2015 (4) TMI 857 - SC - Central Excise

Sale of Goods Occurs at Buyer's Premises Under Purchase Order Terms, Including Freight and Insurance Costs

Commissioner, Customs And Central Excise, Aurangabad Versus M/s Roofit Industries Ltd.

The SC held that the sale of goods occurred at the buyer's premises, not at the factory gate, as the terms of the purchase order required delivery and ... Valuation - non inclusion of freight, insurance and unloading charges - Evasion of central excise duty - place of removal of finished goods was different from the factory gate - Held 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. The clear intent of the 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 - 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. [2002 (10) TMI 96 - SUPREME COURT] - Obviously the exact principle laid down in the judgment has not been appreciated by the CESTAT. - Decided in favour of Revenue. ISSUES: Whether freight, insurance, and unloading charges incurred after removal of excisable goods from the factory gate can be deducted from the assessable value for central excise duty purposes.Determination of the 'place of removal' for valuation of excisable goods under Section 4 of the Central Excise Act, 1985.Whether the sale of goods occurs at the factory gate or at the buyer's premises under the terms of contract and applicable law.Application and interpretation of Section 19 of the Sale of Goods Act regarding the transfer of property in goods.Correctness of reliance on precedent (Escorts JCB Ltd.) in context of the facts of the present case. RULINGS / HOLDINGS: Freight, insurance, and unloading charges incurred after removal of goods from the factory gate cannot be deducted from the assessable value if the place of removal is not the factory gate but the buyer's premises, as these expenses are incurred post-transfer of ownership.'Place of removal' is the location from where excisable goods are sold after clearance from the factory, and it is determinative for valuation under Section 4 of the Act.The sale of goods in the present case took place at the buyer's premises, not at the factory gate, as the terms of contract and payment conditions indicate transfer of ownership upon delivery at buyer's site.Section 19 of the Sale of Goods Act governs the transfer of property, and the property passes at the time and place intended by the parties, which here is at delivery to the buyer's premises.The CESTAT erred in relying solely on Escorts JCB Ltd. without appreciating that the facts of the present case differ materially, particularly regarding the place of removal and transfer of ownership. RATIONALE: The Court applied Section 4 of the Central Excise Act, 1985, which mandates that valuation for excise duty is based on the 'normal price' at the 'time and place of removal,' with 'place of removal' defined to include locations beyond the factory gate where goods are sold.Precedents including Escorts JCB Ltd. and VIP Industries Ltd. were examined to clarify that the valuation depends on the facts as to when and where the sale is effected, emphasizing that expenses incurred after transfer of ownership are not includible in assessable value.The Court relied on Section 19 of the Sale of Goods Act to determine the intention of the parties regarding the time and place of transfer of property, considering contract terms, conduct, and circumstances.The Court distinguished the present facts from Escorts JCB Ltd. where sale was at factory gate, highlighting that insurance of goods in transit does not necessarily imply retention of ownership by the seller.The judgment reaffirmed the principle that valuation must reflect the price at the point of sale, and any charges incurred after transfer of ownership belong to the buyer and cannot be deducted from assessable value.