2002 (3) TMI 96 - AT - Central Excise

Factory-gate sales and passing of title: freight and transit insurance excluded from assessable value under s. 4; duty demands set aside.

The dominant issue was whether freight and transit insurance were includible in assessable value under s. 4 of the Central Excise Act, 1944, turning on ... Valuation (Central Excise) - Insurance charges - Place of removal - demand of differential duty as per the show cause notice - transactions involving the assessee at the buyers premises and not at the factory gate and, therefore the element of freight and transit insurance are to be included in the normal value as contemplated under Section 4 of the Central Excise Act, 1944 - when did the transfer of possession of the goods to the buyer occur or when did the property in the goods pass from the seller to the buyer. Is it at the factory gate as claimed by the appellant or is it at the place of the buyer as alleged by the Revenue ? - HELD THAT:- Intention of the parties are to be ascertained with reference to the terms of the contract, the conduct of the parties and the circumstances of the case. Unless a different intention appears; the rules contained in Sections 20 to 24 are provisions for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. Section 23 provides that where there is a contract for the sale of unascertained or future goods by description and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be expressed or implied and may be given either before or after the appropriation is made. Sub-section (2) of Section 23 further provides that where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee (whether named by the buyer or not) for the purposes of transmission to the buyer, and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract. Unless the seller has some interest in the goods there can be no contract of insurance. If under the terms of the contract the seller is made responsible for the safe transit of the goods, that risk against damage is sufficient for the seller to have an insurable interest in the goods even when title has passed to the buyer. Therefore in this present case the insistance of the buyer that the seller shall insure the goods in transit has to be taken as an indication that property in the goods has already passed to the buyer. The terms of the contract would in no way indicate that the goods were delivered to the buyer on approval or on sale or on return. Therefore, the provision regarding payment of balance 10% of sale price after approval can only be a condition subsequent. In the light of the terms and conditions of the contract between the parties in the present appeals we come to the conclusion that sale of the goods has taken place at the factory gate and therefore, even by applying the dictum in Escorts JCB and Prabhat Zarda 'the place of removal' is not the premises of the buyer as contended by the Revenue. Under these circumstances, we hold that the element of freight and transit insurance are not to be included in the normal value of the goods. We, therefore, set aside the orders impugned and allow the appeals. The appellants will be entitled to consequential reliefs. Issues: Whether, for the purpose of determining the place of removal under Section 4(4)(b) of the Central Excise Act, 1944, the transfer of property in the goods occurred at the factory gate (ex-works) or at the buyer's premises, and consequently whether freight and transit insurance charges are includible in the assessable value.Analysis: The issue turns on the time at which property in specific goods passes to the buyer under the Sale of Goods Act, 1930 and the statutory concept of 'place of removal' under Section 4(4)(b) of the Central Excise Act, 1944. Relevant rules include Section 19 (intention of parties), Section 23 (appropriation of goods to contract and delivery to a carrier without reserved right of disposal), Section 24 (goods sent on approval), Section 26 (risk prima facie follows property subject to agreement) and Section 39 (delivery to carrier deemed delivery to buyer). Factual elements establishing unconditional appropriation and transfer of possession include inspection and identification by buyer's representative at the factory, marking of goods in buyer's name, separate invoicing showing ex-works price and separate freight/insurance contracts, consignor shown as seller and consignee as buyer on transport receipts, and delivery to carrier without reservation of right of disposal. Where the contract requires the seller to insure transit, that obligation indicates allocation of risk but does not necessarily prevent passage of property; parties can separate risk from title by agreement. A contractual clause making final payment conditional on later approval, when the goods have already been appropriated and delivered to the carrier without reserved disposal, operates as a condition subsequent and does not suspend the passing of property.Conclusion: The transfer of property occurred at the factory gate on appropriation and delivery to the carrier; accordingly the place of removal is the factory gate and freight and transit insurance are not includible in the assessable (normal) value. The appeals are allowed in favour of the assessee.