IMPORTANT POINT
Where sale of goods had taken place at the gate of the factory, in such a case element of freight and transit insurance upto place of buyer were not to be included in the value of the goods for levying excise duty u/s 4 of Central Excise Act, 1944.

Headnote:Central Excise Act, 1944-Section 4-Valuation of excisable goods for purposes of charging of duty of Excise-Central Excise Rules, 1944-Rule 9(2) read with Section 11A of Act-Completion of Transaction of sale-Contract of sale ex-factory gate-Assessee arranging for transit insurance at the request of buyer-Commissioner and CEGAT holding that transaction of sale is completed at buyer s place and hence duty and penalty leviable-Whether correct? (No) (Sale of Goods Act, 1930-Sections 23 and 39-Passing of property)-Case law discussed-Law of insurance-Insurance of other s interest.
       Held : A perusal of the orders passed by the authorities and the CEGAT show that since transit insurance was arranged by the assessee, therefore it was inferred and held that the ownership of the goods was retained by the assessee until it was delivered to the buyer on the reasoning that otherwise there would be no occasion for the seller namely, the assessee to take risk of any kind of damage to the goods during transportation. To us, the whole reasoning seems to be untenable. The two aspects have been mixed up - one relating to the transaction of sale of the goods and the other arranging for the transit insurance for the buyer and charging the amount expended for the purpose from him separately. (Para 8)
       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. (Para 10)
       The assessee also referred to a decision reported in 2002 (49) RLT 506 - Associated Strips Ltd. & Anr. versus CCE, New Delhi. It is a decision of CEGAT. Considering several decisions of different Courts and the terms of the contract between the parties, it was held that sale of goods had taken place at the factory gate and therefore the place of removal was not the premises of the buyer. In view of the provisions of Section 23 and Section 39 of the Sale of Goods Act 1930 it was found that goods to be treated as delivered to buyer and property and possession of the goods passed on to buyer when the goods were handed over to transporter. In such a case element of freight and transit insurance were not to be included in the normal value of the goods. We approve of the view taken by the CEGAT. 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. In the result the Civil Appeal No. 7230/1999 is allowed and judgment and order passed by the Commissioner of Central Excise and the CEGAT imposing duty and penalty is set aside. Consequently, Civil Appeal No. 1163/2000 preferred by the Revenue does no survive any more and is rendered infructuous. It is dismissed as such. There would however be not order as to costs. (Paras 12, 13 and 14)

JUDGMENT

Brijesh Kumar, J.-The appeals indicated above, arise out of judgment and order dated 24.8.1999 passed by the Customs Excise and Gold (Control) Appellate Tribunal (For short CEGAT ), operative part of which reads as under:

"In the result we dispose of this appeal by confirming the order of the Commissioner imposing a duty of Rs. 29,65,532/- under Rule 9(2) of the Central Excise Rules, 1944 read with Section 11A of the Act, set aside that part of the order which imposed duty amount to Rs. 98,219/- and reduce the penalty to Rs.10 lakhs under Section 11AC of the Act."

Escorts JCB Ltd., the appellant in Civil Appeal No.7230/99 and respondent in Civil Appeal No.1163/2000 (hereinafter to be referred to as the assessee ) is aggrieved by the order confirming imposition of duty and levy of penalty. The Commissioner of Central Excise, appellant in Civil Appeal No.1163/2000 and respondent in Civil Appeal No. 7230/99 (hereinafter to be referred to as The Revenue ) is aggrieved by the order reducing the amount of penalty to Rs.10 lakhs as imposed under Section 11 Act of the Central Excise Act.

2. The Central Excise officers of Anti Evasion Branch, Faridabad on visit to the premises of the assessee found that the amount of "transit insurance" charges was not added to the value of the goods sold, hence issued a show cause notice dated 24.3.98 to the assessee saying that an open policy for transit risks in the name of M/s. Escorts JCB Ltd. and their bankers appear in the column for the name of Assured but there is no mention of the buyer or its name in the column for "insured". Notice also indicates that freight and "transit insurance" were charged from the buyers but no central excise duty was paid on these two elements, and by not including above noted elements in the normal price as per Section 4 of the Central Excise Act 1944 and by mis-declaring the place of removal as factory gate instead of buyer s place where the goods were to be sold after their clearance from the factory as described in sub clause (iii) and clause (b) of sub-section 4 of the Central Excise Act 1944, the assessee has suppressed the necessary facts. It also said that Section 11A of the Act is attracted for extending the period upto 5 years for demanding the central excise duty. The assessee was also noticed as to why penalty under Section 11AC be not imposed upon it.

3. The assessee contested the show cause notice saying that the sale is affected at the factory gate at Ballabgarh in the State of Haryana. The freight and arranging for insurance during transit of goods have no material bearing on the point of place of sale or removal of goods. The Commissioner of Central Excise, Delhi II however confirmed the demand holding that the factum of "transit insurance" by the manufacturer shows that the transaction of sale is complete only on delivery of goods to the buyer otherwise there was no good reason for the manufacturer taking responsibility of the risk involved in transportation of the goods to the buyer s place. The case of the assessee that sale takes place and it is completed at the factory gate was not found acceptable and contrary to Section 2 (h) of the Central Excise Act. The appellate authority namely CEGAT upheld the view taken by the Commissioner, Central Excise in so far it related to completion of the transaction of sale at the buyer s place which is the main question for consideration in this appeal before us.

4. Shri Andhyarujina, learned senior counsel appearing for the assessee submits that the whole basis of the impugned decision that "transit insurance" by the assessee in itself would show that the rights in the property had not passed on to the buyer during transit but only on delivery of goods at the buyer s place, is unsustainable. It is submitted that the assessees manufacture Excavators Loaders at its factory at Ballabgarh, Faridabad, which are sold to various buyers. All sales are made at the factory gate. Some buyers arrange f

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Judicial Analysis

SupremeToday

2002 Supreme(SC) 1054

IMPORTANT POINTWhere sale of goods had taken place at the gate of the factory, in such a case element of freight and transit insurance upto place of buyer were not to be included in the value of the goods for levying excise duty u/s 4 of Central Excise Act, 1944.

Cases Referred (1)

Judicial Analysis

IMPORTANT POINT
Where sale of goods had taken place at the gate of the factory, in such a case element of freight and transit insurance upto place of buyer were not to be included in the value of the goods for levying excise duty u/s 4 of Central Excise Act, 1944.