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2015 (8) TMI 200 - SUPREME COURT

2015 (8) TMI 200 - SUPREME COURT - 2015 (322) E.L.T. 394 (SC) - Valuation - Place of removal - Section 4 - Determination of transactional value - inclusion of transportation charges and transit insurance charges - supply of transformers to the State Electricity Boards - Held that:- If the goods are cleared at the factory gate, then the excise duty has to be charged on the valuation of the goods to be arrived at the factory gate as that would be the place of removal of goods. It would mean that t .....

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- SUPREME COURT OF INDIA).

Machinery which was handed over to the career/transporter on receiving the payment was as good as delivery to the buyer in terms of Section 39 of the Sale of Goods Act and, therefore, possession of the sold goods was handed over to the buyer at the factory gate. In this manner, the transaction was full and complete and nothing remained to be done after the goods left the factory premises. On these facts, provisions of Section 4 of the Act, which deals with v .....

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e assessee and with various customers and other documents on the basis of which the Commissioner concluded that the property in goods was passed on to the customers only at the destination. According to him, there was a specific condition in the contracts that the goods will be dispatched from freight pre-paid by road and up to the destination of the customers. It was also stated that material should be dispatched duly insured by the assessee up to the customers' destination and the cost towards .....

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e found in the order appealed against, though even in such a case brief reasons are to be given by the Tribunal, in particular, to meet the arguments which are advanced by the appellant while challenging such an order - matter remanded back - Decided in favour of Revenue. - Civil Appeal No. 3418 of 2004, Civil Appeal No. 8966 of 2011 - Dated:- 31-7-2015 - A. K. Sikri And N. V. Ramana, JJ. For the Appellant : Mr Arijit Prasad, Adv. Ms Shirin Khajuria, Adv. Mr B Krishna Prasad, Adv. For the Respon .....

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duty which the assessee has been paying to the appellant herein (hereinafter referred to as the 'Revenue"). The dispute in the present case, however, is about the 'transaction value' on which the excise duty is payable under Section 4 of the Act. The assessee is paying the duty on the price at which the said transformers are sold to the Electricity Boards. However, the Revenue wants that while arriving at the price of the said goods, transportation cost and transit insurance cos .....

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custody of the goods with it during the transit. Further, the agreement with various customers nowhere suggested that the transporter was to take the delivery of goods on behalf of the customers. The transit insurance from the assessee's works upto the stores sites where the goods were to be delivered at the buyer's premises under the contract, was on assessee's account. On that basis, the show cause notice contended that the transaction value would include the amount charged on acco .....

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ers, there was no reason to include the cost thereof as transaction value had to be calculated upto the 'place of removal' and the expenses incurred thereafter were not to be included. 3) The aforesaid defence of the assessee did not cut any ice with the adjudicating authority and repelling the contention of the assessee, demand in the show cause notice was confirmed by the Commissioner, Central Excise vide his Order-in-Original dated 18.08.2002. This order was challenged by the assessee .....

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is Court in Escorts JCB Ltd. v. Collector of Central Excise 2002 (146) ELT 31 (SC) 1, relied upon by the Tribunal. He submitted that there have been various nuances, intricacies and features of the present case which were required to be discussed before the conclusion could be arrived at that the case is covered by the said judgment. His submission was that there were many distinguishing features which are not taken note of and, obviously, not discussed and a non-reasoned cryptic order is passed .....

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excise duty as the excise duty is to be levied on the 'transaction value' that has to be arrived at in the manner prescribed in the said provision as well as the rules framed thereunder. 7) As pointed out above, show-cause notice in the instant case covers the period from 28.09.1996 to 31.12.2000. Section 4 was different prior to 01.07.2000. Section 4 was substituted by new Section 4 with effect from 01.07.2000 by Section 94 of the Finance Act, 2000, whereby the concept of 'transacti .....

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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 th .....

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8) After the amendment, the new Section 4 reads as under: "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, 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 sold conside .....

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nection with the sale of such goods, and such price-cum-duty, excluding sales tax and other taxes, if any, actually paid, shall be deemed to include the duty payable on such goods. xx xx xx (3) For the purposes of this section, - xx xx xx (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 gods have been permitted to be deposited without pay .....

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le, 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." 9) It follows from the above that whereas under old Section 4 .....

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r, this value has to be 'transaction value'. Both the expressions, namely, 'place of removal' as well as 'transaction value', are defined under this very Section. These definitions are contained in sub-section 3(c) and 3(d) respectively of Section 4, as already reproduced above. 10) It is significant to point out that the definition of 'place of removal' virtually remains the same, except that clause (3) was inserted in the year 2003. The issue as to whether the c .....

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curred after the 'place of removal', then they are not to be included. On the other hand, if these charges are incurred before the 'place of removal' then they are to be included while arriving at the transaction value. Again, in the context of the present case, what is to be determined is as to whether the 'place of removal' was the factory gate of the respondent or it was the premises of the purchaser at the time of delivery of these goods. 12) If the goods are cleared .....

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y passes to the buyer and the aforesaid expenditure are thereafter incurred by the buyer. It is this aspect which was gone into by this Court in the case of Escorts JCB Ltd. (supra). That was a case where question of including insurance charges came up for consideration. It was found as a fact that the goods were cleared at the factory gate. On these facts, this Court held that insurance charges, or for that matter, transport charges would not be included even if the assessee had arranged for th .....

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the buyer at the factory gate. In this manner, the transaction was full and complete and nothing remained to be done after the goods left the factory premises. On these facts, provisions of Section 4 of the Act, which deals with valuation of excisable goods for the purposes of charging of duty of excise was taken note of and analysed, holding that the aforesaid charges could not be included for the purpose of arriving at valuation of excisable goods. The Court found fault with the orders passed .....

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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. In connection with the proposition that insurance can be taken by a third person on behalf of another, reliance has been placed by the assessee on "Chitty on Contracts" Twenty-Eight Edition Vol. 2 Special Contracts P.978 C .....

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epburn versus A. Tomlinson (Hauliers) Ltd. H.L. (E) 1966 451, it has been submitted on behalf of the assessee that a bailee apart from its interest may also insure the interest of the owner of the property. There may be floating insurance policy covering not only the limited interest but the whole interest of the ownership of the customers in the normal course. To substantiate the point further, a reference to Para 5-012 at Page 184 of Benjamin's Sale of Goods Fourth Edition has been made wh .....

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. From the above passage it is clear that ownership in the property may not have any relevance in so far 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 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 .....

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ernational Ltd. etc. etc. the question involved was regarding deduction of transportation charges along with cost of insurance. It was held as follows: "Therefore, the expenses incurred on account of the several factors which have contributed to its value upto the date of sale, which apparently would be the date of delivery, are liable to be included. Consequently, where the sale is effected at the factory gate, expenses incurred by the assessee upto the date of delivery on account of stora .....

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he 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 c .....

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took note of few more decisions, including the case of Escorts JCB Ltd., and reiterated the aforesaid principles but at the same time also emphasising that the place of removal depends on the facts of each case. 14) In a recent decision of this Court in Commissioner, Customs and Central Excise, Aurangabad v. M/s. Roofit Industries Ltd. (2015) 5 SCALE 470, the position in law was summarized in the following manner: "12) The principle of law, thus, is crystal clear. It is to be seen as to whe .....

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ership 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 Valuation Rules." 15) Having stated the legal position, we now revert to the facts of the present case. 16) The Commissioner, Central Excise while de .....

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ll be dispatched from freight pre-paid by road and up to the destination of the customers. It was also stated that material should be dispatched duly insured by the assessee up to the customers' destination and the cost towards obtaining insurance was included in the price. These contracts further contain a clear stipulation that in case of any damage to the goods during transit, the supplier will lodge the claim and obtain compensation from the insurance company. So much so, one Deputy Mana .....

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he same from the insurance company.....the possession of the goods is transferred only at the premises of the buyers/customers". The Commissioner also noted that the aforesaid statement was even confirmed by the General Manager of the assessee. 17) The Tribunal did not bother to look into any of the aforesaid aspects and/or discussed the same. In a cryptic non-reasoned order, the Tribunal allowed the appeal. To be precise, the following order is passed: "Appellants were issued a notice .....

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