The Hon’ble Apex Court in the matter of Commissioner, Customs and Central Excise, Aurangabad v. Roofit Industries Ltd (Civil Appeal No. 5541 of 2004) has held that the freight and other costs to be included in the valuation of the goods for the purpose of excise duty where the place of removal of finished goods was different from the factory gate.
Brief facts of the case:
Roofit Industries Limited is the holder of Central Excise Registration for manufacture of RCC and PSC pipes falling under Chapter Heading 6804/6807 for the first schedule to the Central Excise Tariff Act, 1985. The company entered into four agreements for designing, manufacturing, providing at site, laying, jointing and testing of PSC pipes of specified sizes. A Show Cause Notice issued by the Department contending that the company has evaded central excise duty by not computing the assessable value of finished goods properly to the extent that it was deducting the cost of freight, insurance and unloading charges from the price of excisable goods though the place of removal of finished goods was different from the factory gate.
The Department confirmed the demand of the differential excise duty on account of under valuation and on the ground that the place of removal of finished goods was the buyer’s premises and not at the factory gate.
Aggrieved by the said order, the company filed an appeal before CESTAT. Learned Tribunal vide its final order dated 30.03.2002 has allowed the appeal on the reasoning that the issue is settled in Escorts JCB Ltd. v. Commissioner of Central Excise, Delhi-II.
Feeling aggrieved by the order passed of CESTAT, the Revenue preferred an appeal before the Hon’ble Apex Court.
Finding of the Hon’ble Supreme Court
The relevant text is extracted as under:
“…
- A contextual examination of the aforesaid provision, for the purpose of the present case, would bring out the following the pertinent aspects:
(i) The duty of excise is chargeable on excisable goods with reference to the value of those goods.
(ii) The value of the goods is deemed to be the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade.
(iii) The said normal price is to be seen at the time of delivery and place of removal.
(iv) ‘Place of removal’ is specifically defined and for our purposes, it is to be a place or premises from where the excisable goods are to be sold after their clearance from the factory and from where such goods are removed.
Thus, place of removal, in a given case, become determinative factor for the purpose of valuation.
- If the goods are cleared at the factory gate, then the excise duty has to be charged on the valuation of the goods to be arrived at the factory gate as that would be the place of removal of goods. It would mean that the expenses which are incurred after the removal of goods from the factory gate namely freight, insurance and unloading charges etc. are not to be included in the valuation of the goods for the purposes of excise duty. The reason is that the sale of goods to the buyer is at the factory gate when the property passes to the buyer and the aforesaid expenditure are thereafter incurred by the buyer. It is this aspect which was gone into by this Court in the case of Escorts JCB Ltd. (supra). That was a case where question of including insurance charges came up for consideration. It was found as a fact that the goods were cleared at the factory gate. On these facts, this Court held that insurance charges, or for that matter, transport charges would not be included even if the assessee had arranged for the transit insurance. The Court found that the terms and conditions of sale clearly stipulated that it was ex-works at the factory gate of the assessee. The payment was to be made before discharge of the goods from the factory premises. In the opinion of the Court, the machinery which was handed over to the career/transporter on receiving the payment was as good as delivery to the buyer in terms of Section 39 of the Sale of Goods Act and, therefore, possession of the sold goods was handed over to the buyer at the factory gate. In this manner, the transaction was full and complete and nothing remained to be done after the goods left the factory premises. On these facts, provisions of Section 4 of the Act, which deals with valuation of excisable goods for the purposes of charging of duty of excise was taken note of and analysed, holding that the aforesaid charges could not be included for the purpose of arriving at valuation of excisable goods.
…
In the present case, we find 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.
Abott Law Office 