CX - Valuation - Transaction Value - whether transportation and insurance cost to be included in value - What is to be determined is 'place of removal' and that depends on facts of each case; - perfunctory manner in which appeal of assessee is allowed by Tribunal, cannot be countenanced: Supreme Court
By TIOL News Service
NEW DELHI, AUG 01, 2015 : THE assessee manufactures transformers. The supply of these transformers by the assessee is primarily to the State Electricity Boards. These are subject to excise duty which the assessee has been paying to the 'Revenue'.
The dispute in the present case, however, is about the 'transaction value' on which the excise duty is payable under Section 4 of the Act. The assessee is paying the duty on the price at which the said transformers are sold to the Electricity Boards. However, the Revenue wants that while arriving at the price of the said goods, transportation cost and transit insurance cost be also included to arrive at the correct transaction value in terms of Section 4(3)(d) of the Act.
Since the assessee was not including the transportation and transit insurance cost, a show cause notice was issued on 24.07.2001 proposing to recover a sum of Rs . 1,17,36,766/-on account of short excise duty paid for the period 28.09.1996 to 31.12.2000. This was confirmed by the Commissioner, Central Excise vide his Order-in-Original dated 18.08.2002. This order was challenged by the assessee before the Customs Excise and Gold (Control) Appellate Tribunal (for short, 'CEGAT'). CEGAT has allowed the appeal simply by mentioning that the issue stands settled in favour of the assessee by the decision of the Tribunal which has been approved by the Supreme Court.
Revenue is in appeal before the Supreme Court.
The argument of the Revenue in the present appeals, preferred against the Tribunal order, is that the matter was not so simple which could be covered within the four corners of the judgment of this Court in Escorts JCB Ltd. v. Collector of Central Excise - 2002-TIOL-05-SC-CX, relied upon by the Tribunal. He submitted that there have been various nuances, intricacies and features of the present case which were required to be discussed before the conclusion could be arrived at that the case is covered by the said judgment. His submission was that there were many distinguishing features which are not taken note of and, obviously, not discussed and a non-reasoned cryptic order is passed by the Tribunal.
The counsel for the assessee, on the other hand, made persistent effort to justify the order of the Tribunal with the submission that the case was squarely covered by the judgment of this Court in Escorts JCB Ltd. case.
The Supreme Court observed,
"'Place of removal' is the 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 becomes a crucial determinative factor for the purpose of valuation. In the present context, if it is found that transportation charges and transit insurance charges were incurred after the 'place of removal', then they are not to be included. On the other hand, if these charges are incurred before the 'place of removal' then they are to be included while arriving at the transaction value. Again, in the context of the present case, what is to be determined is as to whether the 'place of removal' was the factory gate of the respondent or it was the premises of the purchaser at the time of delivery of these goods.
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. 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."
In Commissioner of Central Excise, Noida v. Accurate Meters Ltd. - 2009-TIOL-31-SC-CX-LB, the Court took note of few more decisions, including the case of Escorts JCB Ltd., and reiterated the aforesaid principles but at the same time also emphasising that the place of removal depends on the facts of each case.
In a recent decision of the Supreme Court in Commissioner, Customs and Central Excise, Aurangabad v. M/s. Roofit Industries Ltd. - 2015-TIOL-87-SC-CX, the position in law was summarized in the following manner:
"12) The principle of law, thus, is crystal clear. It is to be seen as to whether as to at what point of time sale is effected namely whether it is on factory gate or at a later point of time i.e. when the delivery of the goods is effected to the buyer at his premises. This aspect is to be seen in the light of provisions of the Sale of Goods Act by applying the same to the facts of each case to determine as to when the ownership in the goods is transferred from the seller to the buyer. The charges which are to be added have put up to the stage of the transfer of that ownership inasmuch as once the ownership in goods stands transferred to the buyer, any expenditure incurred thereafter has to be on buyer's account and cannot be a component which would be included while ascertaining the valuation of the goods manufactured by the buyer. That is the plain meaning which has to be assigned to Section 4 read with Valuation Rules."
Supreme Court not happy with Tribunal's order: The Court observed, "The perfunctory manner in which the appeal of the assessee is allowed, cannot be countenanced. If the Tribunal was confirming the decision of the Authority below, may be detailed discussion was not required as the reasons given in detail could be found in the order appealed against, though even in such a case brief reasons are to be given by the Tribunal, in particular, to meet the arguments which are advanced by the appellant while challenging such an order. However, in the instant case, we find that there is a detailed discussion in the order of the Commissioner on the facts of the case. Those facts are not adverted to or dealt with. The decision of the Commissioner is overruled with single observation that the case is covered by the judgment in Escorts JCB Ltd., without discussing as to how it was so covered. This is notwithstanding the fact that the decision as to which is the 'place of removal' depends upon the facts of each case."
The consequence would be to set aside the order of the Tribunal and remit the case to it for fresh consideration after looking into the facts of the present case, namely, the terms and conditions of the sale with the buyer and determination on that basis as to which was the place of removal, that is whether it was the factory gate of the assessee or the place of delivery.
Supreme Court recorded that as per the Commissioner, place of removal was the place of delivery at the buyer's premises. However, since no documents are produced before the Court, it was not in a position to comment as to whether the aforesaid view taken by the Commissioner is proper or not.
The appeals are allowed by way or remand for fresh consideration.
(See 2015-TIOL-163-SC-CX)
