Case: Commissioner of Customs &amp; Central Excise, Nagpur Vs. M/s. Ispat Industries Ltd

2. M/s Ispat Industries Limited, the respondent herein, is engaged in the manufacture of H.R. sheets/coils, C.R. sheets/coils, and Galvanized/colour coated/sheets, falling under Chapter 72 of the First Schedule to the Central Excise Tariff Act, 1985. Intelligence revealed that M/s Ispat were indulging in evasion of central excise duty by athat their factory gate was the place of removal, and not thepremises, consequent to which freight charges recovered from their buyers was sought to be added in determining the amount of central excise duty payable by them. The period involved in the present appeal is from 28.9.1996 to 31.3.2003. Five show cause notices were issued to the respondents stating that the property in goods manufactured by them remained with Ispat while the goods were in transit as Ispat had taken out an insurance policy to cover the risk of loss or damage to the goods while in transit. Purchase orders as well as agreements with transporters did not suggest that the transporters were taking delivery on behalf of the buyers. All this was corroborated by a statement made by Shri S.P. Dahiwade, Deputy General Manager, stating that the ownership of the goods in transit remained with Ispat. It was thus stated that theplace or the place of delivery should be treated as the place of removal of the goods for the purpose of Section 4 of the Central Excise Act, and this being so, the necessary consequence would be that the freight charges paid by the buyers to Ispat ought to be included in the excise duty payable by Ispat.3. In reply to the five show cause notices, M/s. Ispat stated that all their prices wereand that the goods were cleared from the factory on payment of central or local sales tax. Most of their sales were against Letters of Credit opened by the customer or through Bank discounting facilities. Invoices were prepared at the factory directly in the name of the customers, and the name of the Insurance Company as well as the number of Transit Insurance Policy were both mentioned. Based on the details mentioned in the invoice, the lorry receipt was prepared by the transporter and was in thename. This receipt carried a caution notice as well a notice to the effect that deliveries were to be made to the buyer alone, and to nobody else.4. M/s. Ispat further stated that these transactions were entered in their sales register and were booked as sales, the stock or inventory of finished goods being reduced by such sales. In the event that there was an insurance claim, recovery was credited to theledger account against the recovery due from the customer in respect of the sale of the said goods. Excise invoices were prepared at the time that the goods left the factory in the name and address of the customers, and once the goods were handed over to the transporter, the respondent did not reserve any right of disposal of the goods in any manner. It had no right to divert the goods so handed over to the transporter and meant for a particular customer to anybody else.5. The learned Commissioner, by his order dated 3.10.2003, held that as the insurance agreement with the transporter was entered into by Ispat who had taken out an Insurance Policy to cover risk to the loss or damage of the goods while in transit, the property in goods remained with Ispat and was not transferred to the buyer at the factory gate. It was also held that in the order acceptance form, it was mentioned that the transport would be by Ispat. Thus, Ispat had assumed responsibility of transportation of the goods up to the door of the customers. Further, that the purchase orders as well as the agreement with the transporters did not suggest that the transporters were taking delivery on behalf of the buyer. Above all, Shri S.P. Dahiwade, Deputy General Manager, Excise, had clearly admitted in his statement dated 5.2.2001, that till the material is delivered to the customer, ownership of the goods remains with Ispat. Further, since payment terms were 30 days after the receipt of the material and not 30 days after dispatch of the material, it is clear that property in the goods remained in Ispat until payment was made. The Commissioner, therefore,the facts and circumstances of the case as discussed above, the charges framed under the said Show Cause Notices remain substantiated.(i) I hold Customers premises as actual place of removal instead of factory gate of M/s. Ispat of terms of sub clause (iii) of Section 4(4) (b) of Central Excise Act, 1944 and in term of Sub Clause (3) (c) of Section 4 of the Central Excise Act, 1944 for the period from 28.09.96 to 30.06.2000 and from 01.07.2000 onwards respectively.(ii) I confirm demand of Central Excise duty amounting to Rs. 2,43,31,003/(Rs. Two Crores Forty Three Lakhs Thirty One Thousand Three only), (Rs.2,16,09,006.00/+ Rs.8,97,780/) and I order recovery of the same from them under Rule 9(2) of the Central Excise Rules, 1944 read with Section 38A of the Central Act, 1944 and the first proviso to Section 11A of the Central Excise Act, 1944 by invoking extended period of limitation of five years.(iii) I impose Penalty of Rs.2,43,31,003/(Rs. Two Crores Forty Three Lakhs Thirty One Thousand Three only), upon them under Rule 173Q and 9(2) of the erstwhile Central Excise Rules, 1944 read with Section 11AC of the Central Excise Act, 1944.(iv) I order recovery of appropriate interest from them under Section 11AB of the Central Excise Act, 1944.On appeal by the respondents herein, CESTAT, by its judgment dated 24.7.2006, reversed the order of the Commissioner holding that, on the facts of the case, thisjudgment in Escorts JCB Ltd. v. CCE, (2003) 1 SCC 281 concluded the issue in favour of Ispat. CESTAT also relied upon acircular dated 3.3.2003 which acknowledged that the question of ownership of goods in transit cannot be determined solely with reference to an Insurance Policy taken out by the manufacturer. As regards the statement of Shri Dahiwade, according to CESTAT, such statement would not carry the revenue much further as whether the property in the goods passed at the factory gate to the buyer was a question of law which was determined in favour of Ispat by the aforesaid judgment of this Court in Escortscase. It was further held that at least two of thegrounds, namely, that the payment terms were 30 days after receipt of the materials and that the order acceptance form shows that it was the obligation of Ispat to arrange transportation of goods to thepremises, were beyond the show cause notices issued as no such charge was leveled against Ispat in any of the five show cause notices mentioned hereinabove.

Reasoning:
17. It is clear, therefore, that as a matter of law with effect from the Amendment Act of 28.9.1996, the place of removal only has reference to places from which the manufacturer is to sell goods manufactured by him, and can, in no circumstances, have reference to the place of delivery which may, on facts, be then our view, Section 4 has to be read as a whole. Under Section 4(1)(a), the normal price is the price at which goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and price is the sole consideration for sale. Therefore, the normal price is the price at theat the place ofBefore the amendment, the place of removal was only the factory or any other place or premises where the excisable goods were produced or manufactured or a warehouse or any other place or premises where any excisable goods have been permitted to be deposited without payment of duty. Thus, the price would be the price at that place. By the amendment provisoto Section 4(1)(a) has been added. Under Sectionwhere the price of the goods is different for different places of removal, each such price was deemed to be the normal price of such goods in relation toThus, if the place of removal was the factory, then the price would be the normal price at the factory. If the place of removal was some other place like a depot or the premises of a consignment agent and the price was different then that different price would be the price. It is because the newly added provisoto Section 4(1)(a) was now providing for different prices at different places of removal that the definition of the termhad to be enlarged. Thus the amendment was not negativing the judgments of this Court. If that had been the intention it would have been specifically provided that even where price was the same/uniform all over the country, the cost of transportation was to be added.Thus in cases where the price remains uniform or constant all over the country, it does not follow that value for the purpose of excise changes merely because the definition of the termis extended. The normal price remains the price at the time of delivery andat the place ofremoval. In cases of equalised freight it remains the same as per the judgments of this Court set out hereinabove. In our view, the amendments have made no difference to the earlier position as settled by this Court. In this view of the matter, we are unable to uphold the judgments of the Tribunal. They are accordingly set aside. The appeals are allowed with consequential relief. There shall be no order as to[paras 5 tothe 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 datedplaced 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 deliveredat the place ofthe 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 theclause 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 butat the place ofthe buyer on the delivery of the goods in question. The clear intent of the aforesaid 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 the Sale of Goods Act, the property in goods was transferred at that timeare clear finding of facts on the aforesaid lines recorded by the Adjudicating Authority. However, CESTAT did not take into consideration all these aspects and allowed the appeal of the assessee by merely referring to the judgment in Escorts JCB Ltd. [(2003) 1 SCC 281 : (2002) 146 ELT 31 ] Obviously the exact principle laid down in the judgment has not been appreciated by[at paras 12It will be seen that this is a decision distinguishing the Escortscase on facts. It was found that goods were to be delivered onlyat the place ofthe buyer and the price of the goods was inclusive of transportation charges. As transit damage on theaccount would imply that till the goods reached their destination, ownership in the goods remained with the supplier, namely, the assessee, freight charges would have to be added as a component of excise duty. Further, as per the terms of the payment clause contained in the procurement order, payment was only to be made after receipt of goods at the premises of the buyer. On facts, therefore, it was held that the sale of goods did not take place at the factory gate of the assessee. Also, thisattention was not drawn to Section 4 as originally enacted and as amended to demonstrate that thepremises cannot, in law, beunder the said Section.33. As has been seen in the present case all prices werelike the facts in Escortscase. Goods were cleared from the factory on payment of the appropriate sales tax by the assessee itself, thereby indicating that it had sold the goods manufactured by it at the factory gate. Sales were made against Letters of Credit and bank discounting facilities, sometimes in advance. Invoices were prepared only at the factory directly in the name of the customer in which the name of the Insurance Company as well as the number of the transit Insurance Policy were mentioned. Above all, excise invoices were prepared at the time of the goods leaving the factory in the name and address of the customers of the respondent. When the goods were handed over to the transporter, the respondent had no right to the disposal of the goods nor did it reserve such rights inasmuch as title had already passed to its customer. On facts, therefore, it is clear thatjudgment is wholly distinguishable. Similarly in Commissioner Central Excise,v. M/s. Emco Ltd, this Courtits decision in the Roofitcase but remanded the case to the Tribunal to determine whether on facts the factory gate of the assessee was the place of removal of excisable goods. This case again is wholly distinguishable on facts on the same lines as the Roofit Industries case.In the view of the law that we have taken as well as the facts detailed above, the statement made by Shri S.P. Dahiwade pales into insignificance as has been correctly held by the Tribunal.