2015 (4) TMI 857 - SC - Central Excise

Valuation - non inclusion of freight, insurance and unloading charges - Evasion of central excise duty - place of removal of finished goods was different from the factory gate - Held that - Most of the orders placed with the respondent assessee were by the various Government authorities. One such order i.e. order dated 24.06.1996 placed by Kerala Water Authority is on record. On going through the terms and conditions of the said order, it becomes clear that the goods were to be delivered at the place of the buyer and it is only at that place where the acceptance of supplies was to be effected. Price of the goods was inclusive of cost of material, central excise duty, loading, transportation, transit risk and unloading charges etc. Even transit damage/breakage on the assessee account which would clearly imply that till the goods reach the destination, ownership in the goods remain with the supplier namely the assessee. As per the terms of payment clause contained in the procurement order, 100% payment for the supplies was to be made by the purchaser after the receipt and verification of material. Thus, there was no money given earlier by the buyer to the assessee and the consideration was to pass on only after the receipt of the goods which was at the premises of the buyer. From the aforesaid, it would be manifest that the sale of goods did not take place at the factory gate of the assessee but at the place of the buyer on the delivery of the goods in question. 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 - CESTAT did not take into consideration all these aspects and allowed the appeal of the assessee by merely referring to the judgment in the case of Escorts JCB Ltd. 2002 (10) TMI 96 - SUPREME COURT OF INDIA - Obviously the exact principle laid down in the judgment has not been appreciated by the CESTAT. - Decided in favour of Revenue.

Issues Involved:
1. Evasion of central excise duty by improper computation of assessable value.
2. Determination of the place of removal for valuation purposes.
3. Applicability of freight, insurance, and unloading charges in the valuation of excisable goods.
4. Interpretation of Section 4 of the Central Excise Act regarding the valuation of excisable goods.
5. Applicability of the precedent set in Escorts JCB Ltd. v. Commissioner of Central Excise, Delhi-II.

Issue-wise Detailed Analysis:

1. Evasion of Central Excise Duty by Improper Computation of Assessable Value:
The Revenue alleged that the respondent was evading central excise duty by not including freight, insurance, and unloading charges in the assessable value of the finished goods, despite the place of removal being different from the factory gate. The preventive party conducted an enquiry and scrutinized the records, revealing that the respondent had received work orders for designing, manufacturing, and delivering PSC pipes at the project sites, indicating that the sale was completed only at the project sites and not at the factory gate.

2. Determination of the Place of Removal for Valuation Purposes:
The legal position under Section 4 of the Central Excise Act was examined to determine the place of removal. The place of removal is critical for valuation and is defined as the location from where the excisable goods are sold after clearance from the factory. If the goods are cleared at the factory gate, the excise duty is based on the valuation at that point. However, if the place of removal is the buyer's premises, the valuation must include expenses incurred up to that point.

3. Applicability of Freight, Insurance, and Unloading Charges in the Valuation of Excisable Goods:
The Court referenced the precedent set in Escorts JCB Ltd. v. Commissioner of Central Excise, which held that expenses incurred after the removal of goods from the factory gate, such as freight and insurance, should not be included in the valuation if the sale is completed at the factory gate. However, in the present case, the sale was determined to be completed at the buyer's premises, necessitating the inclusion of these expenses in the valuation.

4. Interpretation of Section 4 of the Central Excise Act Regarding the Valuation of Excisable Goods:
Section 4 stipulates that the excise duty is chargeable on the value of excisable goods, which is deemed to be the normal price at the time and place of removal. The Court emphasized that the place of removal is determinative for valuation purposes. The principle that the sale is completed when the ownership is transferred was reiterated, meaning any expenses incurred up to that point must be included in the valuation.

5. Applicability of the Precedent Set in Escorts JCB Ltd. v. Commissioner of Central Excise, Delhi-II:
The Court noted that the CESTAT had allowed the respondent's appeal by referring to the Escorts JCB Ltd. case without fully appreciating its principles. The Court clarified that the precedent applies when the sale is completed at the factory gate. In the present case, the sale was completed at the buyer's premises, requiring a different application of the law. The Court found that the CESTAT had not considered the specific facts and terms of the contracts that indicated the sale was completed at the buyer's premises.

Conclusion:
The Supreme Court set aside the CESTAT's order and restored the Adjudicating authority's order, confirming the demand for differential central excise duty based on the place of removal being the buyer's premises. The Court emphasized the need to consider the specific facts and contractual terms to determine the point of sale and the corresponding valuation for excise duty purposes.

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