2025 (5) TMI 1526 - AT - Central Excise

CENVAT Credit - place of removal of goods - whether in this case the sale is on exworks basis or at buyer s premises? - HELD THAT - It is found from the factual matrix that the appellant has included both freight and insurance in the exworks price for the purpose of discharging their VAT liability. On going through various clauses it is obvious that though there is a separate exworks price which has been termed as fixed price and freight separately a holistic perusal of all this terms and conditions would clearly indicate that the goods are accepted only when they reach the destination in good condition and liability for their transport including pre-payment of transport is on the appellants themselves. Therefore in the factual matrix it is obvious that sale has got concluded only at the destination of the buyer and not at the factory gate. As far as various judgments are concerned all these judgments have been considered by different Tribunals to arrive at a particular conclusion in a given factual matrix about the place of sale. In the case of Schneider Electric India Pvt Ltd Vs CCT Medchal-GST 2025 (3) TMI 1484 - CESTAT HYDERABAD this Bench has examined this issue in a given factual matrix and it was held that the appellant is liable to pay excise duty inclusive of freight charges as the place of removal is the buyer s premises under the facts of this case but the extended period of limitation and penalty under section 11AC(1)(b) are not justified and are set aside. Conclusion - The sale took place at the buyer s premises on FOR basis and that freight and insurance costs are includable in the assessable value for excise/GST purposes. There are no infirmity in the impugned orders and therefore they are upheld - appeal dismissed.

Summary

The primary legal question considered by the Tribunal was whether the sale of goods by the appellant was on an ex-works basis, with transfer of ownership at the factory gate, or on a FOR (Free on Road) destination basis, with ownership transferring only upon delivery at the buyer's premises. This determination was critical for ascertaining the place of removal of goods and the consequent valuation for excise and GST purposes.

Closely related to this was the issue of whether freight, insurance, and other transit-related charges should be included in the assessable value of the goods. The appellant contended that the sale was ex-works, and these charges were merely commercial arrangements separate from the sale price, whereas the department argued that the sale was completed only upon delivery at the destination, making such charges integral to the transaction value.

Another issue implicitly considered was the applicability and interpretation of various Supreme Court and Tribunal precedents concerning the place of removal and valuation, especially the interplay between the judgments in Ispat Industries Ltd, Roofit Industries Ltd, Emco Ltd, and subsequent Larger Bench decisions.

Issue-wise Detailed Analysis

1. Whether the sale was ex-works or FOR destination basis

Relevant legal framework and precedents: The appellant relied heavily on the Supreme Court judgment in CC & CE, Nagpur Vs Ispat Industries Ltd, which held that the place of removal must be a location relatable to the seller and cannot be the buyer's premises even if the sale is FOR destination. The appellant argued that the title passed at the factory gate, supported by the pricing structure and payment of VAT at that point.

The department countered by relying on clauses of the purchase orders indicating that the price was variable FADS (Free at Destination Stores), inclusive of freight, insurance, and other charges, and that ownership remained with the appellant until receipt and acceptance at the destination. They further relied on the Larger Bench decision in The Ramco Cements Ltd Vs CCE, Puducherry, which examined the interplay of Ispat Industries with Roofit Industries and Emco Ltd judgments. These latter judgments emphasize that the place of removal depends on the factual matrix and the point at which the sale is actually completed.

Court's interpretation and reasoning: The Tribunal undertook a holistic examination of the purchase order clauses, noting that despite a separately quoted ex-works price, the overall terms indicated that the goods were accepted only upon receipt in good condition at the destination. The appellant bore responsibility for freight, insurance, and unloading charges, which were prepaid, indicating that risk and ownership remained with the appellant during transit.

The Tribunal distinguished the appellant's reliance on Ispat Industries by emphasizing that the factual matrix here was more aligned with the Roofit Industries and Emco Ltd line of cases, where the place of sale and removal depends on the contractual terms and actual transfer of ownership. The Tribunal cited its own previous decision in Schneider Electric India Pvt Ltd Vs CCT, Medchal-GST, which analyzed the conflicting judgments and concluded that when the sale is on FOR basis, the place of removal is at the buyer's premises, and freight and insurance costs form part of the transaction value.

Key evidence and findings: The purchase order clauses demonstrated that payment was contingent on receipt of goods in good condition, that ownership remained with the appellant until delivery, and that freight and insurance costs were prepaid by the appellant. The appellant's failure to actually pay insurance charges was noted but did not alter the contractual terms indicating risk retention. The Tribunal found that the commercial understanding of a separate ex-works price was insufficient to override the contractual terms.

Application of law to facts: Applying the precedents, the Tribunal held that the place of removal must be determined by the terms of the contract and factual circumstances. Since the contract was clearly FOR destination, the place of sale was at the buyer's premises, not the factory gate. Consequently, freight and insurance costs were includable in the assessable value.

Treatment of competing arguments: The appellant's argument that the sale was ex-works based on price structure and VAT payment was rejected as incomplete in light of the contractual terms. The department's reliance on detailed purchase order clauses and Larger Bench precedents was accepted as reflecting the true nature of the transaction.

Conclusion: The Tribunal concluded that the sale was completed at the destination, not at the factory gate, and that the place of removal was the buyer's premises.

2. Inclusion of freight, insurance, and related charges in assessable value

Relevant legal framework and precedents: The question of whether transportation and insurance charges form part of the transaction value has been extensively considered in judgments such as Roofit Industries Ltd, Emco Ltd, and Ultra Tech Cement. These judgments hold that when the sale is on FOR basis and ownership passes at the destination, such charges are integral to the transaction value and must be included for excise/GST valuation.

Court's interpretation and reasoning: The Tribunal, relying on the Larger Bench decision in Ramco Cements Ltd and its own earlier ruling in Schneider Electric, reiterated that the inclusion of freight and insurance charges depends on the place of removal. Since the sale was on FOR basis, these charges were necessarily part of the transaction value. The Tribunal noted that the appellant's commercial arrangement of quoting freight separately did not exempt these charges from inclusion when ownership passed at the destination.

Key evidence and findings: The purchase orders explicitly included freight and insurance in the price and required prepayment by the appellant. Payment terms also linked release of funds to receipt of goods at the destination in good condition, reinforcing the inclusion of these charges in the transaction value.

Application of law to facts: The Tribunal applied the legal principle that all costs incurred up to the point of sale must be included in the assessable value when sale occurs at the destination. Since ownership and risk passed only at the destination, freight and insurance costs were rightly included.

Treatment of competing arguments: The appellant's contention that insurance charges were not actually paid was dismissed as irrelevant to the contractual terms. The department's position that these costs formed part of the transaction value was upheld.

Conclusion: Freight, insurance, and related charges were properly includable in the assessable value of goods for excise/GST purposes.

3. Interpretation and applicability of precedents

Relevant legal framework and precedents: The Tribunal analyzed the Supreme Court decisions in Ispat Industries Ltd, Roofit Industries Ltd, Emco Ltd, and subsequent Larger Bench rulings, along with various Tribunal decisions such as Unique Structures & Towers Ltd, Schneider Electric, and Toshiba Transmission & Distribution System India Pvt Ltd.

Court's interpretation and reasoning: The Tribunal recognized that Ispat Industries established a general principle that place of removal is the seller's premises, but also acknowledged that Roofit Industries and Emco Ltd introduced a more nuanced approach requiring examination of the factual matrix and contract terms. The Larger Bench in Ramco Cements clarified that in FOR contracts, the place of removal is the buyer's premises, and all costs up to that point must be included in valuation.

Key evidence and findings: The Tribunal found that the present case's factual matrix aligned with the Roofit Industries and Emco Ltd line of cases rather than Ispat Industries. It noted that the department's reliance on Larger Bench and other Tribunal decisions was appropriate and that the appellant's reliance on Ispat Industries was misplaced given the contractual terms.

Application of law to facts: The Tribunal applied the precedents by focusing on the contractual terms and actual transfer of ownership, concluding that the place of removal was the buyer's premises and that valuation must include freight and insurance.

Treatment of competing arguments: The appellant's reliance on Ispat Industries was considered but ultimately distinguished on facts. The department's reliance on the Larger Bench and other judgments was accepted as correctly interpreting the law in the context of FOR contracts.

Conclusion: The Tribunal held that the relevant precedents support the finding that in contracts with FOR terms, the place of sale is the buyer's premises and the assessable value includes freight and insurance charges.

Significant Holdings

"The core issue to be decided is whether in this case the sale is on exworks basis or at buyer's premises. ... a holistic perusal of all this terms and conditions would clearly indicate that the goods are accepted only when they reach the destination in good condition and liability for their transport including pre-payment of transport is on the appellants themselves. Therefore, in the factual matrix it is obvious that sale has got concluded only at the destination of the buyer and not at the factory gate."

"... the place of removal has to be determined on the basis of factual matrix including the point at which sale has actually taken place. Therefore, when the sale is clearly on FOR basis, following the judgments in the case of Roofit Industries and Emco Ltd, the place of removal will be at the buyer's premises and obviously the cost of transportation, insurance, etc., if any, incurred by the assessee are required to be included in the assessable value."

"... the Commissioner (Appeals) has rightly held that in the given factual matrix, the judgments in the case of Roofit Industries and Emco Ltd are relevant and not that of Ispat Industries as clearly the price is not ex-works."

Core principles established include the necessity of examining the entire contractual matrix to determine the place of removal and the consequent valuation, the recognition that the place of sale may be at the buyer's premises in FOR contracts, and that freight and insurance costs must be included in the transaction value when ownership passes at destination.

Final determinations: The Tribunal upheld the impugned orders dismissing the appeals, confirming that the sale took place at the buyer's premises on FOR basis and that freight and insurance costs are includable in the assessable value for excise/GST purposes.