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.
Assessee, 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, had entered into four agreements for designing, manufacturing, providing at site, laying, jointing and testing of PSC pipes of specified sizes. It was case of Revenue that on the basis of general intelligence collected, Assessee was doing duty evasion by not computing the assessable value of finished goods properly to the extent that it was deducting the amount of freight, insurance and unloading charges from the price of excisable goods though the place of removal of finished goods was different from the factory gate. The sale as per the order was getting completed at the time when goods were getting delivered at buyers place.
A show cause notice was issued to the Assessee as to why the differential central excise duty for the relevant period should not be recovered under proviso to Section 11A(1) of the Central Excise Act read with Rule 9(1) of the Central Excise Rules, 1994 and why penalty under Section 11AC and interest under Section 11AB should not be imposed. A reply was filed by Assessee in response to which the Adjudicating authority confirmed the demand 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. CESTAT in appeal against thereof vide its impugned judgment allowed the appeal on the reasoning that the issue already stands settled by the judgment of Supreme Court in the case of Escorts JCB Ltd. vs. Commissioner of Central Excise, Delhi-II and hence the present appeal by Revenue was filed.
As per Section 4 of the Act which deals with valuation of excisable goods for the purpose of charging of duty of excise, the legal position stands as under:
(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 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 the purposes of present case, 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.
It was 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 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. It is so because 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 in the case of Escorts JCB Ltd.
The Court observed that what is to be determined is the point of time when 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 and this would be determined keeping in view the 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.
In the present case, most of the orders placed with the Assessee were by the various Government authorities. As per the terms and conditions of one of the order, it became 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. Thus, 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 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.
There were clear finding of facts on the aforesaid lines recorded by the Adjudicating authority which the CESTAT did not take into consideration and allowed the appeal filed by Assessee by merely referring to the judgment in the case of Escorts JCB Ltd. by also not appreciating the exact principle laid down in the said judgment. Accordingly, the appeal filed by Revenue was allowed.
[CCE, Aurangabad vs. M/s Roofit Industries Ltd.]
(SC, 23.04.2015 – Civil Appeal No. 5541 of 2004)