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Friday, April 24, 2015

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.

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO. 5541 OF 2004


|COMMISSIONER, CUSTOMS AND CENTRAL EXCISE,  |.....APPELLANT(S)            |
|AURANGABAD                                 |                             |
|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 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 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-II[1].

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  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)        *          *          *


            (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 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   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 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 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 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, Aurangabad[2] 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.”





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.

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  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.

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.
-----------------------
[1]   2002 (146) ELT 31 (SC) = (2003) 1 SCC 281
[2]   (2003) 5 SCC 507
[3]   (2009) 6 SCC 52

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