In the present case the Hon’ble Supreme Court held that the “place of delivery” could not be termed as “place of removal” for the relevant time mentioned in the show cause notices with respect to section 4 of Excise Act and Rule 5 of Excise Valuation Rules. The Judgment was delivered after taking section 4 into consideration as it was originally enacted till the period involved in the show cause notices.
Facts of the case
The Assessee was making the payment of Duty by declaring that their factory gate was the place of removal, and not the buyer’s premises. The period involved in the present appeal is from 28.9.1996 to 31.3.2003. Five show cause notices were issued to the respondents stating that the property in goods manufactured by them remained with the Assessee while the goods were in transit as Assessee had taken out an insurance policy to cover the risk of loss or damage to the goods while in transit. It was stated that the buyer’s place or the place of delivery should be treated as the place of removal of the goods for the purpose of Section 4 of the Central Excise Act.
In reply to the five show cause notices, the Assessee stated that all their prices were ex-works, and that the goods were cleared from the factory on payment of central or local sales tax. Most of their sales were against Letters of Credit opened by the customer or through Bank discounting facilities. Invoices were prepared at the factory directly in the name of the customers, and the name of the Insurance Company as well as the number of Transit Insurance Policy were both mentioned. Based on the details mentioned in the invoice, the lorry receipt was prepared by the transporter and was in the buyer’s name. This receipt carried a caution notice as well a notice to the effect that deliveries were to be made to the buyer alone, and to nobody else. Further it was stated that these transactions were entered in their sales register and were booked as sales, the stock or inventory of finished goods being reduced by such sales. In the event that there was an insurance claim, recovery was credited to the customer’s ledger account against the recovery due from the customer in respect of the sale of the said goods. Excise invoices were prepared at the time that the goods left the factory in the name and address of the customers, and once the goods were handed over to the transporter, the respondent did not reserve any right of disposal of the goods in any manner. It had no right to divert the goods so handed over to the transporter and meant for a particular customer to anybody else.
Order of the ld. Commissioner
The ld. Commissioner held that the property in goods remained with the Assessee and was not transferred to the buyer at the factory gate as the Insurance Policy was taken up by the Assessee to cover up the risk while the goods were in transit. The Assessee took responsibility of transportation of the goods up to the door of the customers. Also, payment terms were 30 days after the receipt of the material and not 30 days after dispatch of the material. Therefore, on these basis the ld. Commissioner assumed that property in the goods remained with Assessee until payment was made. Therefore, demands were confirmed.
Judgment by Hon’ble CESTAT
The Hon’ble CESTAT reversed the order of the ld. Commissioner by relying on the Judgment of Escorts JCB Ltd. v. CCE, (2003) 1 SCC 281 and also relied upon a Board’s circular dated 3.3.2003 which acknowledged that the question of ownership of goods in transit cannot be determined solely with reference to an Insurance Policy taken out by the manufacturer. It was further held that at least two of the Commissioner’s grounds, namely, that the payment terms were 30 days after receipt of the materials and that the order acceptance form shows that it was the obligation of the Assesee to arrange transportation of goods to the buyer’s premises, were beyond the show cause notices issued as no such charge was levied against the Assessee in any of the five show cause notices mentioned hereinabove.
Contention of the Revenue
The ld. Counsel on the behalf of Revenue contended that the facts in the present case being different from the facts in Escorts JCB’s case. According to learned counsel, the circular dated 3.3.2003 which referred to both the Escorts JCB’s case and to Prabhat Zarda Factory Ltd. v. Commissioner of Central Excise, 2002 (146) ELT 497 (S.C.), clearly laid down that for the period in question Section 4 of the Central Excise and Salt Act, 1944 made it clear that since the buyer’s place was in fact the place of removal of Assessee’s goods, freight payments being payments made prior to the goods being sold to the buyers are liable to be included in the central excise duty payable by the Assessee.
Contention of the Assessee
According to learned counsel of the Assessee, the period involved in the present case divides itself into two periods – the period from 28.9.1996 to 30.6.2000 and the period 1.7.2000 to 31.3.2003. Reading Section 4 as it stood at the relevant time in both periods with Rule 5 of the Central Excise Rules, it will be clear that the buyer’s premises can never in law be the place of removal of excisable goods. So far as the first period is concerned, the place of removal can extend only up to a manufacturer’s depot or other premises from which the manufacturer is to sell his goods, and no further. So far as the second period is concerned, after Section 4 was substituted completely by the Amendment Act which came into force on 1.7.2000, even a depot or other premises could not be considered to be a place of removal, the only place of removal being the factory premises of the manufacturer. This being so, learned counsel argued that he ought to succeed on first principle as all the show cause notices and the findings of the Commissioner are based on the fact that in the present case the buyer’s premises is the place of removal of goods. He argued that this would involve conceptual confusion inasmuch as the place of removal can never be equated with the place of delivery and the place of removal alone is relevant for the purpose of Section 4 throughout its chequered history. He further argued that on facts his case came within the ratio of Escorts JCB and not within the ratio of two other judgments of this Court, namely, Commissioner Central Excise, Mumbai-III v. M/s. Emco Ltd., dated July 31, 2015 in Civil Appeal 3418 of 2004 and Civil Appeal 8966 of 2011, and CCE & Customs v. Roofit Industries Ltd., (2015) 319 E.L.T. 221 (S.C.).
Held by the Hon’ble Supreme Court
The Hon’ble Supreme Court considered the amendments made after 1973 in relevant section 4 and observed that there were three important changes made in the Section 4 so far as the present case is concerned. “Place of removal” has been defined for the first time to mean not only the premises of production or manufacture of excisable goods but also a warehouse or any other place or premises wherein such goods have been permitted to be deposited without payment of duty and from where such goods are ultimately removed. Section 4(2), which was introduced for the first time, where in relation to excisable goods the price thereof for delivery at the place of removal is not known, and the value is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery was statutorily excluded. It was further observed by the Hon’ble Supreme Court that Section 4 as substituted by the 1973 Amendment Act suffered a further amendment in 1996. Sub-clause (b)(iii) is very important and makes it clear that a depot, the 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 are all places of removal. The important point which was noted was that each of these premises is referable only to the manufacturer and not to the buyer of excisable goods. Even the expression “any other place or premises” refers only to a manufacturer’s place or premises because such place or premises is stated to be where excisable goods “are to be sold”. Further, it was observed that as a matter of law with effect from the Amendment Act of 28.9.1996, the place of removal only has reference to places from which the manufacturer is to sell goods manufactured by him, and can, in no circumstances, have reference to the place of delivery which may, on facts, be the buyer’s premises.
Then, the amendments made in year 2000 was discussed and was observed that under Section 4(3)(c), the place of removal is defined as it had been defined in the substituted Section 4 (by the 1973 Amendment) before its further amendment in 1996. For the second period in question in the present case, namely, 1.7.2000 to 31.3.2003, the depot, premises of a consignment agent or any other place from which excisable goods were to be sold after their clearance from the factory were no longer places of removal. Then the Hon’ble Supreme Court discussed the provisions of Rules 5 and 7 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, and observed that the actual cost of transportation from the place of removal up to the place of delivery of excisable goods is excluded from the computation of excise duty provided it is charged to the buyer in addition to the price of goods and shown separately in the invoices for such goods. Substituted Section 4 does not providing for a depot or other premises as a place of removal, Rule 7 deals with the normal transaction value of goods transferred to a depot or other premises which is said to be at or about the same time or the time nearest to the time of removal of goods under assessment.
Then the amendments in Year 2003 relating to section 4 and Rule 5 were discussed and it was observed that Rule 5 which was 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. 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.
Further, the Hon’ble Supreme Court held that 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 it reserve such rights inasmuch as title had already passed to its customer.
Accordingly, the appeals.