Custom, Excise & Service Tax Tribunal
Emco Ltd vs Commissioner Of Central Excise on 20 January, 2016
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,WEST ZONAL BENCH AT MUMBAI COURT No. II APPEAL No.E/3026/02 & E/3359/03 (Arising out of Order-in-Original No.6/2002/Commr/No.VI/1021 dated 18/03/2002 passed by Commissioner of Central Excise Mumbai-IV) For approval and signature: Honble Mr. Ramesh Nair, Member (Judicial) Honble Mr. Raju, Member (Technical) 1. Whether Press Reporters may be allowed to see :No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the :Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether Their Lordships wish to see the fair copy :Seen of the Order? 4. Whether Order is to be circulated to the Departmental :Yes authorities? ========================================
EMCO Ltd., Appellant
Vs.
Commissioner of Central Excise, Respondent
Mumbai-IV
Commissioner of Central Excise, Appellant
Mumbai-IV
Vs.
EMCO Ltd., Respondent
Appearance:
Shri.Prakash Shah Advocate with Shri Arun Jain,
Advocate for appellant
Shri.Ajay Kumar, Jt. Comm. (AR) for respondent
CORAM:
Honble Mr.Ramesh Nair, Member (Judicial)
Honble Mr. Raju, Member (Technical)
Date of Hearing : 20/01/2016
Date of Decision : /2016
ORDER NO
Per: Raju
1. This appeal has been filed by M/s.Emco Ltd. against an order seeking to recover duty on the freight and insurance charges recovered during January 2001 to October 2001. A notice was issued to the appellants alleging that the appellants were supplying the goods at the customers premises/site. However, they were discharging the duty liability on ex-factory gates. The appellants were charging their customers freight and transit insurance through commercial invoices as part of the assessable value. It was alleged that in terms of Section 4 (3) (c) of the Central Excise Act. The prices of such goods transferred by the manufacturer to his customers/buyers should be inclusive of freight and transit insurance from the factory gate to such place of removal. During the investigation, a statement of Shri DK Bhattacharya, Deputy Manager was taken who state that their sale to various electricity boards was on ex-factory basis, that they have not filed declaration containing marketing pattern as required under Rule 173 C (3A) with the Central Excise Department, that the responsibility of goods lies on M/s.Emco till delivery of the said goods to the customers premises and therefore, freight and transit insurance charges are recovered from the customers, that for covering transit risk they have taken transit insurance policies and whenever there is a loss or damage to the goods M/s.Emco claims the same from the insurance company, that the amount of freight and transit insurance is not included in the assessable value for the purpose of calculating Central Excise Duty, that the possession of goods was transferred only at the premises of the buyers/customers.
1.1 On the basis of the above, it was alleged that M/s.Emco Ltd. have contravened the provisions of Central Excise Act/Rules, 1944 inasmuch as:
a) they have contravened the provisions of Section 4 (3) (c) of Central Excise Act, 1944 by removing the excisable goods without payment of appropriate Central Excise duty by not including the elements of freight and insurance to arrive at their assessable value and evaded Central Excise duty to the tune of Rs.23,95,322/-.
b) they have failed to file declaration with regard to the place of removal of their goods thereby contravening the provisions of Rule 173C of Central Excise Rules, 1944.
c) they have removed the goods without determining the proper rate of Central Excise duty thereby contravening the provisions of Rule 173F of Central Excise Rules, 1944 (now Rule 6 of Central Excise (No.2) Rules, 2001).
d) they have removed the goods without debiting appropriate amount of Central Excise duty through PLA or Cenvat account and thereby contravened the provisions of Rule 173G of Central Excise Rules, 1944 (now Rule 8 of Central Excise (No.2) Rules, 2001.
1.2 The said demand was confirmed by both the lower authorities. Aggrieved by the said order, the appellants are before the Tribunal.
2. The learned Counsel for the appellant argued the matter in detail and thereafter submitted a written submission to summarize the arguments. The learned Counsel argued that buyers premises are not the place of removal within the meaning of Section 4 of the Central Excise Act, 1944. The place of removal only be the premises of the manufacturer. The place of delivery different from the place of removal. He specially relied on the para 24 of the decision of the Honble Supreme Court in the case of CCE, Nagpur Vs. Ispat Industries Ltd., - 2015 (324) ELT 670 (SC) held as follows:
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 buyers premises or such other premises as the buyer may direct the manufacturer to send his goods. As a matter of law therefore, the Commissioners order and Revenues argument based on that order that freight charges must be included as the sale in the present facts took place at the buyers 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 buyers premises, therefore, be the place of removal for the purpose of Section 4 on the facts of the present case.
2.1 He also relied on the definition of place of removal under Section 4 (3) (c) of the Central Excise Act, during the relevant period read as under:
(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;
(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;
from where such goods are removed;
2.2 He argued that in the instant case the sale is at factory gate and therefore, sub-clause (i) of the said definition would apply. He argued that so clause (ii) and (iii) are not applicable to the present situation as the goods are not cleared from any other premises of the appellants from where the goods are sold after their clearances from the factory. He relied on the following decisions to assert to buyers premises cannot be place of removal and the place of removal has to be the premises of the manufacturer.
(i) Aditya Birla Insulators Ltd. vs. CCE [2008 (226) ELT 377 (Tri.- Kolkata)]
(ii) CCE vs. Gauwahti Carbon Ltd. [2009 (243) ELT 307 (Tri.- Kolkata)]
(iii) CCE vs. Mukat Pipes Ltd. [2013 (298) ELT 268 (Tri.- Del.)]
(iv) Bajaj Auto Ltd. vs. Commr. of Cus. & C.Ex, Aurangabad [2003 (153) ELT 557 (Tri.- Mumbai)] 2.3 He further argued that the appellants have sold the goods from the factory gate. He argued that the title to the goods passed to buyers at its factory gate when the goods are issued for delivery post the inspection by the buyer or his authorised agency and on receipt of dispatch instructions from buyer post inspection. He argued that since the products are made as per the specifications of the buyer. The delivery offered to the buyers only after the buyers inspect the goods in appellants factory and issues dispatch instructions. He relied on the provisions contained in Section 23 of the Sale of Goods Act to assert that where there is a contract for the sale of unascertained or future goods by description and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon handed over to the buyer. He further argued that in the light of the provisions contained in Section 23 of the Sale of Goods Act, the goods are unconditionally appropriated to the contract when the goods are inspected and approved by the buyer and the goods are thereafter handed over to the carrier thus passing on the property in the goods to the buyer at the appellants factory gate. He argued that the appellant do not reserve any right of disposal in the transit. Neither the contract nor any other circumstances indicate that the appellant reserve the right of disposal in the transit. He also relied on the following decision to support his assertion:
(i) Commr. of C.Ex., Noida vs. Accurate Meters Ltd. [2009 (235) ELT 581 (S.C.)]
(ii) Associated Strips Ltd. vs. Commr. of C.Ex., New Delhi [2002 (143)ELT 131]
(iii) Himalayan Pipe Industries vs. Commr. of C.Ex, Chandigarh [2003 (151) ELT 574 (Tri.- Del.)] 2.4 He further argued that the goods are cleared from the factory on payment of CST/VAT, indicating that the goods were sold at factory gate. He argued that the factum of payment of CST/VAT at the time of clearance of goods from the factory proves beyond doubt that the sale has taken place at the factory gate. For this assertion he relied on the decision of Welspun Gujarat Stahl Rohren Ltd., Vs. CCE, Vadodara-II 2006 (194) ELT 430 (Tri-Mum). He argued that sale has taken place at buyers premises than VAT would become payable to the respective sales tax authorities of the State having jurisdiction over the buyers premises. He further argued that Central Excises invoices are prepared at the time of dispatch of goods from appellants factory and in the name and addressed of the buyer. He argued that the invoices are addressed to the buyer and not to self, it clearly shows that the property in the goods has been transferred to the buyer at the factory gate itself. He argued that the invoices raised on the name of the buyers, the appellant has received payment through proper banking channels. He further argued that lorry receipts show buyer as the consignee. He argued that as per Section 39 of the Sales of Goods Act, where in pursuance of a contract of sale, the seller is authorised or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer, or delivery of the goods to a wharfinger for safe custody is prima facie deemed to be a delivery of the goods to the buyer. He further argued that in view of the provisions of Section 23 and Section 39 of the Sale of Goods Act, 1930 the goods are delivered or deemed to be delivered to the buyer and property and possession of the goods passes on to the buyer when the goods are handed over to transporter. He further argued that in any event insurance and freight charges were agreed separately independent of the ex-works price of the goods. He argued that it is not well settled law that where the insurance and freight charges are agreed and shown separately and in the event of actual costs of insurance and transportation is less than the amount charged to the buyer, the difference is not includable in the assessable value. In support of his contention he relied on the following case laws:
(i) Banmore Cable & Conductors vs. Commr. of C.Ex, Indore [2013 (298) ELT 565 (Tri.- Del.)]
(ii) Chamundi Explosives Pvt. Ltd. vs. Commr. of C.Ex, Nagpur [2014 (308) ELT 132 (Tri.- Mumbai)]
(iii) Mohan Bottling Co. (P) Ltd. vs. Commr. of C.Ex, Chandigarh [2013 (295) ELT 260 (Tri.- Del.)]
(iv) Commr. of C.Ex, Nagpur vs. Vijaylaxami Electricals Pvt. Ltd. [2012 (280) ELT 142 (Tri.- Mumbai)]
(v) Blue Star Ltd. vs. Commr. of C.Ex, Vapi [2008 (224) ELT 258 (Tri.- Ahmd.)]
(vi) Commr. of C.Ex, Nashik vs. Garware Enterprises Ltd. [2014 (301) ELT 349 (Tri.- Mumbai)]
(vii) Majestic Auto Ltd. vs. Commr. of C.Ex, Meerut [2003 (160) ELT 541 (Tribunal)] 2.5 He argued that the statement of Shri Bhattacharya and Mr.Kankonkar does not get relief, in view of the Honble Apex Court decision in the case of Ispat (supra). He further argued that during the period 01/07/2000 to 31/10/2001 only the factory premises can never be the place of removal. He argued that for the period 01/07/2000 to 31/03/2003 except for the factory premises or warehouse, there was no provision to the extended place of removal.
3. The learned AR for the Revenue relies on the impugned order. He argued that transportation and transit insurance charges on the goods paid by the assessee upto the customers destination should be included in the assessable value of the goods as in case of any damage during transit, assessee will lodge claim and obtain compensation from insurance company hence the responsibility of the goods is with the assessee till delivery at the purchasers premises. He further argued that the assessee take transit insurance to cover the damages/loses of goods during transit period from factory gate to the customers/buyers premises. The possession of goods is then legally and physically transferred, only at premises of the customers/buyers thereby completing the sale of goods. In such circumstances, he argued that sale takes place at the premises of the buyer. He further relied on Section 2 (h) of the Central Excise Act, 1944 wherein it is stated that the sale and purchase means any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration. Accordingly, he argued that the place where the possession of goods is transferred by the manufacturer to their customer/buyer. He further argued that the transaction value means the price actuallypaid 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 organisation expended, 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.
4. I have gone through the rival contentions. I find that the issue that needs to be decided is if the sale has taken place at factory gate of at the premises of buyers and consequently if the value of freight and transit insurance from factory gate to the premises of the buyer needs to be included in the assessable value or not.
5. The scope of work is defined in contract dated 24/03/1998 with BSES as follows:
Scope of Work: Scope of work includes design, manufacture, testing at Works, packing, supply and delivery at our Ghodhunder 220kV Receiving Station 1 (one) No. 220/33kV 100MVA Transformer along with spares. The scope of supply shall be strictly as per the Tender specification, your offer and subsequent correspondence. The items which are not specifically mentioned in the specification but are needed to complete the supply of 1 (one) No. 220/33kV 100MVA Transformer along with spares are also deemed to be included in the scope. These will be supplied by you without any extra cost to BSES unless otherwise specifically excluded in our tender documents read together with the correspondence.
Freight and Insurance: The charges towards Freight and Insurance will be Rs. 3,00,000/- for Transformer & its accessories and Spares.
The goods will be despatched with Freight prepaid by road.
You shall arrange for the insurance of all goods and items to be supplied under this contract. Insurance shall cover all risks of physical loss or damage during transit. The cost towards obtaining insurance is included in the above quoted price.
In case of any damages to the goods during transit, you shall lodge the claim and obtain compensation from the Insurance Company. Irrespective of claim/compensation, you shall ensure, at no cost to BSES, replacement of such items expeditiously, so that it does not affect the project schedule.
Terms of payment:
7.01 The terms of payment for transformer and accessories shall be as under:
a) 10% of Ex-works price of the total goods to be supplied shall be paid as Interest free advance upon acceptance of letter of award, submission of invoice, submission of bank guarantee towards contract performance security and another bank guarantee covering the advance amount as per BSES format.
b) 5% of the Ex-works price of the total goods to be supplied shall be paid against submission and approval of all drawings and foundation load data.
c) 75% of the Ex-works price shall be paid progressively along with 100% taxes and duties, on the basis of agreed price break up with in 30 days after delivery of goods.
d) Balance 10% shall be paid after completion of Guarantee period. However, this amount can be paid after successful commissioning against submission of a Bank Guarantee for equivalent value, to be kept valid, till the end of Guarantee period as per BSES format.
Delivery Location: The equipment will be delivered by Road Transport to our 220kV Ghodbunder Receiving Station, Behind Raj Bucket Factory, Ghodbunder Village, Off-Western Express Highway, Mira Bhayander area, Dist. Thane, Maharashtra.
Guarantee/warrantee: Material supplied under this contract will be new and in accordance with Tender document and will be free from defect in material and workmanship. The guarantee period shall be eighteen (18) calendar months from the date of delivery at our Store or twelve (12) months after satisfactory completion of installation and commissioning, which ever is earlier.
Kindly acknowledge receipt and convey your acceptance of this letter of Award.
5.1 In the contract with MSEB dated 12/08/1999, the terms were as follows:
Value of order: The total value of the order now placed on you, on the basis of our requirement as given in Annexure A is Rs. 5,58,28,720/- (Rupees Five crores fifty eight lakhs twenty eight thousands seven hundreds twenty only) on free delivery by road transport upto our destination stores/site in the state of Maharashtra.
Dispatch Instructions: The material should be dispatched duly insured by you upto our destination stores/site by road transport. The dispatch instructions will be issued as and when the transformer is ready for inspection.
Insurance/replacement: The materials shall be insured on warehouse to warehouse basis including handling operation and 30 days storage period at site. The consignee will send the report of shortage/damages in writing to you within 30 days from the date of receipt of material.
In the contract with MSEB the requirement and the general terms and conditions of contract are listed in Section-2. In the said terms and conditions the scope of contract has been defined in para 4:
Scope of contract:
4.1 The scope of the contract shall be the design and engineering, wherever applicable, manufacture, inspection and testing before despatch, packing and supply on F.O.R. Destination basis of the materials and equipment in accordance with the enclosed technical specification and bill of quantity.
4.2 The equipment shall be complete in every respect with all mountings, fixtures and standard accessories which are normally supplied though not specifically detailed herein.
4.3 Where required, the scope of contract shall include supervision of erection and commissioning of the equipment including performance of the Guarantee Tests as desired by the Engineer.
Insurance:
20.1 All cost on account of transit insurance from the manufacturers works upto the Stores site covered under the contract shall be on contractors account. The insurance shall cover all modes of transport from the works to the destination stores. The purchaser shall assist the contractor in lodging insurance claims for losses/damages in transit and promptly furnish all the necessary information for this purpose.
The material shall be insured on ware house to ware house basis with 30 days storage period. Accordingly, the bidders are requested to insure the materials for transit insurance including 30 days storage upto stores/site. The purchaser shall inform the losses/damages in transit (if any) to the supplier within 30 days from the date of receipt of material at Stores/Site.
Demurrage & Wharfage, etc. 21.1 It shall be the responsibility of the contractor to obtain clear railway receipt/ lorry receipt and allied documents in order to avoid any difficulty while clearing /taking delivery of the materials. All demurrage and wharfage and other expenses incurred due to delayed clearance of the material or on any account due to the fault of the contractor shall be to the account of the contractor.
Terms of Payment:
a) The contractor who have furnished permanent deposit of Rs. 5,00,000/- shall be paid 95% payment against Material Receipt Intimation (MRI) within 7 to 10 days for materials received in good condition and against furnishing contract performance deposit. Balance payment will be paid within 60 days from the date of receipt of material at site in good condition against Store Receipt Notes (S.R. Notes) issued by the concerned consignee.
Replacement of goods lost, broken or damaged in transit:
Notwithstanding anything herein contained the supplier undertakes to be responsible for the safe arrival of the material in good condition and without any loss or damage at the final destination and until the same be actually delivered to and received by the Board at its stores or other place of final destination and for this purpose, materials carried by railways or other carrier shall be deemed to be so carried at the risk of the supplier. In case of transit damage/shortages, the payment shall be made only for the quantity received in good and working condition and the consignee shall lodge claims with carriers and transfer the same to the supplier with all necessary documents for settlement of the same with carriers at the suppliers end. The transit damages/shortages/losses reported by the consignee shall be repaired/replaced by the supplier duly inspected, free of cost, within one month from the date of such intimation of breakages/shortages/ losses without waiting for settlement of the claims from carrier or insurance co. etc. From the examination of the above terms of agreement following facts emerged:
The goods are delivered to the buyers at their premises. The transit insurance and the risk of transit is taken by the seller, replacement of goods lost, broken or damaged in transit is would be the responsibility of the seller. In the above circumstances it can be said that the goods delivered to the buyer are a property of the seller. Section 2 (h) of the Central Excise Act, defines sale and purchase are as follows:
(h) sale and purchase, with their grammatical variations and cognate expressions, mean any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration.
Section 4 (3) (c) defines the place of removal at the material time as follows:
Section 4(3)(c) in the Central Excise Act, 1944
(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 on premises wherein the excisable goods have been permitted to be deposited without 3[payment of duty;] 4[(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; 4[(cc) "time of removal", in respect of the excisable goods removed from the place of removal referred to in sub-clause (iii) of clause (c), shall be deemed to be the time at which such goods are cleared from the factory;] (Pronounced in Court on ) (Ramesh Nair) Member (Judicial) (Raju) Member (Technical) pj 1 2 Appeal No.E/3026/02 & E/3359/03