CESTAT Quashes non-Speaking Excise Duty Demand Order

Koch Chemical Technology Group India Pvt Ltd Vs C.C.E. & S.T. (CESTAT Ahmedabad)

Introduction: Koch Chemical Technology Group India Private Limited recently secured relief from Central Excise duty demands in an appeal filed before the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) in Ahmedabad. The case revolved around the extraction of petroleum fuels goods and a dispute concerning the absence of a speaking order. In this article, we provide a comprehensive analysis of the case, including the background, key arguments presented, the tribunal’s decision, and its implications.

1. Background: The appellant, Koch Chemical Technology Group India Private Limited, was involved in the manufacturing of materials used in the erection of towers and the extraction of petroleum fuels. The central issue revolved around purchase orders obtained by the appellant for the supply of these goods. The terms of these purchase orders were essential to determine the liability for Central Excise duty. In particular, the focus was on whether freight charges were separately mentioned in the purchase orders and whether they should be included in the assessable value. The central question was whether the ‘place of removal’ was at the factory gate or at the buyer’s premises.

2. Arguments by the Appellant: The appellant’s Chartered Accountant contended that the inclusion of freight charges in the assessable value was incorrect, as the price quoted to customers was on a Free on Rail (FOR) basis. They argued that, under Rule 5 of the Central Excise (Valuation) Rules, the value of freight charged separately should be excluded from the assessable value. Additionally, the appellant maintained that the ‘place of removal’ was the factory gate and not the buyer’s premises.

3. Impugned Order and Conclusions: The impugned order, however, concluded that the premises of the buyer, where the appellant delivered the goods on an FOR basis, constituted the ‘place of removal.’ This conclusion was primarily based on the decision of the Supreme Court in the case of Roofit Industries Limited. The order pointed out differences in the terms of various purchase orders, with some quoting prices including freight and others separating freight charges. The order emphasized that ownership of the goods rested with the appellant until the goods were delivered, accepted, and inspected at the buyer’s site. The payment terms also reflected this arrangement, with the appellant being liable for any losses until final acceptance. The impugned order compared the case to the Supreme Court’s decision in M/s. Prabhat Zarda Factory Limited vs. CCE (2002 (146) ELT 497 (S.C)), which held that costs up to the depot are included in the assessable value.

4. CESTAT Ahmedabad’s Decision: The tribunal reviewed the impugned order and concluded that it lacked specific references to the provisions and clauses of the purchase orders that led to the conclusions mentioned in the order. The tribunal considered this deficiency as a lack of a speaking order. As a result, they set aside the impugned order and remanded the matter to the Commissioner (Appeals) for fresh adjudication. The tribunal instructed the Commissioner to provide detailed reasons, supported by evidence, for reaching conclusions. The appellant was to be given an opportunity for a fair hearing.

Implications: The decision by CESTAT Ahmedabad in favor of Koch Chemical Technology Group India Private Limited highlights the importance of a speaking order. A speaking order is one that clearly references the provisions and clauses of contracts or documents that support the conclusions reached. This case serves as a reminder of the need for clear and well-reasoned orders in legal proceedings. The matter now returns to the Commissioner (Appeals) for a thorough reexamination with specific references to the evidence and clauses involved.

Conclusion: Koch Chemical Technology Group India Private Limited’s victory in this case illustrates the significance of a speaking order in legal proceedings. The absence of specific references to contractual provisions in the impugned order led to the order’s set aside by CESTAT Ahmedabad. The case serves as a valuable reminder of the need for well-documented and clearly reasoned orders in legal disputes. The matter will now undergo a fresh adjudication with detailed reasons and evidence, offering the appellant a renewed opportunity for a fair hearing.

FULL TEXT OF THE CESTAT AHMEDABAD ORDER

This appeal has been filed by Koch Chemical Technology Group India Private Limited against the demand of Central Excise duty.

2. The Chartered Accountant appearing for the appellant pointed out that they were manufacturing certain material used in erection of towers and for extraction of petroleum fuels. Learned chartered accountant pointed out that one purchase order No. HSBR/ MX7/7410470 dated 26.09.2012 was obtained by them on FOR basis and the price quoted by them to the buyers was inclusive of freight charges and therefore, no freight was charged separately from the customer. He pointed out that the audit officers pointed out that in purchase order No. 1J/MW4/7496665 dated 31.07.2014 and 17/MXU/7461031 dated 19.06.2003, the price was quoted separately for the goods and for freight. The audit officers observed that the other terms and conditions in the purchase order dated 26.09.2012 and the purchase orders dated 31.07.2014 and 19.06.2013 were identical. The audit was of the view that in all the cases the goods were supposed to be delivered by the appellant on FOR basis to the client’s premises. Learned Chartered Accountant relied on Rule 5 of the Central Excise (Valuation) Rules to assert that in these circumstances, the value of freight charged separately on the invoices has to be excluded from the assessable value. Learned Chartered Accountant relied on Rule 5 of the Central Excise (Valuation) Rules to assert that the place of removal in the instant case is the factory gate and not the premises of the buyer.

3. Learned Authorized Representative relies on the impugned order.

4. We have considered the rival submissions. We find that the order-in­original holds that the premises of the buyer, where the appellant makes delivery on FOR basis, is the ‘place of removal’. For reaching this conclusion, the order-in-original relies on the decision of Hon’ble Apex Court in the case of Roofit Industries Limited in Civil Appeal No. 5541 of In the said decision following has been observed:

“11. In Commissioner of Central Excise, Noida, v. Accurate Meters Ltd. -(2009) 6 SCC 52- 2009/03)LCX0001 Eq 2009 (235) ELT 0581 (S.C), the Court took note of few decisions including in the case of Escorts JCB Ltd. anci 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.

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 ”

The order-in-original compares the three contracts and holds that the terms and condition of all the contracts are identical except for the fact that the price quoted in contract dated 19.06.2013 and 31.07.2014 mentioned the freight charges separately. Following are the details of the three contracts:

The impugned order observes as follows:

“6. I find that the appellant has contended that they have removed goods for sale from the factory to the buyer’s premises.

I find that as per purchase order, the appellant has agreed to supply the material with certain conditions and on the given date and place. I further find from purchase order that there are three purchase order, all are FOR/door delivery basis, out of one purchase order, in two purchase order, price quoted was excluding freight charge and ht charges has shown separately.

7. I find that:

i.The payment is to be made only within certain terms and conditions. Again any losses would be liquidated from the appellant’s account.

ii. In case of transit lost or damage, it was the onus of the appellant to provide replacement, at no cost to their customers/client.

iii. The sale was actually closed only after receipt of the goods in good condition at site as per the terms and conditions agreed.

iv. The Ex factory price are not quantified in the contract, cannot be arbitrarily accepted as there is no separate contract for transportation.

8. In view of the above, I find that, the case is that of ownership of the goods resting with the appellant till finally delivered and accepted by their client, after due inspection and certification at the site. The compensation/payment are made on account of any loss till such acceptance, and also even later. I find the case more similar to that in case of order of the Supreme Court in case of M/s. Prabhat Zarda Factory Limited vs. CCE [2002 (146) E.LT. 497 (S.G)], which held that costs upto the depot is includable in the assessable value. In view of the above, I find no reason to interfere with the impugned order and uphold the same.”

The finding in the impugned order are not supported by the exact provisions / clauses of the contracts examined. It is not understood from which clause of the contract or purchase order these conclusions have been reached.

5. We find that the impugned order reaches to the conclusions mentioned above in para 7 of the impugned order without stating the exact provisions on the contract from which these conclusions have been reached. In this background, we do not find that the impugned order is a speaking order. The impugned order is therefore set aside and matter remanded to the Commissioner (Appeals) for fresh adjudication after giving exact reasons along with evidence for reaching the conclusions arrived at therein. Needless to say the appellants will be provided an opportunity of natural justice. The appeal is allowed by way of remand.

(Pronounced in the open court on 04.10.2023)