law, thus, is crystal clear. It is to be seen
as to whether as to at what point of time sale is effected,
namely, whether it is on factory gate or at a later point of
time i.e. when the delivery of the goods is effected to the
buyer at his premises. This aspect is to be seen in the light of
the provisions of the Sale of Goods Act by applying the same to
the facts of each case to determine as to when the ownership in
the goods is transferred from the seller to the buyer. The
charges which are to be added have put up to the stage of the
transfer of that ownership inasmuch as once the ownership in
goods stands transferred to the buyer, any expenditure incurred
thereafter has to be on buyer's account and cannot be a
component which would be included while ascertaining the
valuation of the goods manufactured by the buyer. That is the
plain meaning which has to be assigned to Section 4 read with
the Valuation Rules.
In the present case, we find that most of the orders placed with
the respondent assessee were by the various government
authorities. One such order i.e. order dated 24-6-1996 placed by
Kerala Water Authority is on record. On going through the terms
and conditions of the said order, it becomes clear that the
goods were to be delivered at the place of the buyer and it is
only at that place where the acceptance of supplies was to be
effected. Price of the goods was inclusive of cost of material,
Central excise duty, loading, transportation, transit risk and
unloading charges, etc. Even transit damage/breakage on the
assessee account which would clearly imply that till the goods
reach the destination, ownership in the goods remain with the
supplier, namely, the assessee. As per the “terms of payment”
clause contained in the procurement order, 100% payment for the
supplies was to be made by the purchaser after the receipt and
verification of material. Thus, there was no money given earlier
by the buyer to the assessee and the consideration was to pass
on only after the receipt of the goods which was at the premises
of the buyer. From the aforesaid, it would be manifest that the
sale of goods did not take place at the factory gate of the
assessee but at the place of the buyer on the delivery of the
goods in question.
The clear intent of the aforesaid purchase order was to transfer
the property in goods to the buyer at the premises of the buyer
when the goods are delivered and by virtue of Section 19 of the
Sale of Goods Act, the property in goods was transferred at that
time only. Section 19 reads as under:
“19. Property passes when intended to pass.—(1) Where there
is a contract for the sale of specific or ascertained goods the
property in them is transferred to the buyer at such time as the
parties to the contract intend it to be transferred.
(2) For the purpose of ascertaining the intention of the
parties regard shall be had to the terms of the contract, the
conduct of the parties and the circumstances of the case.
(3) Unless a different intention appears, the rules contained
in Sections 20 to 24 are rules for ascertaining the intention of
the parties as to the time at which the property in the goods is
to pass to the buyer.”
These are clear finding of facts on the aforesaid lines recorded
by the Adjudicating Authority. However, Cestat did not take
into consideration all these aspects and allowed the appeal of
the assessee by merely referring to the judgment in Escorts JCB
Ltd. [(2003) 1 SCC 281 : (2002) 146 ELT 31] Obviously the exact
principle laid down in the judgment has not been appreciated
by Cestat.” [at paras 12 - 15]
32. It will be seen that this is a decision distinguishing the
Escorts JCB’s case on facts. It was found that goods were to be
delivered only at the place of the buyer and the price of the goods
was inclusive of transportation charges. As transit damage on the
assessee’s account would imply that till the goods reached their
destination, ownership in the goods remained with the supplier,
namely, the assessee, freight charges would have to be added as a
component of excise duty. Further, as per the terms of the payment
clause contained in the procurement order, payment was only to be made
after receipt of goods at the premises of the buyer. On facts,
therefore, it was held that the sale of goods did not take place at
the factory gate of the assessee. Also, this Court’s attention was
not drawn to Section 4 as originally enacted and as amended to
demonstrate that the buyer’s premises cannot, in law, be “a place of
removal” under the said Section.
33. As has been seen in the present case all prices were “ex-works”,
like the facts in Escorts JCB’s case. Goods were cleared from the
factory on payment of the appropriate sales tax by the assessee
itself, thereby indicating that it had sold the goods manufactured by
it at the factory gate. Sales were made against Letters of Credit and
bank discounting facilities, sometimes in advance. Invoices were
prepared only at the factory directly in the name of the customer in
which the name of the Insurance Company as well as the number of the
transit Insurance Policy were mentioned. Above all, excise invoices
were prepared at the time of the goods leaving the factory in the name
and address of the customers of the respondent. When the goods were
handed over to the transporter, the respondent had no right to the
disposal of the goods nor did it reserve such rights inasmuch as title
had already passed to its customer. On facts, therefore, it is clear
that Roofit’s judgment is wholly distinguishable. Similarly in
Commissioner Central Excise, Mumbai-III v. M/s. Emco Ltd, this Court
re-stated its decision in the Roofit Industries’ case but remanded the
case to the Tribunal to determine whether on facts the factory gate of
the assessee was the place of removal of excisable goods. This case
again is wholly distinguishable on facts on the same lines as the
Roofit Industries case.
34. In the view of the law that we have taken as well as the facts
detailed above, the statement made by Shri S.P. Dahiwade pales into
insignificance as has been correctly held by the Tribunal. We,
therefore, dismiss this appeal with no order as to costs.
……………………J.
(A.K. Sikri)
……………………J.
(R.F. Nariman)
New Delhi;
October 7, 2015
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