Manufacturer V/s Buyer’s Premise-place of removal --- Settling to unsettle and settle again?

[Rakesh Singh]

Till recently based upon two relevant Judgements from the Honorable Supreme Court i.e in the case of M/s Escorts JCB Ltd. V.CCE 2002 (10) TMI 96 - SUPREME COURT OF INDIA and CCE V. M/s Roofit Industries 2015 (4) TMI 857 - SUPREME COURT, the concept of ‘ place of removal’ was more or less considered settled that it can be place of buyer.

In the case of M/s Escorts JCB Ltd. V.CCE 2002 (10) TMI 96 - SUPREME COURT OF INDIA, SC rejected the contention of the department to include the insurance and freight based upon ex-factory contract and delivery to the carrier or the transporter of the goods. It was held that as per section 39 of the Sale of Goods Act, delivery to transporter is prima facie delivery of goods to buyer and it is not necessary that ownership of the goods and insurance should always be together. This position was further reiterated in the case of CCE V. Prabhat Zarda Factory Ltd. 2000 (5) TMI 63 - CEGAT, COURT NO. I, NEW DELHI It was held that transfer of possession of goods is the ‘essence’ of sale.

Then came the case of CCE V. Roofit Industries and in which it was held that place of removal can be buyers place. The clear intent of the purchase order was to transfer the property in goods to the buyer at the premises of the buyer when the goods are delivered and by virtue of Section 19 of Sale of Goods Act, the property in goods was transferred at that time only. Section 19 reads as under:

“19. Property passed when intended to pass. - (1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.

(2) For the purpose of ascertaining the intention of the parties’ regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.

(3) Unless a different intention appears, the rules contained in sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer.”

Two circulars i.e No. 97/8/2007 dt. 23-08-2007 & No.988/12/2014-CX dt. 20-10-2014 issued earlier to this decision also maintained the relevance of time of transfer of goods to buyer or place of sale as relevant deciding factors to ascertain ‘place of removal. In this context reference to Sub-clause (b)(iii) of the Section 4(3)(c) of the Central Excise Act is reproduced below:

“ (c). "place of removal" means-

i. a factory or any other place or premises of production or manufacture of the excisable goods;

ii. a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty,

iii. a depot, premises of a consignment agent or any other place or premises from where excisable goods are to be sold after their clearance from the factory from where such goods are removed;

(cc). "time of removal", in respect of the excisable goods removed from the place of removal referred to in sub-clause (iii) of clause (c) shall be deemed to be the time at which such goods are cleared from the factory.”

Interpretation of the words “any other place or premises from where excisable goods are to be sold” was considered to mean that ‘any other place’ includes buyers place and ‘are to be sold’ to indicate the point or place of passage of ownership of the goods as per Sale of Goods Act.

In a remarkable turnaround judgement in the case of CCE V. Ispat Industries 2015 (10) TMI 613 - SUPREME COURT, dt.07-10-2015, a more of a settled position to include buyers place as place of removal once again been unsettled.

Facts:

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:-

Three important changes have been made in the amended Section 4 so far as the present case is concerned. First, the value of excisable goods is deemed to be the "normal price" thereof that is the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade. Where the goods are sold at different prices to different classes of buyers, each such price shall be deemed to be the normal price. "Place of removal" has been defined for the first time to mean not only the premises of production or manufacture of excisable goods but also a warehouse or any other place or premises wherein such goods have been permitted to be deposited without payment of duty and from where such goods are ultimately removed.

The actual cost of transportation from the place of removal up to the place of delivery of excisable goods is excluded from the computation of excise duty provided it is charged to the buyer in addition to the price of goods and shown separately in the invoices for such goods. Interestingly, despite the substituted Section 4 not providing for a depot or other premises as a place of removal, Rule 7 deals with the normal transaction value of goods transferred to a depot or other premises which is said to be at or about the same time or the time nearest to the time of removal of goods under assessment.

Goods were to be delivered only at the place of the buyer and the price of the goods was inclusive of transportation charges. As transit damage on the assessee's account would imply that till the goods reached their destination, ownership in the goods remained with the supplier, namely, the assessee, freight charges would have to be added as a component of excise duty. Further, as per the terms of the payment clause contained in the procurement order, payment was only to be made after receipt of goods at the premises of the buyer. On facts, therefore, it was held that the sale of goods did not take place at the factory gate of the assessee. Also, this Court's attention was not drawn to Section 4 as originally enacted and as amended to demonstrate that the buyer's premises cannot, in law, be "a place of removal" under the said Section.

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.

Some very interesting summarizations may be made :

1. The presumably settled principle of place of removal will now be distinguishable based on facts of the case;
2. Observation by the Court that- “this Court's attention was not drawn to Section 4 as originally enacted and as amended to demonstrate that the buyer's premises cannot, in law, be "a place of removal" is significant and will have effect on other cases;
3. The honorable court has only distinguished its decision from Roofit Industries, thereby retaining the option to be exercised by the assesse whereas department will definitely look at Ispat Industries specially on the basis of observation by the Court as per (b) above; and
4. Whether this decision is going to settle, unsettle or re-settle the divide on ‘place of removal’ only time will tell.