2021 (9) TMI 29 - AT - Central Excise

Area Based exemption - inclusion of freight charges in the assessable value of goods - place of removal - FOR destination - benefit of Notification No. 32/99-CE dated 08.07.1999 correctly availed or not - recovery of refund already made - erroneous refund or not - extended period of limitation - Section 4(1) of the Central Excise Act, 1944 read with Rule 5 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 - extended period of limitation - HELD THAT - The contracts executed by the assessee were FOR contracts. The contracts/ purchase orders specified door delivery at all-inclusive prices. The purchasers reserved the right to inspection and to not accept the goods, in case the goods supplied were found to be sub-par. The assessee bore the risk of loss or damage to the goods during transit to the destination, as evident from the transit insurance policies and the documents relating to rejection of goods by certain buyers. Neither did the invoices reflect the transportation costs separately nor were such charges recovered separately from the buyers The invoices issued by the assessee incorporated details of the relevant purchase orders issued by the buyers and as the agreed upon price was as per FOR destination, there was no reason to charge any freight component separately. Under the Act, as per definition of sale, sale takes place only upon transfer of the possession of the goods by the manufacturer to the buyer, which occurred in the present cases at the buyers premises - in the present case, the parties intended that the sale of goods would take place at the premises of the buyers and that such premises would be considered to the Point of Sale, where the title and property in the goods were actually transferred. Invocation of Rule 5 of the Valuation Rules, 2000 by the Revenue - HELD THAT - Invocation of this rule is misplaced. The said Rule applied to cases only where goods were sold at the place of removal but were to be delivered elsewhere, which condition could not have applied in the given facts and circumstances. The assessee s case fell within the purview of the exception to the aforesaid Rule 5. On the other hand, at the time of clearance of goods from the assessee s factory, no sale took place and the risk and ownership of the goods remained with the assessee - In view of Rule 7 of the Valuation Rules, 2000 read with Rule 11, the assessable value of the goods was the price charged by the assessee at the place of sale. The spirit of the said Rule 7 read with Rule 11 of the Valuation Rules indicates that all charges upto the place of sale are includible, including freight, etc. Applicability of Board s Circular No.59/1/2003-CX dated 03.03.2003 and Circular No. 988/12/2014-CX dated 20.10.2014 - HELD THAT - The aforesaid circulars state that place of removal/ assessable value was ascertainable with reference to the place where the sale took place or where the property in the goods passed from the seller to the buyer in terms of the Sale of Goods Act, 1930. Therefore, where the terms and conditions of sale in the relevant contracts/ purchase orders unambiguously stipulated that the act of sale would be completed upon on-door delivery at the buyer s premises, as is the case of the assessee, the transportation costs would be included. Recovery of refund - erroneous refund or not - HELD THAT - Looking from a perspective altogether different from the case of valuation of excisable goods, the entire proceedings in the instant case mainly relate to the recovery of amount already refunded claiming the same to be a case of erroneous refund under Section 11A of the Act. The whole basis of the Revenue that freight amount is not includible in the assessable value, as has subsequently been held by the Supreme Court in COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE, NAGPUR VERSUS M/S ISPAT INDUSTRIES LTD. 2015 (10) TMI 613 - SUPREME COURT , to state that the buyer s place can never be said to be place of removal. In our view, the refund already sanctioned by relying on the judicial legal precedents holding the field then as well as the clarifications issued by the Board, the same cannot be termed as erroneous refund - In the present case, the Department by relying on the subsequent decision of the Supreme Court in Ispat Industries has proceeded to take a view that freight amount can never be included in the assessable value - The refund already sanctioned cannot be termed as erroneous refund more so in view of the fact that refund has been duly sanctioned by the Department as per the laws prevailing then duly supported by the CBEC clarifications at relevant point of time. The appeals filed by the assessee are allowed and the appeals filed by the Revenue are dismissed as withdrawn under the National Litigation Policy.

Summary

Issues Involved:

1. Whether the assessee had correctly availed the benefit of Notification No. 32/99-CE dated 08.07.1999.
2. Whether the inclusion of freight charges in the assessable value of goods was justified.
3. Whether the refunds granted to the assessees were recoverable by the Revenue as "erroneous refunds."
4. Applicability of the larger period of limitation for recovery of alleged excess refunds.
5. Whether the place of removal was the factory gate or the buyer's premises.

Issue-wise Detailed Analysis:

1. Correct Availment of Notification No. 32/99-CE:
The assessees were engaged in the manufacture and sale of Ferro Alloys, Ferro Silicon, and Ferro Slag, enjoying Central Excise duty exemption under Notification No. 32/99-CE. The notification operated by way of refund, where the assessees paid the Central Excise duty on clearances of final products and then received refunds of the duty paid. The dispute pertained to the refunds obtained by the assessees, with the Revenue objecting to the inclusion of freight charges in the assessable value of goods.

2. Inclusion of Freight Charges in Assessable Value:
The assessees contended that their contracts/purchase orders stipulated FOR destination prices, meaning ownership and possession of goods remained with them until delivery at the buyers' premises. They argued that the sale occurred at the buyers' premises, and thus, the duty was correctly paid considering the value inclusive of transportation charges. The Tribunal noted that the contracts specified 'door delivery' at all-inclusive prices, and the assessees bore the risk of transit loss or damage. The Tribunal concluded that the place of removal was the buyers' premises, and the assessable value should include freight charges.

3. Recovery of Refunds as "Erroneous Refunds":
The Revenue issued Show Cause Notices to recover alleged excess refunds, invoking the larger period of limitation on the grounds of suppression of facts. The Tribunal observed that the refunds were granted after due verification, and there was no material to support a finding of fraud or mala fide intention by the assessees. The Tribunal emphasized that the refund already sanctioned could not be termed as "erroneous" merely because of a subsequent change in legal interpretation.

4. Larger Period of Limitation:
The Tribunal did not examine the plea on limitation, as the issue was decided on merits. However, it was noted that the demands were contested on the ground of limitation, with the assessees arguing that the refunds were granted after due verification, negating any suppression of facts.

5. Place of Removal:
The Tribunal analyzed the contracts and concluded that the place of removal was the buyers' premises, where the sale was completed upon delivery and acceptance of goods. The Tribunal relied on the principles established in the Supreme Court decisions in Roofit Industries and Ispat Industries, which held that the place of removal depended on the point of sale and transfer of ownership. The Tribunal found that the assessees correctly included transportation costs in the assessable value, as the sale occurred at the buyers' premises.

Conclusion:
The appeals filed by the assessees were allowed, and the appeals filed by the Revenue were dismissed as withdrawn under the National Litigation Policy. The Tribunal held that the assessees correctly availed the benefit of the exemption notification, included freight charges in the assessable value, and the refunds granted were not "erroneous." The place of removal was determined to be the buyers' premises, and the larger period of limitation was not applicable due to the absence of suppression of facts.