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Commissioner of Customs And Central Excise, Nagpur Versus M/s Ispat Industries Ltd.

2015 (10) TMI 613 - SUPREME COURT

Valuation - inclusion of freight in the transaction value - place of removal - Whether, by virtue of a transit insurance policy in the name of the manufacturer, excise duty is liable to be recovered on freight charges incurred for transportation of goods from the factory gate to the buyer's premises, treating the buyer's premises as the place of removal - Held that:- Three important changes have been made in the amended Section 4 so far as the present case is concerned. First, the value of excis .....

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uch goods have been permitted to be deposited without payment of duty and from where such goods are ultimately removed.

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 premis .....

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s 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 Also, this Court's attention was not drawn to Section 4 as originally enacted and as amended to demon .....

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t re-stated its decision in the Roofit Industries' case [2015 (4) TMI 857 - SUPREME COURT] 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. - Decided against Revenue. - Civil Appeal No. 637 of 2007 - Dated:- 7-10-2015 - A. K. Sikri And R. F. Nariman, JJ. For the Petitioner : Mr. Ashok Kumar Panda, Sr. .....

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y gate to the buyer's premises, treating the buyer's premises as the place of removal. 2. M/s Ispat Industries Limited, the respondent herein, is engaged in the manufacture of H.R. sheets/coils, C.R. sheets/coils, and Galvanized/colour coated/sheets, falling under Chapter 72 of the First Schedule to the Central Excise Tariff Act, 1985. Intelligence revealed that M/s Ispat were indulging in evasion of central excise duty by a mis-declaration that their factory gate was the place of remova .....

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amage to the goods while in transit. Purchase orders as well as agreements with transporters did not suggest that the transporters were taking delivery on behalf of the buyers. All this was corroborated by a statement made by Shri S.P. Dahiwade, Deputy General Manager, stating that the ownership of the goods in transit remained with Ispat. It was thus stated that the buyer's place or the place of delivery should be treated as the place of removal of the goods for the purpose of Section 4 of .....

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s were prepared at the factory directly in the name of the customers, and the name of the Insurance Company as well as the number of Transit Insurance Policy were both mentioned. Based on the details mentioned in the invoice, the lorry receipt was prepared by the transporter and was in the buyer's name. This receipt carried a caution notice as well a notice to the effect that deliveries were to be made to the buyer alone, and to nobody else. 4. M/s. Ispat further stated that these transactio .....

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the respondent did not reserve any right of disposal of the goods in any manner. It had no right to divert the goods so handed over to the transporter and meant for a particular customer to anybody else. 5. The learned Commissioner, by his order dated 3.10.2003, held that as the insurance agreement with the transporter was entered into by Ispat who had taken out an Insurance Policy to cover risk to the loss or damage of the goods while in transit, the property in goods remained with Ispat and wa .....

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admitted in his statement dated 5.2.2001, that till the material is delivered to the customer, ownership of the goods remains with Ispat. Further, since payment terms were 30 days after the receipt of the material and not 30 days after dispatch of the material, it is clear that property in the goods remained in Ispat until payment was made. The Commissioner, therefore, held: "In the facts and circumstances of the case as discussed above, the charges framed under the said Show Cause Notices .....

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nly), (Rs.2,16,09,006.00/- + ₹ 1,77,828/- + ₹ 8,97,780/- + ₹ 12,91,700/-) and I order recovery of the same from them under Rule 9(2) of the Central Excise Rules, 1944 read with Section 38A of the Central Act, 1944 and the first proviso to Section 11A of the Central Excise Act, 1944 by invoking extended period of limitation of five years. (iii) I impose Penalty of ₹ 2,43,31,003/- (Rs. Two Crores Forty Three Lakhs Thirty One Thousand Three only), upon them under Rule 173Q a .....

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also relied upon a Board's circular dated 3.3.2003 which acknowledged that the question of ownership of goods in transit cannot be determined solely with reference to an Insurance Policy taken out by the manufacturer. As regards the statement of Shri Dahiwade, according to CESTAT, such statement would not carry the revenue much further as whether the property in the goods passed at the factory gate to the buyer was a question of law which was determined in favour of Ispat by the aforesaid ju .....

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da, learned senior counsel appearing on behalf of the revenue, extensively read from the order of the learned Commissioner and stated that the facts in the present case being different from the facts in Escorts JCB's case, the Tribunal was in error in relying on Escorts JCB's case. According to learned counsel, the circular dated 3.3.2003 which referred to both the Escorts JCB's case and to Prabhat Zarda Factory Ltd. v. Commissioner of Central Excise, 2002 (146) ELT 497 (S.C.), clear .....

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behalf of Ispat, painstakingly took this Court through Section 4 of the Central Excise and Salt Act as originally enacted together with all the amendments made thereto, up to date. According to learned counsel, the period involved in the present case divides itself into two periods - the period from 28.9.1996 to 30.6.2000 and the period 1.7.2000 to 31.3.2003. According to learned counsel, on a correct construction of Section 4 as it stood at the relevant time in both periods and on a reading of .....

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mises could not be considered to be a place of removal, the only place of removal being the factory premises of the manufacturer. This being so, learned counsel argued that he ought to succeed on first principle as all the show cause notices and the findings of the Commissioner are based on the fact that in the present case the buyer's premises is the place of removal of goods. He argued that this would involve conceptual confusion inasmuch as the place of removal can never be equated with t .....

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o argued that the learned Commissioner was in error because he had ignored altogether the reply made by the assessee which would show that the assessee's facts are in pari materia with the facts in Escorts JCB and not the facts in either Emco or Roofit Industries, supra. He further supported the Tribunal's judgment by stating that not only did the Commissioner not give any heed to Ispat's reply, but that it also entered into areas which were no part of the show cause notices, and thu .....

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4. Where under this Act, any article is chargeable with duty at a rate dependent on the value of the article, such value shall be deemed to be- (a) the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold at the time of the removal of the article chargeable with duty from the factory or any other premises of manufacture or production for delivery at the place of manufacture or production, or if a wholesale market does not exist for such artic .....

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lace nearest thereto. Explanation.-In determining the price of any article under this section, no abatement or deduction shall be allowed except in respect of trade discount and the amount of duty payable at the time of the removal of the article chargeable with duty from the factory or other "premises aforesaid." 11. It will be seen that the value of an article chargeable with excise duty is deemed to be the wholesale cash price for which an article of the like kind and quality is sol .....

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hereby eliminating freight, octroi and other charges involved in the transport of the articles." [at para 22] 12. By an amendment Act of 1973, which came into force on 1.10.1975, Section 4 was substituted as follows:- "Section 4. Valuation of excisable goods for purposes of charging of duty of excise. - (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value, shall, subject to the other provisions of this section, be deemed .....

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being related persons) each such price shall, subject to the existence of the other circumstances specified in clause (a), be deemed to be the normal price of such goods in relation to each such class of buyers; (ii) Where such goods are sold by the assessee in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for the time being in force or at a price, being the maximum, fixed under any such law, then, notwithstanding anything contained i .....

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son in the course of wholesale trade at the time of removal, to dealers (not being related persons) or where such goods are not sold to such dealers, to dealers (being related persons), who sell such goods in retail; (b) Where the normal price of such goods is not ascertainable for the reason, that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in such manner as may be prescribed. (2) Where, in relation to any excisable goods the price th .....

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;assessee" means the person who is liable to pay the duty of excise under this Act and includes his agent; (b) "place of removal" means - (i) a factory or any other place or premises of production or manufacture of the excisable goods; or (ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty, from where such goods are removed." 13. It will be seen that three important changes have been made in t .....

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production or manufacture of excisable goods but also a warehouse or any other place or premises wherein such goods have been permitted to be deposited without payment of duty and from where such goods are ultimately removed. Interestingly, in Section 4(2), which is introduced for the first time, where in relation to excisable goods the price thereof for delivery at the place of removal is not known, and the value is determined with reference to the price for delivery at a place other than the .....

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ade at a place outside the factory gate, the value should be determined as the price at which the excisable article is sold in the wholesale trade at such place, after deducting therefrom the cost of transportation of the excisable article from the factory gate to such place. The claim to other deductions will be dealt with later." [at para 27] The Court further went on to say: "Where the sale in the course of wholesale trade is effected by the assessee through its sales organisation a .....

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or places of delivery." [at para 50] 14. This view of the law was reiterated in Government of India v. Madras Rubber Factory Ltd., (1995) 4 SCC 349. Interestingly, in paragraph 39 of the judgment, cost of transportation from the factory gate to the place of removal not forming part of excise duty was conceded by the revenue. 15. Section 4 as substituted by the 1973 Amendment Act suffered a further amendment in 1996. The amendments carried out were to have effect from 28.9.1996, which is als .....

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Also, for the first time, "the place of removal" had one more category added to it. Section 4(4)(b)(iii) and 4(4)(ba) state as follows:- "(4)(b)(iii) a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory and, "(4)(ba) "time of removal", in respect of goods removed from the place of removal referred to in sub-clause (iii) of clause (b), shall be deemed to be the tim .....

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l places of removal. What is important to note is that each of these premises is referable only to the manufacturer and not to the buyer of excisable goods. The depot, or the premises of a consignment agent of the manufacturer are obviously places which are referable only to the manufacturer. Even the expression "any other place or premises" refers only to a manufacturer's place or premises because such place or premises is stated to be where excisable goods "are to be sold&qu .....

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.1996, the place of removal only has reference to places from which the manufacturer is to sell goods manufactured by him, and can, in no circumstances, have reference to the place of delivery which may, on facts, be the buyer's premises. 18. By an Amendment Act which came into effect on 1.7.2000, Section 4 was substituted yet again as follows:- "Section 4. Valuation of excisable goods for purposes of charging of duty of excise. - (1) Where under this Act, the duty of excise is chargeab .....

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isions of this section shall not apply in respect of any excisable goods for which a tariff value has been fixed under sub-section (2) of section 3. (3) For the purpose of this section,- (a) "assessee" means the person who is liable to pay the duty of excise under this Act and includes his agent; (b) Person shall be deemed to be "related" if - (i) they are inter-connected undertakings; (ii) they are relatives; (iii) amongst them the buyer is a relative and a distributor of th .....

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56 (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 .....

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id 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 .....

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arance 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 ex .....

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ddition 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 n .....

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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. .....

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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 transpor .....

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ained 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 h .....

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premises or the warehouse (in the circumstances mentioned in the Section), alone being places of removal. Under no circumstances can the buyer's premises, therefore, be the place of removal for the purpose of Section 4 on the facts of the present case. 25. It now remains to deal with some of the judgments cited at the Bar. Escorts JCB Ltd. v. CCE, (2003) 1 SCC 281, was strongly relied upon by Shri Bagaria and sought to be distinguished by Shri Panda. The facts of Escorts JCB's case are s .....

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ders 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 rela .....

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act that the seller had insured such goods during transit to the buyer. It is not necessary that insurance of the goods and the ownership of the property insured must always go together. It may be depending upon various facts and circumstances of a particular transaction and terms and conditions of sale. A reference has also been made to Colinvauz's Law of Insurance, 6th Edn. by Robert Merkin to indicate that there may be insurance to cover the interest of others, that is to say, not necessa .....

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he 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 & .....

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International Ltd. [(1984) 1 SCC 467 : 1984 SCC (Tax) 17 : 1983 ELT 1896]. It was thereafter confirmed in the case of Govt. of India v. Madras Rubber Factory Ltd.[(1995) 4 SCC 349 : (1995) 77 ELT 433] " [at para 3] 29. Like the Escorts JCB's case this judgment was also concerned with Section 4 as it stood after the amendment of 1996 but before the amendment of 2000. This Court held:- "After the amendment, the Department sought to include in the value the cost of transport from fact .....

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n 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 plac .....

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. Thus, the price would be the price at that place. By the amendment proviso (i-a) to Section 4(1)(a) has been added. Under Section 4(1)(a)(i-a) where the price of the goods is different for different places of removal, each such price was deemed to be the normal price of such goods in relation to "such place of removal". Thus, if the place of removal was the factory, then the price would be the normal price at the factory. If the place of removal was some other place like a depot or t .....

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form 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 .....

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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 incl .....

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t. 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 Good .....

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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 t .....

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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 .....

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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 di .....

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s inclusive of transportation charges. As transit damage on the assessee's account would imply that till the goods reached their destination, ownership in the goods remained with the supplier, namely, the assessee, freight charges would have to be added as a component of excise duty. Further, as per the terms of the payment clause contained in the procurement order, payment was only to be made after receipt of goods at the premises of the buyer. On facts, therefore, it was held that the sale .....

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