Custom, Excise & Service Tax Tribunal
Crompton Greaves Ltd. vs Mumbai-Iii on 21 February, 2023
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, MUMBAI
REGIONAL BENCH
Excise Appeal No. 85233 of 2013
(Arising out of Order-in-Appeal No. BC/308/M-III/2012-13 dated 28.09.2012
passed by the Commissioner of Central Excise (Appeals), Mumbai-III)
M/s. Crompton Greaves Ltd. Appellant
3rd Floor, CG House,
Dr. Annie Besant Road,
Worli, Mumbai 400 030.
Vs.
Commissioner of Central Excise, Mumbai-III Respondent
3rd & 4th Floor, Vardaan Centre, MIDC,
Wagle Industrial Estate, Thane (W),
Mumbai 400 604.
Appearance:
Shri Aditya Chitale, Advocate, for the Appellant
Shri Sunil Kumar Katiyar, Assistant Commissioner, Authorised
Representative for the Respondent
CORAM:
HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL)
HON'BLE DR. SUVENDU KUMAR PATI, MEMBER (JUDICIAL)
Date of Hearing: 21.02.2023
Date of Decision: 21.02.2023
FINAL ORDER NO. 85466/2023
PER: SANJIV SRIVASTAVA
This appeal is directed against Order-in-Appeal No.
BC/308/M-III/2012-13 dated 28.09.2012 passed by the
Commissioner of Central Excise (Appeals), Mumbai-III, whereby
the Commissioner (Appeals) has upheld Order-in-Original No.
03/YDB/2006-2007 dated 29.06.2006 passed by the Additional
Commissioner of Central Excise, Mumbai-III, holding as follows:-
"ORDER
(a) I confirm the Central Excise Duty of Rs. 29,44,101/-
(Twenty Nine Lakhs forty-four Thousand one hundred and one
only) due, but not paid on the goods, by the assessee under
proviso to Section 11A(1) of Central Excise Act, 1944,
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(b) I impose penalty of Rs. 29.44,101 (Rupees Twenty nine
lakhs forty four thousand one hundred and one only) on them
under Section 11AC of the Central Excise Act, 1944 read with
Rule 25 of the Central Excise Rules, 2002.
(c) I charge interest at appropriate rate for the relevant
period, on short payment of duty, from them under Section
11AB of Central Excise Act."
2.1 Appellant is having manufacturing unit at Kanjurmarg,
Mumbai and was procuring order for dispatching transformers
directly to the site of the customer through their EPD (Project
Division) at Chennai. In terms of this order the goods were
directly dispatched to the consignee as the project for which the
goods were meant and the customer was shown as EPD division
at Chennai. For recovering the freight from the customer during
the year 2001-02 and 2002-03 they raised debit notes for
Rs.1,84,00,000/- and Rs.630/-. These freight charges were not
made part of the assessable value taken for payment of duty.
2.2 A show cause notice dated 21.03.2006 was issued to the
appellant asking them to show cause as to why:-
"(a) Duty of Rs.29,44,101/- (Twenty-nine Lakhs forty-four
thousand one hundred and one only) due, but not paid, on the
goods, should not be demanded and recovered from them under
proviso to Section 11 A(1) of Central Excise Act, 1944.
(b) Penalty should not be imposed on them under Section
11AC of the Central Excise Act, 1944 read with Rule 25 of the
Central Excise Rules, 2002.
(c) Interest should not be charged on short payment of duty
which also should not be recovered from them under Section
11AB of Central Excise Act, 1944."
2.3 The show cause notice was adjudicated by the Additional
Commissioner as per the order referred to in para 1 above and
appeal against the same has been dismissed by the impugned
order.
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3.1 We have heard Shri Aditya Chitale, Advocate and Shri
Sunil Kumar Katiyar, Assistant Commissioner, Authorised
Representative for the Revenue.
3.2 Arguing for the appellant, learned counsel submits:-
In the present case the place of removal of the goods was
from the factory gate at Mumbai. In fact that is well
established from the invoices raised for clearance of the
goods. Therefore the proceedings whereby the freight
element is sought to be added stating place of removal as
EPD Chennai is not proper.
Duty has been correctly paid on the basis of the assessable
value determined on the basis of transaction value with the
customer.
Rule 5 of Central Excise Valuation Rules is not applicable in
the present case.
Accordingly by making such a demand, the impugned order
has proceeded on incorrect presumption of the fact as the
goods were dispatched by the appellant directly from their
factory to the site of the ultimate customer and not to the
EPD. The impugned order is bad in law and liable to be set
aside.
The show cause notice is time barred. The goods were
dispatched during the period 01.04.2001 to 31.03.2003 and
excise duty was paid thereon as reflected in the ER-1
return. The show cause notice has been issued on
27.03.2006 i.e. much beyond the normal period of
limitation.
In support he would rely on the following decisions:-
Bathinda Industrial Gases Pvt. Ltd.
[MANU/CE/0426/2022]
Jindal Tubular (India) Ltd. [MANU/CE/0254/2022]
Ispat Industries Ltd. [2015 (14) SCC 712]
Paper Products Ltd. [2016-TIOL-73-CESTAT-MUM]
PSL Ltd. [2005 (185) ELT 59]
West Coast Paper Mills Ltd. [2004 (172) ELT 493].
3.3 Learned AR reiterates the findings recorded in the
impugned order.
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4.1 We have considered the impugned order along with the
submissions made in appeal and during the course of arguments.
4.2 For dismissing the appeal filed by the appellant,
Commissioner (Appeals) has in her order observed as follows:-
"7. There is no dispute that the appellants have recovered
freight charges from their EPD (Project Division) by way of debit
notes. The department's contention is that EPD (Project
Division) in the place of removal and hence the freight charges
recovered from the factory to the place of removal is to be
included in the transaction value. In terms of Rule 5 of Valuation
Rules, 2000, expenses incurred upto the place of removal has to
be included in the Assessable Value. Hence expenses upto the
place of removal which includes the freight charges form part of
the transaction value. The difference in opinion between the
department and the appellant lies in the place of removal. It is
the contention of the appellants that the sale has taken place at
the factory gate and the price is inclusive of the freight charges.
Hence, no further amount should be added to the Invoice Value
for payment of duty. The department's contention is that since
the place of removal is EPD (Project Division) all expenses
including the freight charges incurred upto the place of removal
forms part of transaction value and are liable to duty. In this
regard, the appellants submitted few sample invoices along with
the appeal. I have perused Invoices No.808 dt.31.12.2001 and
1097 dt. 8.3.2002. These invoices show details like clearance to
their EPD (Project Division) as their customer and contain
remark" IDT TO- EPD" & NO SALE TAX. The implication NO
SALES TAX means that no sale involved and the goods in
question were inter. departmental transfer. Thus it is evident
that the goods have been transferred to their EPD (Project
Division), Chennai, and in turn goods from Chennai, were
removed to the customers place, meaning thereby that the place
of removal is the EPD (Project Division), Chennai, after the
clearance of the said goods from the factory as per Section
4(3)(c) of C.E.A 1944 for the purpose of valuation. The same is
also affirmed from the fact that the orders are placed by the EPD
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(Project Division) who execute the said orders and also collect
the payments thereof from the customers.
8. The Adjudicating Authority had categorically emphasized in
Para 30 of the impugned order that, as per the debit notes it is
clear that freight charges are incurred from the factory (Mumbai)
to the place of removal (Chennai) and hence, excise duty is
payable on such freight charges. It is the contention of the
appellants that with the amendments in the Act and Rules made
there under, they are statutorily not required to mention the
freight element in the invoices. Here, I observe that at the same
time there is no provision in the said Act or the rules made
there. under, for the appellants to recover freight charges from
the customer and also from their EPD Division, Chennal. Over
and above, even if they had recovered the freight charges, they
should have intimated the Department and paid duty thereon.
Regarding the plea that the SCN is hit by limitation, it is a fact
that the collection of freight charges from the EPD (Project
Division) was never intimated to the department nor known to
the department until the conduct of EA 2000 Audit. The said
discrepancy would have gone unnoticed but for the audit team
leading to considerable loss of due revenue to the department.
Hence, the appellants cannot take the plea that there was no
intention to evade payment of duty. This act on the part of the
appellants, make the case for invocation of extended period and
invokation of Section 11AC of the said Act. Thus it is a clear case
of suppression of facts with intention to evade payment of duty.
Hence, provisions of Section 11A (1) read with Section 11AC are
applicable, Where duty is recoverable under Section 11A of the
said Act, interest is recoverable under Section 11AB of the said
Act."
4.3 The only issue for our consideration is to determine as to
what is place of removal in the present case. We reproduce
below the invoices on the sample basis:-
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4.4 From the perusal of the invoices, it is quite evident that
the goods were directly dispatched by the appellant from their
factory to the site of the ultimate customer.
4.5 The above manner of preparation of invoice has been
recognized by the Board by way of Circular No. 96/7/1995 dated
13,02.1995, clarifying as follows in respect of the admissibility of
Modvat Credit to the consignee:
"1. A registered person places an order on a manufacturer for
supply and delivery of goods directly to a consumer and the
goods are accordingly transported from the manufacturer's
premises to the user's premises without being brought to the
registered person's premises. In such a situation manufacturer
will issue an invoice under Rule 52A. This invoice under Rule 52A
will contain, in addition to the prescribed details including the
consignee's name and address, mentioned therein, the
registered person's name and address, on account of whose
instructions the goods have been despatched. The consignee in
this case will be the end user. In such a situation the registered
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person's invoice is not required for availment of Modvat credit.
The duplicate copy of the manufacturer's invoice under Rule 52A
will serve as cover for transport and for availment of Modvat by
the end user."
Undisputedly the goods are directly dispatched from the factory
premises of the appellant to the project site. Further the invoice
also shows that the insurance against it has been paid by the
customer for transportation of the goods and has been borne by
the customer and not by the appellant. Freight also is shown to
have been paid separately over and above the invoice value. All
the above facts show that the goods were offered for delivery at
the factory gate and not from the premises of the EPD Division
at Chennai. No evidence has been produced by the Revenue at
any time of proceedings to show that the goods were cleared by
the appellant from their factory to EPD Chennai and thereafter
from Chennai to the project site. In absence of any such
evidence showing transportation of the goods to the premises of
EPD Division, the entire premise on which the case is based has
to fail on factual basis.
4.6 Further we find that the issue also is no more res integra
and has been decided by the Tribunal in various decisions
referred to by the learned counsel. In case of Paper Products
Ltd., following has been held:-
"4. Revenue's case is that the sale is not a factory gate sale. The
delivery not being at the factory gate, valuation is to be done as
per the provisions of Section 4(1)(b) read with Valuation Rules.
Rule, 5, which is the applicable Rule, provides that 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 good 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. And, according to learned A.R.,
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the transportation charges are not shown separately in the
invoice.
5. The only question that needs determination is whether the
sale of goods was completed at the factory gate in order to
consider the transaction value as per invoices. We find from the
purchase order that the freight charges are to the buyer's
account. Merely because these are not mentioned separately is
no reason to conclude that sale is not complete at the factory
gate. The Commissioner in his Order did not reach any
conclusion as to the fact of sale at the factory gate. The
Commissioner only held that "......Presuming that the sale of
goods is complete at the factory gate, then there was no
necessity for the assessee to recover any separate charges on
account of transportation and insurance cost. By recovering the
amount separately from their buyers it is conclusively proved
that the sale is not complete at the factory gate.........." The only
reasoning given by the Commissioner is that there was no
necessity to recover freight charges separately on account of
transportation. We do not agree with this reasoning because,
effectively, the payment for purchase in this case has been split
into invoice value (for goods) and debit notes for charging
transportation costs. Merely because the transport has been
arranged by appellant on buyers request and recovered from
buyer through debit notes cannot be a ground for denying
substantial benefit under the law laid down in Section 4. The law
requires that duty is not to be paid on the transportation charges
which are borne by the buyers. In any case the freight is
mentioned as "To our Account" in the purchase order. Reliance is
placed on the judgment in the following cases -
(i) Commissioner of Central Excise, Nashik Vs. Garware
Enterprises Ltd. 2014 (301) ELT 349 (Tri. - Mumbai).
(ii) Commissioner of Central Excise, Nashik Vs. General
Metallisers Ltd. - 2014 (300) ELT 534 (Tri.-Mumbai).
(iii) Commissioner of Central Excise, Nashik Vs. Techno Force (I)
Pvt. Ltd. - 2014 (310) ELT 951 (Tri. - Mumbai). = 2014-TIOL-
1943-CESTAT-MUM
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(iv) Goodyear India Ltd. Vs. Commissioner of Central Excise
Delhi-IV - 2014 (301) ELT 410 (Tri.-Del).
The learned A.R. placed reliance on the Hon'ble Apex Court
judgment in the case of Commissioner of Customs & Central
Excise, Aurangabad Vs. M/s Roofit Industries Ltd. - 2015-TIOL-
87-SC-CX. We have seen the judgment. We find that in this case
the goods were to be delivered at the place of the buyer and it is
only at that place that the acceptance of supplies was to be
affected. In the present case, circumstances are different.
Revenue has not been able to show that the sale did not take
place at the factory gate."
4.7 In the case of Ispat Industries Ltd. [2015 (324) ELT 670
(SC)] after considering Rule 5 and Rule 7 of Central Excise
Rules, 2002, Hon'ble Supreme Court has observed as follows:-
"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, -
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(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;
12 E/85233/2013
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
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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 :
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"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
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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 = 2002
(146) E.L.T. 31 (S.C.), 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 misdeclaring 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
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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 = 2003 (155) E.L.T. 8
(S.C.), 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 (14) E.L.T. 1896] It was
thereafter confirmed in the case of Govt. of India v. Madras
Rubber Factory Ltd. [(1995) 4 SCC 349 : 1995 (77) E.L.T. 433]"
[at para 3]
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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 (ia) to Section 4(1)(a) has been added. Under Section
4(1)(a)(ia) 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
18 E/85233/2013
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."
19 E/85233/2013
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
20 E/85233/2013
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 E.L.T. 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
21 E/85233/2013
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."
4.8 In case of Jindal Tubular India Ltd., referred to by the
Counsel, relying on the above decision of Hon'ble Apex Court
tribunal has held as follows:
22 E/85233/2013
"23. Having considered both the submissions, we find that the
issue is now settled by the Supreme Court in the case of Ispat
Industries that the place of removal in every case has to be only
the place relatable to the seller and it cannot be the buyer's
premises even though the sale may be completed at the buyer's
premises when goods are sold on FOR destination basis. The
"place of removal" continues to be the seller's premises whether
it be the factory gate or depot or any other place relatable to the
seller. In terms of Section 4 of the Central Excise Act, value of
the goods is the transaction value of the goods for delivery at
the time and place of removal. The freight incurred from the
place of removal to the buyer's premises cannot, therefore be
includible in the assessable value. Consequently, the demand on
this count also needs to be set aside."
4.9 In the case of Bathinda Industrial Gases Pvt Ltd., following
has been held:
"5. Having heard the rival contentions, we observe as follows:
The issue involved herein is of the valuation and as to whether
the freight charges recovered by the appellant manufacturer
from the purchasers of manufactured product / liquid CO2 for
transporting the said product in its own specialized tankers to
the buyers premises have to be included in the transaction
/assessable value or not.
6. The relevant provision for the purpose is section 4 of Central
Excise Act, 1944 and Rule 5 of Central Excise Valuation Rules,
2000. Section 4(1) reads as follows:
.....
7. A bare perusal of Rule 5 of Valuation Rules clarifies that the cost of transportation from the 'place of removal' up to the place of delivery of the excisable goods has to be excluded. In this connection, the phrase "place of removal" needs determination, however taking into account the facts of this individual case. The phrase "place of removal" is defined under section 4 of the Central Excise Act, 1944 as: "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 23 E/85233/2013 permitted to be stored without payment of duty; (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; from where such goods are removed." From this definition, it is clear that in case of a factory gate sale from a non-duty paid warehouse, or from a duty paid depot (from where the excisable goods are sold, after their clearance from the factory), the determination of the 'place of removal' does not pose much problem. However, there may be situations where the manufacturer /consignor may claim that the sale has taken place at the destination point because of following terms of the sale contract/agreement (i) the ownership of goods and the property in the goods remained with the seller of the goods till the delivery of the goods in acceptable condition to the purchaser at his door step; (ii) the seller bore the risk of loss of or damage to the goods during transit to the destination; and
(iii) the freight charges were an integral part of the price of goods. However for place of sale to be the place of removal, it is the place from where the 'goods are to be sold' instead of the place where goods 'have been sold'. The place falling in former category can never be the place of delivery. The place from where goods are to be sold can be the place of manufacturer /seller only.
8. From the definition of "place of removal" also it is 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. Subclause (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.
9. Hon'ble Apex Court in the case of Union of India vs Bombay Tyre International Ltd. reported as [(1984) 1 SCC 467] held that cost of transportation from 'place of removal' to the 'place of delivery' is statutorily excluded. The relevant paragraph is quoted herein below: "Where the excisable article or an article of 24 E/85233/2013 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." The Court further went on to say : "Where the sale in the course of wholesale trade is effected by the assessee through its sales organization at a place or places outside the factory gate, the expenses incurred by the assessee upto the place 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."
10. To our opinion the harmonious reading of three of above provisions (Section 4 of Central Excise Act, Rule 5 of Valuation Rules and definition of place of removal under section 4 of Central Excise Act, 1944) makes it clear that buyer's premises can never be, by any law, can be called as the place of removal of excisable goods. The place of removal can never be equated with the place of delivery. Place of removal alone is relevant for the purpose of section 4 i.e. for the purpose of calculating the transaction value as it was held by Hon'ble Apex Court in the case of Escorts JCB Ltd. vs CCE, Delhi reported as [2002 (146) ELT 31 (SC)]. In the Escorts case the price charged from the buyer was 'ex-work' and was exclusive of freight insurance. The Hon'ble Apex Court observed that since the transit insurance was arranged by the assessee, the Tribunal inferred with the ownership of the goods so retained by the assessee only. It was delivered to the buyers on the reasoning that otherwise there would be no occasion for seller namely the assessee to take the risk of any kind of damage to the goods during transportation. The Hon'ble Supreme Court while relying upon Bombay Tyre International (supra) case has held that insurance of goods 25 E/85233/2013 during transportation cannot possibly be the sole consideration to decide the ownership or the point of sale of goods. .......
14. In the light of the entire above discussions of the relevant provisions and the various decisions mentioned above, when we revert to the facts of the present case, we observe that undisputed fact remains is that appellants are mentioning the freight charges as separately in the invoices issued by them to the purchasers, there is nothing in the invoices or any other documents which shows that sales are on FOR destination basis, though the authorities below have given the finding that sales were on FOR destination basis but no evidence in this regard has been discussed. The distinguished fact of the present case is that manufactured liquid CO2 was to be transported by specified tanker and the appellant itself owns fleet of such tankers because of this, the appellant was arranging transportation of the liquid CO2 gas to their customers at their premises, however the fact remains that there is no evidence in the present case that liquid CO2 was to be sold at the buyer's place. The invoices were issued on the basis of purchase orders at the premises of appellant-manufacturer itself. No question of retaining the ownership in such 'sold out' product arises to still retain with the manufacturer. Accordingly we hold that the cost of transportation in the given circumstances is the one which has expressly been excluded in terms of Rule 5 of Valuation Rules."
4.10 In view of the above decisions, we do not find any merits in the impugned order.
5.1 The impugned order is set aside and the appeal allowed.
(Order pronounced in the open court) (Sanjiv Srivastava) Member (Technical) (Dr. Suvendu Kumar Pati) Member (Judicial) tvu