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TMI Blog2023 (5) TMI 890X X X X Extracts X X X X X X X X Extracts X X X X ..... pees 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 demand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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 incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocation 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 : - 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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., 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 Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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, - (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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 the supplies was to be made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt 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 "exworks", 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able 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 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 ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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