2002 (10) TMI 96 - SC - Central Excise

Whether the ownership in the property continued to be retained by the assessee till it was delivered to the buyer? Held that - Ownership in the property may not have any relevance in so far insurance of goods sold during transit is concerned. It would therefore not be lawful to draw an inference of retention of ownership in the property sold by the seller merely by reason of the fact that the seller had insured such goods during transit to buyer. It is not necessary that insurance of the goods and the ownership of the property insured must always go together. It may be depending upon various facts and circumstances of a particular transaction and terms and conditions of sale. A reference has also been made to Colinvauz s Law of Insurance, Sixth Edition by Robert Merkin to indicate that there may be insurance to cover the interest of others that is to say not necessarily the person insuring the interest must be the owner of the property. In view of the discussion held above in our view the Commissioner of Central Excise and the CEGAT erred in drawing an inference that the ownership in the property continued to be retained by the assessee till it was delivered to the buyer for the reason that the assessee had arranged for the transport and the transit insurance. Such a conclusion is not sustainable.

Issues Involved:
1. Imposition of duty and penalty on the assessee.
2. Inclusion of "transit insurance" and "freight" charges in the value of goods.
3. Determination of the place of sale and removal of goods.
4. Ownership and risk during transit.

Issue-wise Detailed Analysis:

1. Imposition of Duty and Penalty on the Assessee:
The Customs Excise and Gold (Control) Appellate Tribunal (CEGAT) confirmed the order of the Commissioner imposing a duty of Rs. 29,65,532/- and reduced the penalty to Rs.10 lakhs under Section 11AC of the Central Excise Act. The assessee contested this imposition, arguing that the sale was completed at the factory gate, and thus, the inclusion of transit insurance and freight charges was unwarranted. The Supreme Court found that the Commissioner and CEGAT erred in their inference that the ownership in the property continued to be retained by the assessee until delivery to the buyer, solely because the assessee arranged for transport and transit insurance.

2. Inclusion of "Transit Insurance" and "Freight" Charges in the Value of Goods:
The central issue was whether the "transit insurance" and "freight" charges should be included in the value of the goods for excise duty purposes. The show cause notice alleged that the assessee did not include these charges, thus suppressing necessary facts and extending the period for demanding duty under Section 11A. The Supreme Court held that merely arranging transit insurance does not imply retention of ownership or risk by the seller during transit. The terms and conditions of sale indicated that the sale was "Ex-works" at Ballabgarh, and the risk passed to the buyer once the goods were handed over to the carrier.

3. Determination of the Place of Sale and Removal of Goods:
The assessee argued that the sale was completed at the factory gate, and the place of removal was the factory premises. The Commissioner and CEGAT had held that the sale was completed at the buyer's place, as inferred from the transit insurance arrangement. The Supreme Court clarified that the place of removal was indeed the factory premises, as the transaction of sale, payment, and handing over of goods to the carrier occurred there. The relevant provision, Section 4 of the Central Excise Act, supported this conclusion, indicating that the normal price should be considered at the place and time of removal, which was the factory gate.

4. Ownership and Risk During Transit:
The Supreme Court emphasized that ownership and risk do not necessarily align with who arranges the insurance. The Court referred to legal principles from "Chitty on Contracts" and "Benjamin's Sale of Goods," highlighting that a seller can insure goods on behalf of the buyer without retaining ownership. The Court also referenced Section 39 of the Sale of Goods Act, which states that delivery to a carrier is deemed delivery to the buyer, reinforcing that the ownership passed to the buyer at the factory gate.

Conclusion:
The Supreme Court allowed Civil Appeal No. 7230/1999, setting aside the duty and penalty imposed by the Commissioner and CEGAT. Consequently, Civil Appeal No. 1163/2000 preferred by the Revenue was rendered infructuous and dismissed. The Court held that the arrangement of transit insurance by the seller does not imply retention of ownership or risk, and the place of removal was the factory premises. There was no order as to costs.

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