2015 (10) TMI 613 - SC - Central Excise

Court rules freight charges not part of excise duty assessable value

Commissioner of Customs And Central Excise, Nagpur Versus M/s Ispat Industries Ltd.

The Supreme Court affirmed the Tribunal's decision that the buyer's premises could not be considered the place of removal for excise duty purposes. ... Valuation - inclusion of freight in the transaction value - place of removal - Whether, by virtue of a transit insurance policy in the name of the manufacturer, excise duty is liable to be recovered on freight charges incurred for transportation of goods from the factory gate to the buyer's premises, treating the buyer's premises as the place of removal - Held that:- As has been seen in the present case all prices were 'ex-works', like the facts in Escorts JCB's case [2002 (10) TMI 96 - SUPREME COURT]. 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. On facts, therefore, it is clear that Roofit's judgment is wholly distinguishable. Similarly in Commissioner Central Excise, Mumbai-III v. M/s. Emco Ltd [2015 (8) TMI 200 - SUPREME COURT], this Court re-stated its decision in the Roofit Industries' case [2015 (4) TMI 857 - SUPREME COURT] but remanded the case to the Tribunal to determine whether on facts the factory gate of the assessee was the place of removal of excisable goods. This case again is wholly distinguishable on facts on the same lines as the Roofit Industries case. Decided against Revenue. Issues Involved:1. Determination of the place of removal for excise duty purposes.2. Inclusion of freight charges in the assessable value for excise duty.3. Interpretation of Section 4 of the Central Excise Act, 1944, and relevant amendments.4. Analysis of relevant case laws and judicial precedents.Detailed Analysis:1. Determination of the Place of Removal for Excise Duty Purposes:The core issue was whether the buyer's premises could be considered the place of removal for excise duty purposes, thereby including freight charges in the assessable value. The Commissioner held that the buyer's premises should be treated as the place of removal because the manufacturer, Ispat, retained ownership of the goods during transit, as evidenced by the transit insurance policy. However, the Tribunal (CESTAT) reversed this decision, relying on the Supreme Court's judgment in *Escorts JCB Ltd. v. CCE* and a Board's circular dated 3.3.2003, which stated that the ownership of goods in transit cannot be determined solely based on the insurance policy.2. Inclusion of Freight Charges in the Assessable Value for Excise Duty:The Commissioner included freight charges in the assessable value, arguing that the sale occurred at the buyer's premises. This was based on the fact that Ispat arranged transportation and transit insurance. The Tribunal, however, held that freight charges should not be included, as the sale was concluded at the factory gate, and the goods were sold on an 'ex-works' basis. The Tribunal's decision was based on the precedent set by *Escorts JCB Ltd.*, which clarified that arranging transit insurance does not imply retention of ownership by the seller.3. Interpretation of Section 4 of the Central Excise Act, 1944, and Relevant Amendments:The judgment extensively analyzed the historical amendments to Section 4 of the Central Excise Act, 1944:- Pre-1973: The value of excisable goods was the wholesale cash price at the factory gate.- Post-1973 Amendment: Introduced the concept of 'normal price' and defined 'place of removal' to include the factory, warehouse, or any other premises where goods are sold after clearance from the factory.- 1996 Amendment: Expanded 'place of removal' to include depots, consignment agents' premises, and other places from where goods are sold after factory clearance.- 2000 Amendment: Introduced 'transaction value' and reverted to the original definition of 'place of removal,' excluding depots and consignment agents' premises.- 2003 Amendment: Re-included depots and consignment agents' premises in the definition of 'place of removal.'The Court concluded that for the period from 28.9.1996 to 1.7.2000, the place of removal referred only to the manufacturer's premises and not the buyer's premises. For the period from 1.7.2000 to 31.3.2003, only the factory or warehouse could be considered the place of removal.4. Analysis of Relevant Case Laws and Judicial Precedents:The Court analyzed several judgments:- *Escorts JCB Ltd. v. CCE*: Held that the place of removal is the factory gate if the sale is on an 'ex-works' basis, and transit insurance does not imply retention of ownership by the seller.- *VIP Industries Ltd. v. CCE*: Reiterated that the place of removal is the factory gate if the price is uniform across the country, even if equalized freight is included.- *Prabhat Zarda Factory Ltd. v. CCE*: Confirmed that freight and insurance charges from the depot to the customer's premises are not includible in the assessable value.- *CCE & Customs v. Roofit Industries Ltd.*: Distinguished *Escorts JCB* on facts, holding that if the sale is concluded at the buyer's premises, freight charges are includible.- *Commissioner Central Excise, Mumbai-III v. M/s. Emco Ltd.*: Remanded the case to determine the place of removal based on facts.The Court found that the facts of the present case were similar to *Escorts JCB* and not *Roofit Industries*, as the sales were on an 'ex-works' basis, and the goods were cleared from the factory on payment of sales tax. Therefore, the buyer's premises could not be considered the place of removal.Conclusion:The Supreme Court dismissed the appeal, affirming the Tribunal's decision that the buyer's premises could not be considered the place of removal for excise duty purposes. Consequently, freight charges were not includible in the assessable value for the periods in question. The judgment emphasized the correct interpretation of Section 4 of the Central Excise Act, 1944, and upheld the principles established in *Escorts JCB Ltd. v. CCE*.