2009 (3) TMI 1 - SC - Central Excise

Two separate contracts: Sale of electric meters under Sale of Goods Act; transport and insurance excluded from assessed value

SC held that two distinct contracts existed: one for sale of electric meters governed by the Sale of Goods Act and a separate contract for transportation ... Includibility of ‘freight’ and ‘insurance charges’ in the value of the goods (electric meters) - manufacture of 'electric meters' and parts thereof falling under Chapter Sub-heading No. 9028.00 and 9033.00 - HELD THAT:- Indisputably, goods were supplied by the assessee to the State Electricity Boards in terms of the stipulations contained in the advertisements issued by them. Two separate contracts have been entered into by and between the respondent and State Electricity Boards therefor; one in respect of the supply of the electric meters and another for transportation and transit insurance thereof. There were two separate contracts; one for sale of Electricity Meters which was governed by the provisions of the Sale of Goods Act, and the other governing transportation of the goods. The charges for transportation of the goods were not on actual basis. Respondent was bound to transport the goods from the factory gate to the place of the State Electricity Boards at the rates specified in the tender. Prior thereto, the State Electricity Board Authorities were to make inspection of the goods. Thus, we have no doubt in our mind that the authority in appeal as also the Tribunal were correct in their view that the amount claimed by way of transportation charges and insurance cannot be considered for determining the value of the electric meters supplied. Appeals dismissed accordingly. Issues Involved:1. Whether 'freight' and 'insurance charges' constitute the value of the goods for the purpose of computation of Excise Duty under the Central Excise Act, 1944 and the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.Issue-wise Detailed Analysis:1. Freight and Insurance Charges in Computation of Excise Duty:The primary issue in this appeal was whether 'freight' and 'insurance charges' should be included in the value of goods for the computation of Excise Duty as per the Central Excise Act, 1944 and the Central Excise Valuation Rules, 2000. The respondent, a manufacturer of electric meters, argued that these charges should not be included, citing the nature of their transactions and previous legal precedents.2. Nature of Transaction and Contracts:The respondent supplied electric meters to State Electricity Boards, with two separate contracts: one for the supply of meters and another for transportation and insurance. The value of the meters was fixed at the factory gate, while freight and insurance were charged on an average basis, not actual costs. The Adjudicating Authority initially concluded that the sale occurred at the buyer's end, thus including freight and insurance in the value of the goods.3. Legal Framework and Definitions:Section 3 of the Central Excise Act provides for the levy and collection of duty, while Section 4 deals with the valuation of excisable goods. Section 4(1)(a) specifies that the value of goods should be the transaction value at the time and place of removal. The 'place of removal' is defined in Section 4(3)(c) to include the factory, warehouse, or depot from where goods are sold.4. Adjudicating Authority and Appeal Decisions:The Adjudicating Authority's decision was reversed by the Commissioner (Appeals), who followed the CESTAT's earlier judgment in favor of the respondent. The CESTAT dismissed the Revenue's appeal, noting the absence of a stay order from the High Court on the earlier Tribunal decision.5. Relevant Legal Precedents:The respondent relied on the Supreme Court's decision in M/s Escorts JCB Ltd. vs. CCE, Delhi, which supported the exclusion of freight and insurance from the value of goods. The Tribunal in Associated Strips Ltd. vs. Commissioner of Central Excise also held that delivery to a carrier constitutes delivery to the buyer, thus excluding freight and insurance from the excisable value.6. Application of Rules 4 and 5:Rules 4 and 5 of the Central Excise Valuation Rules were considered. Rule 5 states that the value of excisable goods should exclude the cost of transportation if charged separately. The respondent's contracts specified ex-factory prices, with separate charges for freight and insurance, aligning with Rule 5.7. Tribunal's Findings and Supreme Court's Conclusion:The Tribunal found that the respondent sold goods on an ex-factory basis and arranged transportation and insurance separately. The Supreme Court upheld this view, concluding that the amount claimed for transportation and insurance should not be included in the value of the electric meters for excise duty purposes.8. Final Judgment:The Supreme Court dismissed the appeal, affirming the Tribunal's decision and ruling that freight and insurance charges are not to be included in the excisable value of the goods. The appeal was dismissed with costs, and the counsel's fee was assessed at Rs. 25,000/-.Conclusion:The Supreme Court's judgment clarified that freight and insurance charges should not be included in the value of goods for excise duty computation if these charges are separately contracted and not part of the ex-factory price. The decision reinforces the importance of the specific terms of sale and the separation of transportation and insurance costs in determining excisable value.