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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5541 OF 2004

COMMISSIONER, CUSTOMS AND  CENTRAL EXCISE, AURANGABAD

.....APPELLANT(S)

VERSUS

M/S ROOFIT INDUSTRIES LTD. .....RESPONDENT(S)

J U D G M E N T

A.K. SIKRI, J.

Respondent is the holder of Central Excise Registration for

manufacture  of  RCC  and  PSC  pipes  falling  under  Chapter

Heading 6804/6807 for the first schedule to the Central Excise

Tariff Act, 1985.  The respondent entered into four agreements for

designing,  manufacturing,  providing at  site,  laying,  jointing and

testing of PSC pipes of specified sizes.  These are agreements

dated 24.06.1996, 01.09.1997, 25.09.1997 and 25.05.1999.   

2) It  is  the  case  of  the  Revenue  that  on  the  basis  of  general

intelligence  collected,  respondent/assessee  was  indulging  in

evasion of central excise duty by not computing the assessable

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value  of  finished  goods  properly  to  the  extent  that  it  was

deducting  the  amount  of  freight,  insurance  and  unloading

charges  from  the  price  excisable  goods  though  the  place  of

removal  of  finished goods was different  from the factory gate.

The preventive party visited the factory premises of the assessee

on 25.03.2000, conducted enquiries and resumed the records for

further scrutiny.  After scrutiny of various records and documents,

it was revealed that the assessee had received work orders from

various Government authorities and private contractors and the

agreements  entered  into  by  the  assessee  with  the  above

mentioned parties were for designing, manufacturing, providing

at  site,  laying,  jointing  and  testing  of  PSC  pipes  of  specified

sizes.   The  agreement  entered,  therefore,  entailed  upon  the

assessee, for delivery of the finished goods and not at the factory

gate.  It was found that no sale took place till the goods reached

the test of the projects.

3) A show cause notice dated 02.11.2011 was issued as to why the

differential  central  excise duty amounting to Rs.43,56,318/-  for

the period of 01.01.1996 to 30.06.2000 should not be recovered

from them under proviso to  Section 11A(1) of the Central Excise

Act read with Rule 9(1) of the Central Excise Rules, 1994 and

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why  penalty  under  Section  11AC  and  interest  under  Section

11AB should not be imposed.  The assessee replied and was

given personal hearing.  Learned Adjudicating authority vide its

order  in  original  confirmed  the  demand  to  extent  of

Rs.36,16,318/- on account of under valuation and on the ground

that place of removal finished goods was the buyer's premises

and not at the factory gate.

4) Aggrieved  by  the  said  order,  the  respondent  filed  an  appeal

before CESTAT.  Learned Tribunal vide its impugned judgment

and final order dated 30.03.2002 has allowed the appeal on the

reasoning  that  the  issue  is  settled  in  Escorts  JCB  Ltd.  v.

Commissioner of Central Excise, Delhi-II1.

5) Feeling aggrieved by the aforesaid order of the CESTAT, present

appeal is preferred by the Revenue under Section 35L(b) of the

Act.

6) The respondent has been duly served in the appeal.  However,

nobody has entered appearance on behalf  of  the respondent.

Matter came up for final arguments on 10.04.2015.  On that day,

we heard learned counsel for the appellant for some time as the

1 2002 (146) ELT 31 (SC) = (2003) 1 SCC 281

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argument  remained  inconclusive.   For  remaining  arguments,

matter  was  adjourned  to  13.04.2015.   However,  nobody

appeared  on  behalf  of  the  respondent  on  10.04.2015  and

13.04.2015.  In these circumstances, we had no option but to

reserve the matter for judgment after hearing Mr. Kaul, learned

ASG, who appeared for the Revenue.

7) Insofar as the legal position is concerned, there cannot be any

dispute about  the same.  Section 4 of  the Act  is  the relevant

statutory provision which deals with valuation of excisable goods

for the purpsose of charging of duty of excise.  Relevant portion

thereof,  as  it  existed  during  the  period  with  which  we  are

concerned, 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  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  the  sole consideration for the sale:

Provided that-

(i) * * *

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(i-a) * * *

(ii) * * *

(iii) * * *

(b) * * *

    (2)-(3) * * *      (4) For the purpose of this section,-

(a) * * *

(b) 'place of removal' means:

(i) * *          *

(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.”

8) A  contextual  examination  of  the  aforesaid  provision,  for  the

purpose of the present case, would bring out the following the

pertinent aspects:

(i) The duty of excise is chargeable on excisable goods with

reference to the value of those goods.

(ii) The value of the goods is deemed to be 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

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wholesale trade.

(iii) The said normal price is to be seen at the time of delivery

and place of removal.

(iv) 'Place  of  removal'  is  specifically  defined  and  for  our

purposes, it  is to be a 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.

Thus, place of removal, in a given case, become determinative

factor for the purpose of valuation.

9) 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  the expenses which are incurred after  the

removal of goods from the factory gate namely freight, insurance

and unloading charges etc. are not to be included in the valuation

of the goods for the purposes of excise duty.  The reason is that

the sale of goods to the buyer is at the factory gate when the

property 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

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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  the transit

insurance.  The Court found that the terms and conditions of sale

clearly stipulated that it was ex-works at the factory gate of the

assessee.  The payment was to be made before discharge of the

goods from the factory premises.  In the opinion of the Court, the

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 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 by  the

authorities as well as CEGAT in the following manner:

“A  perusal  of  the  orders  passed  by  the authorities  and  the  CEGAT  show  that  since

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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 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 Spcial  Contracts  P.978  Chap.  41  Note  007 under  the heading “Insurance of  Another's interest”.  It is indicated that in varied facts and circumstances  and  subject  to  the  statutory provisions of  contract,  it  is  possible to ensure the interest of another.  Referring to a decision reported  in  [1947]  K.B.  685  Prudential  Staff Union versus Hall, it is observed that a seller in possession of the goods when the property and risks  have  passed  may  insure  his  buyer's interest.   Referring  to  a  decision  reported  in Hepburn 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 which is to the following effect:

“Insurance.  The passing of  property is rarely of relevance to insurance.  A person can insure goods to their  full value  against  any  loss  on  behalf  of anyone  who  may  be  entitled  to  an interest  in the goods at  the time the

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loss occurs,  provided that it  appears from the terms of the policy that it was intended to cover their interest.  Also a buyer will have an insurable interest in goods if they are at his risk, whether or  not  the  property  has  passed  to him”.   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  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, Sixth Edition by Robert Merkin to indicate that there may be insurance to cover the interest of others that  is  to  say  not  necessarily  the  person insuring the interest must be the owner of the property.

In  one  of  the  cases  referred  to  and reported in  1983 E.L.T. 1896 (S.C.) Union of  India  and  others  etc.  etc.  versus Bombay Tyre International 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

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on  account  of  storage  charges, outward handling charges, interest on  inventories  (stocks  carried  by the manufacturer after clearance), charges  for  other  services  after delivery  to  the  buyer,  namely after-sales  service  and  marketing and selling organization expenses incuding  advertisement  expenses cannot  be  deducted.   It  will  be noted  that  advertisement expenses,  marketing  and  selling organization  expenses  and  after sale  service  promote  the marketability  of  the  article  and enter  into  its  value  in  the  trade. Where  the  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  cost  of  insurance  on the freight for transportation of the goods from the factory gate to the place or places of delivery”.

10) The underlying factor that normal price has to be the price at the

time of delivery and at the place of removal, in terms of Section

4, has been succintly brought out and amplified in VIP Industries

Ltd.  v.  Commissioner  of  Customs  and  Central  Excise,

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Aurangabad2 in the following words:

“6. 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  place  of removal, where the buyer is not a related person and  price  is  the  sole  consideration  for  sale. Therefore,  the normal price is the price at  the "time of delivery" and "at the place of removal". Before  the  amendment,  the  place  of  removal was  only  the  factory  or  any  other  place  or premises  where  the  excisable  goods  were produced or  manufactured  or  a  warehouse or any  other  place  or  premises  where  any excisable  goods  have  been  permitted  to  be deposited  without  payment  of  duty.  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 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.”

2 (2003) 5 SCC 507

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11) In Commissioner of Central Excise, Noida v. Accurate Meters

Ltd.3, the Court took note of few decisions including in the case

of  Escorts  JCB Ltd. and reiterated the aforesaid  principles  by

emphasising that the place of removal depends on the facts of

each case.

12) 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 provisions of the Sale of

Goods Act  by applying the same to the facts of  each case to

determine as to when the ownership in the goods is transferred

from the seller to the buyer.  The charges which are to be added

have  put  up  to  the  stage  of  the  transfer  of  that  ownership

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.

3 (2009) 6 SCC 52

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13) 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 24.06.1996 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 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

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goods in question.

14) The clear intent of the aforesaid purchase order was to transfer

the property in goods to the buyer at the premises of the buyer

when the goods are delivered and by virtue of Section 19 of Sale

of Goods Act, the property in goods was transferred at that time

only.  Section 19 reads as under:

“19.  Property  passed  when  intended  to pass.-(1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the  parties  to  the  contract  intend  it  to  be transferred. (2)  For the 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.”

15) These are clear finding of facts on the aforesaid lines recorded

by the Adjudicating authority.  However, the CESTAT did not take

into consideration all these aspects and allowed the appeal of the

assessee  by  merely  referring  to  the  judgment  in  the  case  of

Escorts JCB Ltd.  Obviously the exact principle laid down in the

judgment has not been appreciated by the CESTAT.   

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16) As a result, order of the CESTAT is set aside and present appeal

is  allowed  restoring  the  order  passed  by  the  Adjudicating

authority.

.............................................J. (A.K. SIKRI)

.............................................J. (ROHINTON FALI NARIMAN)

NEW DELHI; APRIL 23,  2015.

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