2015 (4) TMI 897 - AT - Central Excise

Demand of differential duty - Valuation of goods - inclusion of freight and transit insurance in the assessable value - Sale on FOR destination basis - Held that - The appellant have certain quantum of sale on FOR destination basis in respect of which they have paid duty on FOR destination price which included the element of freight and transit insurance. - In the non- FOR sales, the appellant, on the request of the customers arranged the transportation of the goods and while in some cases, they have paid freight which was recovered from the customer, in other cases, part of freight was paid by the appellant and balance was paid by the customer and part of the freight paid was recovered from the customer and in some cases the entire freight was paid by the customers. The appellant, in all such cases, have taken general insurance policy against the loss of the goods despatched by them to the customers during the transit and proportionate amount of premium is charged by the appellant from their customers as transit insurance. However, on perusal of some of the invoices issued by the appellant which have been placed on record, it is seen that each invoice mentions that though the appellant take every care for packing and forwarding, but they do not accept liability for any loss, breakage or shortage of the goods once, the goods have left the units and that the goods are always despatched at the buyers risk. This fact is not disputed by the department. The department also does not dispute that in case of loss of the goods or damage to the goods during transit, it is the customers who get survey conducted and on the basis of survey report sent by the customers to the appellant, the appellant claim compensation amount from the insurance company for the goods lost/damaged during transit and thereafter pass on the same to the customers. - every invoice mention that the goods have been despatched at the buyer s risk and that the appellant do not accept any responsibility for loss or damage or shortage of the goods after the goods left from the works. The department also does not dispute that in case of loss of goods during transit it is customer who gets the survey done and on the basis of survey report, the appellant receive compensation for the loss of the goods from the insurance company but the entire compensation is passed on to the buyers without retaining any part of the same. Even though the appellant have taken transit insurance policy of the goods in their name, they cannot be treated as owner of the goods during transit. We find that the Tribunal in the case of Associated Strips Ltd. (2002 (3) TMI 96 - CEGAT, COURT NO. I, NEW DELHI) has held that merely because at the instance of the buyer, the assessee has taken transit insurance it does not indicate that the ownership of the goods remained with the assessee during transit. - in view of section 23 and 39 of the Sale of Goods Act, 1930, the goods would be treated as delivered to the buyer and property of possession of the goods and passed on to the buyer when the goods have been handed over to the transporter and that the assessee arranging for transit insurance would nowhere lead to inference that the assesse had retained the ownership of the goods during transit until delivery of the goods at the buyer s premises. - impugned order is not sustainable - Decided in favour of assessee.

Summary

Issues Involved:
1. Inclusion of freight and transit insurance charges in the assessable value.
2. Determination of ownership transfer during transit.
3. Applicability of penalties under Section 11AC and Rule 209A.

Issue-wise Detailed Analysis:

1. Inclusion of Freight and Transit Insurance Charges in the Assessable Value:
The appellant, M/s. GSC Toughened Glass Pvt. Ltd., purchased duty-paid glass sheets and subjected them to processes like edge working, etching, and bevelling. The dispute period is from 1.10.1996 to 31.8.2001. For certain sales on a FOR (Free on Rail) destination basis, the appellant paid duty on the FOR price, which included freight and transit insurance charges. For non-FOR sales, the appellant arranged transportation at the customer's request, with varying freight payment arrangements. The department contended that since the appellant took a general insurance policy in their name for goods during transit, they retained ownership until delivery to the customer, necessitating the inclusion of freight and transit insurance in the assessable value. However, the appellant's invoices stated that goods were dispatched at the buyer's risk, and any compensation received from insurance claims was passed on to the customers, indicating that the sales were not on a FOR basis.

2. Determination of Ownership Transfer During Transit:
The department argued that the appellant retained ownership during transit due to the general insurance policy in their name. However, the appellant countered that the transfer of property occurred at the factory gate, supported by invoices stating the goods were dispatched at the buyer's risk. The Tribunal referenced the case of Associated Strips Ltd. vs. CCE, which held that transit insurance by the manufacturer does not imply retained ownership during transit. This view was affirmed by the Supreme Court in Escort JCB Ltd. vs. CCE, stating that delivery to the carrier constitutes delivery to the buyer, and the manufacturer arranging transit insurance does not retain ownership.

3. Applicability of Penalties under Section 11AC and Rule 209A:
The show cause notice demanded a total duty of Rs. 17,64,495/- for the disputed period, along with interest under Section 11AB. Penalties were imposed on the appellant company under Section 11AC and on the director under Rule 209A of the Central Excise Rules, 1944. The Additional Commissioner confirmed the duty demand and imposed equal penalties on the appellant company and Rs. 2.50 lakh on the director. The Commissioner (Appeals) dismissed the appellant's appeals. However, the Tribunal found that the appellant did not retain ownership during transit and thus was not liable for the differential duty, making the penalties under Section 11AC and Rule 209A unsustainable.

Conclusion:
The Tribunal concluded that the appellant did not retain ownership of the goods during transit despite having a general insurance policy in their name. The goods were dispatched at the buyer's risk, and any compensation from insurance claims was passed on to the customers. Therefore, the freight and transit insurance charges were not to be included in the assessable value. The impugned order was set aside, and the appeals were allowed.