2015 (8) TMI 200 - SC - Central Excise

Supreme Court clarifies 'transaction value' in excise duty case, emphasizes factual analysis

Commissioner Central Excise, Mumbai-III Versus M/s. Emco Ltd.

The Supreme Court set aside the Customs Excise and Gold (Control) Appellate Tribunal's decision in a case concerning the determination of excise duty on ... Valuation - Place of removal - Section 4 - Determination of transactional value - inclusion of transportation charges and transit insurance charges - supply of transformers to the State Electricity Boards - 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. 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. (2002 (10) TMI 96 - SUPREME COURT OF INDIA). 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. Commissioner, Central Excise while deciding that the transportation charges as well as transit insurance charges are to be included for fixing the transaction value. The order reveals that the Commissioner had scanned through the agreements entered into between the assessee and with various customers and other documents on the basis of which the Commissioner concluded that the property in goods was passed on to the customers only at the destination. According to him, there was a specific condition in the contracts that the goods will be dispatched from freight pre-paid by road and up to the destination of the customers. It was also stated that material should be dispatched duly insured by the assessee up to the customers' destination and the cost towards obtaining insurance was included in the price. These contracts further contain a clear stipulation that in case of any damage to the goods during transit, the supplier will lodge the claim and obtain compensation from the insurance company - The perfunctory manner in which the appeal of the assessee is allowed, cannot be countenanced. If the Tribunal was confirming the decision of the Authority below, may be detailed discussion was not required as the reasons given in detail could be found in the order appealed against, though even in such a case brief reasons are to be given by the Tribunal, in particular, to meet the arguments which are advanced by the appellant while challenging such an order - matter remanded back - Decided in favour of Revenue. Issues Involved:1. Determination of 'transaction value' for excise duty under Section 4 of the Central Excise Act, 1944.2. Inclusion of transportation and transit insurance costs in the 'transaction value'.3. Definition and determination of 'place of removal'.Issue-wise Detailed Analysis:1. Determination of 'transaction value' for excise duty under Section 4 of the Central Excise Act, 1944:The core issue in this case revolves around the 'transaction value' on which excise duty is payable under Section 4 of the Central Excise Act, 1944. The respondent/assessee manufactures transformers primarily supplied to State Electricity Boards and pays excise duty on the price at which these transformers are sold. The Revenue contends that the transportation cost and transit insurance cost should be included in the 'transaction value' to arrive at the correct excise duty.2. Inclusion of transportation and transit insurance costs in the 'transaction value':The Revenue issued a show cause notice to the assessee for not including transportation and transit insurance costs in the transaction value, proposing to recover Rs. 1,17,36,766/- for short excise duty paid from 28.09.1996 to 31.12.2000. The Revenue argued that the transit insurance policies indicated that the assessee retained custody of the goods during transit, and the agreements did not suggest that the transporter took delivery on behalf of the customers. The assessee refuted this, stating that the sale occurred at the factory gate, and costs incurred thereafter should not be included in the transaction value.The adjudicating authority confirmed the demand, but the Customs Excise and Gold (Control) Appellate Tribunal (CEGAT) allowed the assessee's appeal, referencing the Supreme Court's decision in Escorts JCB Ltd. v. Collector of Central Excise. The Revenue argued that the Tribunal's order was non-reasoned and did not consider the nuances of the present case.3. Definition and determination of 'place of removal':The 'place of removal' is crucial for determining whether transportation and transit insurance costs should be included in the transaction value. Under the old Section 4 (prior to 01.07.2000), the value was based on the 'normal price' in wholesale trade, while the new Section 4 (post 01.07.2000) bases the value on the 'transaction value' for each removal. The 'place of removal' is defined as the place from where excisable goods are sold after clearance from the factory. If the 'place of removal' is the factory gate, costs incurred after this point (e.g., freight, insurance) are not included in the transaction value. Conversely, if the 'place of removal' is the buyer's premises, these costs must be included.The Supreme Court in Escorts JCB Ltd. held that if goods are cleared at the factory gate, costs like insurance and transportation are not included in the transaction value, even if the assessee arranges for these services. The Tribunal's reliance on this judgment was questioned by the Revenue, arguing that each case's facts determine the 'place of removal'.Conclusion:The Supreme Court set aside the Tribunal's order, noting the need for a detailed examination of the facts, including the terms and conditions of sale and the determination of the 'place of removal'. The case was remitted to the Tribunal for fresh consideration, emphasizing that the 'place of removal' depends on the specific facts of each case, and the Tribunal must determine whether it was the factory gate or the buyer's premises. The appeals were allowed, and the matter was sent back to the Tribunal for a thorough review.