By TIOL News Service

MUMBAI, JULY 04, 2016: NOTICES were issued to the appellants alleging that the appellants were supplying the goods at the customers' premises/site, however, they were discharging the duty liability on ex-factory prices. The appellants were charging their customers freight and transit insurance through commercial invoices as part of the assessable value. It was alleged that in terms of Section 4(3)(c) of the CEA, 1944, the prices of such goods transferred by the manufacturer to his customers/buyers should be inclusive of freight and transit insurance from the factory gate to such "place of removal".

This appeal has been filed against an order seeking to recover duty by adding to assessable value the freight and insurance charges recovered during September 1996 to December 2000 and January 2001 to October 2001.

The Bench noted that the demand was set aside but the Revenue agitated the matter before the Supreme Court which remanded the matter - 2015-TIOL-163-SC-CX, on the terms mentioned therein.

The definition of the 'place of removal' in section 4(3)(c) of the CEA, 1944 during the period prior to 1/7/2000 and thereafter read -

c) "place of removal" means.

(i) a factory or any other place or premises of production or 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) 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 and,

from where such goods are removed.

With effect from 1/7/2000, the definition was revised to -

c) "place of removal" means -

(i) a factory or any other place or premises of production or 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;

from where such goods are removed.

After considering the elaborate submissions made by both sides, the Bench compared the definition of 'place of removal' before and after 01/07/2000 &observed -

+ In effect, the clause (iii) of the definition was deleted. Thus it can be seen that after 1/7/2000 there was no provision for considering any place, other than factory or any other place or premises of production or manufacture of the excisable goods or a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty, as 'place of removal'.

On the demands involved, the Bench drew the following conclusions -

Demand of duty after 01/07/2000

++ There is no case for considering any other place like the Depot or place of Consignment agent etc. as 'place of removal' after 1/7/2000. However prior to 1/7/2000 the definition of 'place of removal' included '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' as possible place of removal. Thus it was possible to consider any place other than factory or a warehouse (where goods are permitted to be stored without payment of duty) as 'place of removal'. Thus the appeals so far as they relates to period after 1/7/2000 have to be allowed.

Duty Demand for the period prior to 1/7/2000

++ In the instant case the goods are delivered to the buyers at their premises. The transit insurance and the risk of transit is taken by the seller, replacement of goods lost, broken or damaged in transit would be the responsibility of the seller. Essentially, the possession of goods have to be transferred to buyer by the seller, at the premises identified by the buyer. The insurance taken by the seller in respect of transit risk is not an insurance taken on behalf of the buyer but on his own behalf. The seller is responsible for delivering the goods safe and sound at the premises identified by the buyer at his own risk.

++ It is obvious that the meaning of various words and expressions defined in the Section 2 of the Central Excise Act will take precedence over the meaning assigned to the same words and expressions anywhere else. Only in the circumstances where 'there is anything repugnant in the subject or context' that any other meaning can be assigned. Sub-section 2(h) of the Central Excise Act, defines sale and purchase as 'any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration'. Thus it can be seen that the meaning of 'sale' in Central Excise Act has been linked to 'transfer of Possession' and not to 'transfer of property in goods' as in Sale of Goods Act.

++ It can be seen that the concept of 'sale' in the Sale of Goods Act involves 'transfer of property', even without transfer of physical possession of goods. The concept of sale in the Central Excise Law involves 'transfer of possession of goods' even without 'transfer of property' in goods. These are totally different concepts. Each has its own purpose and cannot be used interchangeably. [HOTEL & RESTAURANT ASSOCIATION versus STAR INDIA PVT. LTD - 2006-TIOL-195-SC-MISC & SHREE BAIDYANATHAYURVEDBHAWAN LTD - 2009-TIOL-53-SC-CX refers]

++ In view of above, the definition of the term 'Sale' has to be assigned the meaning given to it in the Central Excise Act in preference to the meaning given to it in the Sale of Goods Act.

++ The other provisions of the Sale of Goods Act would also not apply while interpreting the different aspects of the term 'Sale'. The concept of transfer of ownership based definition of 'sale' is alien to the Central Excise Act. Section 4(1) of the Central Excise Act creates liability on each 'removal of goods' and not on 'transfer of property in goods'. The other sections of the Central Excise Act are also harmonized with this definition of 'sale' linked with the physical possession of goods.

++ Section 4(3)(c) defines the 'place of removal' and Section 4(3)(cc) defines the 'time of removal'. It can be seen that the context of both the definitions, i.e. of 'Place of Removal' and of 'Time of Removal' is based on the physical movement of goods. The concept of transfer of ownership-based definition of 'sale' is alien to the Central Excise Act.Thus, relying on the provisions of Sale of Goods Act to interpret the provisions of the Central Excise Act in general and Section 4 thereof in particular, does not appear to be correct .

++ The concept of 'sale' in the Sale of Goods Act, 1930 is based on 'transfer of property in goods' and, consequently, it is possible to complete the sale of goods the moment they come in existence and are appropriated to the contract. There is no requirement of physical movement of goods for the purpose of 'sale' under Sale of Goods Act 1930. In central excise law the liability to tax arises the moment the goods are physically cleared from the place of manufacture even without transfer in property of goods. In Central Excise law the liability arises even if the goods are consumed within the place of production by the same person who has manufactured it. The question of transfer of property does not arise at all. In these circumstances it is doubtful if reliance can be placed on the definition and provisions of Sale of Goods Act, 1930 to interpret the provisions of the Central Excise Act. Reliance can be placed on these definitions and provisions of Sale of Goods Act, 1930 only if "there is anything repugnant in the subject or context' requiring such reliance. Reliance on section 39 of the Sale of Goods Act could lead to an anomaly. In the instant case there is no contract with the transporter on behalf of the buyer as envisaged in section 39 of Sale of Goods Act . Thus provisions of Section 39 of the Sale of Goods Act, 1930 cannot be invoked.

++ It can be seen that in terms of contract the seller is not doing the insurance on behalf of the buyer but on his own behalf (though cost is reimbursed by the buyer). The loss, if any, by way of difference between the replacement of goods and the claim/compensation is to be borne by the seller. The bulk of the payment (75%) will be done after delivery of goods.

++ The facts in the case of ROOFIT INDUSTRIES LTD - 2015-TIOL-87-SC-CX is identical to the facts in the instance case, and in those circumstances the freight and insurance would be includible in the assessable value. However, subsequent to the decision of the Apex Court in the case of ROOFIT INDUSTRIES LTD (supra), the Supreme Court in the case of ISPAT INDUSTRIES LTD. - 2015-TIOL-238-SC-CX has distinguished the decision in case of ROOFIT INDUSTRIES LTD (supra) and has observed that "the buyer's premises cannot, in law, be "a place of removal" under the said Section'. The categorical observation leaves no scope for any interpretation. The allegation that the buyer's premises is the place of removal cannot, therefore, be sustained in view of these observations.

The appeal by the assessee was allowed and that by Revenue was dismissed.

(See 2016-TIOL-1619-CESTAT-MUM)