Hemambika R. Priya DECISION
Dr. Rachna Gupta, Member (J)
1. Present order disposes of an appeal filed to assail the Order-in-Appeal No. 72/2022 dated 27.12.2022 vide which the amount of freight and insurance paid by the appellant are held to be the part of assessable value by holding that place of delivery of goods, since the goods have been supplied on FOR destination bases, is the buyer's place. Being aggrieved of the said order, appeal is before this Tribunal. The facts in brief relevant for the purpose are as follows:
1.1 The appellant is engaged in manufacture of transformer, aluminium, cables etc. During the audit of appellant's records, department observed that appellant has been awarded contracts by various companies for supply of transformers from their office at Jaipur, Rajasthan. From the purchase order/agreement between the appellant and its various buyers, the department observed that the freight and insurance were agreed to be inclusive in the transaction value. However, the appellant while discharging the tax liability, on those invoices, was found to had not included the cost of freight while assessing the said value. Resultantly, excise duty amounting to Rs.65,15,338/- on the freight value of Rs.5,21,22,700/-received by the appellant during the period from March 2016 to March 2017 is alleged to have been short paid by not including the same into the assessable value. The same is alleged to be the violation of Section 4 of Central Excise Act, 1944 read with Rule 4,6 and 8 of Central Excise Act, 2002. The said amount of Rs.65,15,338/- therefore is proposed to be recovered from the appellant along with the interest vide Show Cause Notice No. 35/2017/51 dated 16.04.2018. Penalty is also proposed to be imposed. The said proposal was initially confirmed vide Order-in-Original No. 01/2021-22 dated 17.05.2021. The appeal against the said order has been dismissed vide the order under challenge. Being aggrieved the appellant is before this Tribunal.
2. We have heard Ms. Sukriti Das, learned Advocate for the appellant and Shri Manish Kumar Chawda, learned Authorized Representative for the department.
3. Learned counsel for the appellant has mentioned that the purchase orders clearly indicate that the price for supply of finished product would be ex work price and the freight charges for transportation of goods from the appellant's factory to the buyer's premises would be charged separately in the invoice and paid accordingly by the buyers. Thus charges on account of freight are recovered by the appellant from the buyers separately. It is after the invoices were prepared, the Goods Transport Agency was engaged for transportation of goods up to buyer's premises. The lorry receipts issued by GTA indicate buyers as the consignee therefore it stands established that the property in goods had passed in favour of buyers prior transportation thereof, resulting, sale of said goods to complete at the factory gate of the appellant. Thus, including the value of freight into the assessable value are not the correct findings. The amount of duty which has been confirmed against the appellant is therefore liable to be set aside.
3.1 The learned counsel further mentioned that the issue in dispute is no more res integra as decided by Hon'ble Supreme Court in the case titled as CC & CCE, Nagpur Vs. Ispat Industries Ltd. reported as MANU/SC/1151/2015 : 2015:INSC:742 : 2015 (324) ELT 670 (SC). It has been categorically held in the said decision that the buyer's premises can never be the place of removal. It is submitted that decision of Roofit Industries Ltd. Vs. CCE reported as MANU/SC/0483/2015 : 2015:INSC:347 : 2015 (319) ELT 221 (SC)has wrongly been relied upon by Commissioner (Appeals). The said decision has been considered by Hon'ble Apex Court in Ispat Industries (supra) case. Learned counsel has also placed reliance upon the Section 4, 23 and 39 of Sale of Goods Act. With these submissions, the order under challenge is prayed to be set aside and the appeal is prayed to be allowed.
4. While rebutting these submissions, learned Departmental Representative has mentioned that admittedly the goods are sold on FOR Basis (free on board). In view of provisions of Section 4 of Central Excise Act read with Rule 5 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, the value of freight is required to be included in the assessable value. Learned Departmental Representative brought to notice the CBEC Circular No. 6/6/2003 dated 03.03.2003 wherein it has been clarified that "it would be essential in each case of removal of excisable goods to determine the point of sale". The another Circular No. 988/12/2014 : MANU/EXCR/0012/2014 dated October 20,2014 is also impressed upon wherein it has been clarified that place of removal needs to be ascertained in terms of provisions of Central Excise Act, 1944 read with provisions of Sale of Goods Act, 1930. Payment of transportation, inclusion of transport charges in value, payment of insurance or who bears the risk are clarified to not to be the relevant considerations to ascertain the place of removal. Resultantly, the place of sale is clarified to be the place of removal. Since in delivery on FOR destination basis, the sale gets concluded at buyer's place; buyer's place is the place of removal. The cost of freight while delivering the goods to the said place of sale has to be included in the assessable value as has been held by Commissioner (Appeals). Impressing upon no infirmity in the order under challenge, the appeal is prayed to be dismissed.
5. Having heard the rival contentions and perusing the records, we observe that the issue to be adjudicated in the present case is:
"Whether the value of freight and insurance charges should be included in the assessable value of final products."
This issue revolves around the meaning of 'people of removal' because the value of services rendered up to the place of removal only are to be included in the assessable value. Section 4 (3)(c) of Central Excise Act defines 'place of removal' as follows:
"Place of removal" Means:
(i) a factory or any other place or premises of production of 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 the excisable goods are to be sold after their clearance from the factory, from where such goods are removed;
6. In the present case, it has been alleged by the department that since sale has got concluded at buyer's place, delivery being on FOR destination basis, that the place of removal, as per above quoted sub-clause (iii) is the buyer's place. We observe that Hon'ble Supreme Court has settled this controversy by its decision initially in the case titled as Commissioner of Central Excise & Service Tax Vs. Ultratech Cement Ltd. reported as MANU/SC/0065/2018 : 2018 (9) GSTL 337 (SC), wherein it was held that the services of Goods Transport Agency Service when used for transport of goods from place of removal (factory) to the buyer's premises, the assessee was not entitled to avail the Cenvat credit of the said service. Hon'ble Apex Court has held that in the definition of input service in Rule 2(l) of Cenvat Credit Rules, 2004, the words "from place of removal" have been replaced by the words "up to the place of removal" "from" was the indicator of starting point whereas "up to" signifies the terminating point. The Hon'ble Apex Court has clarified that Circular No. 97/8/2007 dated 23.08.2017 has not dealt with this change thus its application to post amendment cases would violate Rule 2(l) of Cenvat Credit Rules, 2004. Subsequent to this amendment w.e.f. 01.03.2008 it is only up to the place of removal that service is treated as the input service. Resultantly, the Goods Transport Agency Service used for the purpose of outward transportation of goods from the factory to customer premises is held to be not covered within the definition of input services.
7. The principle laid down in this decision is that the factory gate is the place of removal. This decision has subsequently been followed by Hon'ble Supreme Court in the case of Ispat Industries (supra)which has squarely covered the controversy before us. It has been held that freight and transit insurance should not be included in the assessable value for the purpose of payment of excise duty because the term "any other place" under the definition of "place of removal" has reference only to the places from which goods are to be sold by the manufacturer. It has no reference to the place of delivery which may be the buyer's location. This decision has overruled its earlier decision in the case of Roofit Industries Ltd.(supra) by appreciating that attention to Section 4 as originally enacted and as amended demonstrating that buyer's premise cannot be the place of removal, was not drawn before the court.
8. Reverting to the facts of the present appeal, we observe that there was an agreement between the appellant and its buyers according to which prices were agreed to be on ex work basis as also have been mentioned in the invoices. The goods admittedly got cleared from the factory of appellant on payment of appropriate sales tax. Invoice were prepared at the factory gate only in the name of the buyer, also, when the goods were handed over to the transporters, later issued the lorry receipts/consignment notes mentioning the buyer as the consignee. These apparent and admitted facts are sufficient for us to hold that sale of impugned goods had taken place at appellant's factory gate only.
9. The reference to few provisions of Sale of Goods Act, 1930 has also been made by the learned counsel for the appellant. Section 4 thereof reads as follows:
"A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price."
In the light of this section the invoices are nothing but the contract of sale which got executed at the appellants factory itself. in view of the Section 19 of the Act, it is clear that in case of sale of specific or ascertained goods, property in those goods gets transferred when the parties intent for so which has to be inferred from the conduct of the parties and terms of the contracts. As already observed above, the appellant had transferred the goods to the transporter for being delivered to the buyer after receiving purchase order from the buyer and after issuing the invoices. There is nothing on record about any role of the appellant subsequent thereto. The transporter had issued consignment notes mentioning the buyer as the consignee. It stands absolutely clear that the intent to transfer the property was at the time of clearance of goods from the appellants/the manufacturer's premises.
10. Section 23 and 39 of Sale of Goods Act, as impressed upon by the Ld. Counsel for the appellant, are observed to have supported the appellant's contention. The provisions read as follows:
"23. Sale of unascertained goods and appropriation. (2) Where in pursuance of the Contract, the seller delivers the goods to buyer or to a carrier or other bailee....for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the goods to the contract."
39. Delivery of carrier or wharfinger. (1) Where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer, or delivery of the goods to a wharfinger for safe custody, is prima facie deemed to be a delivery of the goods to the buyer."
11. These provisions are sufficient to hold that the findings in the order under challenge, that delivery on FOR destination basis has changed the place of removal from factory to the buyers place are apparently wrong and are contrary to the decision of hon'ble Supreme Court. The Hon'ble Supreme Court earlier also in the case of Escort JCB Ltd. Vs. Commissioner of Central Excise, Delhi reported as MANU/SC/0884/2002 : 2002:INSC:439 : 2002 (146) ELT 31 (SC) had held that since the sale of goods is at the ex works of the assessee and handing over such goods to the transporter is deemed to be the delivery to the buyer in terms of provisions of Sale of Goods Act, the transaction between the assessee and its buyer got completed at the factory gate of the assessee and the place of removal would be the factory premises only. Based on these observations, the freight as well as transit insurance amount shown and charged separately in the invoices is held to not to be includable in the assessable value. We also place reliance on another decision of Hon'ble Supreme Court in the case of Commissioner of Central Excise, Noida Vs. Accurate Meters Ltd. reported as MANU/SC/0342/2009 : 2009:INSC:293 : 2009 (235) ELT 581 where the freight and the insurance charges were to be charged on average basis for the supply of electric meters and the amount were shown separately which were recovered from the buyers. It was held that the amount claimed as transportation charges and insurance charges are not includable in the assessable value of electric meters supplied. The similar are the facts of the present case. The freight and insurance charges are mentioned separately in the invoices. The goods got transferred from the factory premises itself retaining no other control of the appellant over the goods during transit. The issue has already been put at rest by Hon'ble Apex Court in the case of Ispat Industries (supra) where it is categorically held that the words used in sub-clause (3) of the definition of place of removal are "are to be sold" instead of words "have been sold". Thus, it has been categorically held by Hon'ble Supreme Court that buyer's premises can never be the place of removal, hence, the freight charged separately in the invoices is not includable in the assessable value for the payment of excise duty.
12. Finally coming to the plea of invocation of extended period of limitation, we observe that the show cause notice was issued on 16.04.2018 for the period March, 2016 to March, 2017. In the light of entire above discussion, we hold that the demand for the entire period which includes one month of extended period of limitation has wrongly been confirmed. The order under challenge has wrongly held that the freight and insurance charges are includable in the assessable value. Learned adjudicating authority has absolutely ignored Rule 5 of Determination of Value Rules which makes it clear that when goods are sold for delivery at a place other than place of removal transaction value of excisable goods shall not include actual cost for transportation from the place of removal up to the place of delivery of such excisable goods. The rule enunciates following criteria to allow deduction of cost of transportation from the assessable value:
(i) The goods should be sold for delivery at a place other than place of removal.
(ii) Cost of freight/insurance should be in addition to the price for the goods.
(iii) Cost of transportation should be shown separately in the invoices.
Three of these conditions have been met with in the present case. Hence cost of transportation/ freight has to be deducted from the assessable value. So is true, in the given circumstances, for the cost of insurance.
13. In the light of entire above discussion. It is held that the question framed above is answered in negative. The order under challenge since has confirmed the demand based on inclusion of freight and insurance amount received by the appellant, the order is held to not to be sustainable. The adjudicating authority below is held to have violated the judicial discipline by not following the decision of apex court and by rather taking a contrary view therefrom. Resultantly, the order in appeal/ order under challenge is hereby ordered to be set aside. Consequent thereto, the appeal stands allowed.
[Order pronounced in the open court on 07.06.2024]
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