Full Judgment Text
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CASE NO.:
Appeal (civil) 7230 of 1999
Appeal (civil) 1163 of 2000
PETITIONER:
M/s. Escorts JCB Limited, Commissioner of Central Excise, Delhi
RESPONDENT:
Commissioner of Central Excise Delhi-II, M/s. Escorts JCB Limited
DATE OF JUDGMENT: 24/10/2002
BENCH:
S.N. Variava & Brijesh Kumar.
JUDGMENT:
JUDGMENT
Brijesh Kumar, J.
The appeals indicated above, arise out of
judgment and order dated 24.8.1999 passed by the
Customs Excise and Gold (Control) Appellate Tribunal
(For short ‘CEGAT’), operative part of which reads as
under:
"In the result we dispose of this
appeal by confirming the order of the
Commissioner imposing a duty of
Rs.29,65,532/- under Rule 9(2) of the
Central Excise Rules, 1944 read with
Section 11A of the Act, set aside that
part of the order which imposed duty
amount to Rs.98,219/- and reduce the
penalty to Rs.10 lakhs under Section
11AC of the Act"
Escorts JCB Ltd., the appellant in Civil Appeal
No.7230/99 and respondent in Civil Appeal
No.1163/2000 (hereinafter to be referred to as ‘the
assessee’) is aggrieved by the order confirming
imposition of duty and levy of penalty. The
Commissioner of Central Excise, appellant in Civil Appeal
No.1163/2000 and respondent in Civil Appeal
No.7230/99 (hereinafter to be referred to as ‘The
Revenue’) is aggrieved by the order reducing the
amount of penalty to Rs.10 lakhs as imposed under
Section 11Act of the Central Excise Act.
The Central Excise officers of Anti Evasion Branch,
Faridabad on visit to the premises of the assessee found
that the amount of "transit insurance" charges was not
added to the value of the goods sold, hence issued a
show cause notice dated 24.3.98 to the assessee saying
that an open policy for transit risks in the name of M/s.
Escorts JCB Ltd. and their bankers appear in the column
for the name of Assured but there is no mention of the
buyer or its name in the column for "insured". Notice
also indicates that ‘freight’ and "transit insurance" were
charged from the buyers but no central excise duty was
paid on these two elements, and by not including above
noted elements in the normal price as per Section 4 of
the Central Excise Act 1944 and by mis-declaring the
place of removal as factory gate instead of buyer’s place
where the goods were to be sold after their clearance
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from the factory as described in sub clause (iii) and
clause (b) of sub-Section 4 of the Central Excise Act
1944, the assessee has suppressed the necessary facts.
It also said that Section 11A of the Act is attracted for
extending the period upto 5 years for demanding the
central excise duty. The assessee was also noticed as to
why penalty under Section 11AC be not imposed upon it.
The assessee contested the show cause notice
saying that the sale is affected at the factory gate at
Ballabgarh in the State of Haryana. The freight and
arranging for insurance during transit of goods have no
material bearing on the point of place of sale or removal
of goods. The Commissioner of Central Excise, Delhi II
however confirmed the demand holding that the factum
of "transit insurance" by the manufacturer shows that the
transaction of sale is complete only on delivery of goods
to the buyer otherwise there was no good reason for the
manufacturer taking responsibility of the risk involved in
transportation of the goods to the buyer’s place. The
case of the assessee that sale takes place and it is
completed at the factory gate was not found acceptable
and contrary to Section 2 (h) of the Central Excise Act.
The appellate authority namely CEGAT upheld the view
taken by the Commissioner, Central Excise in so far it
related to completion of the transaction of sale at the
buyer’s place which is the main question for
consideration in this appeal before us.
Shri Andhyarujina, learned senior counsel
appearing for the assessee submits that the whole basis
of the impugned decision that "transit insurance" by the
assessee in itself would show that the rights in the
property had not passed on to the buyer during transit
but only on delivery of goods at the buyer’s place, is
unsustainable. It is submitted that the assessees
manufacture Excavators Loaders at its factory at
Bllabgarh, Faridabad, which are sold to various buyers.
All sales are made at the factory gate. Some buyers
arrange for the transportation of the goods as well as for
transit insurance themselves but some require the
appellant to arrange for transportation and transit
insurance, in latter case the assessee recovers the
freight charges and "insurance charges" from the
buyers. Our attention has been drawn to various
clauses of the terms and conditions of sale which has
been placed on record as Annexure P-1 indicating that
the prices are "ex-works" at Ballabgarh exclusive of
freight, insurance, octroi etc. The first clause under the
heading ‘Terms of Payment’ shows that 30% of the
quoted price is payable in advance alongwith the order
and the balance amount against delivery Ex-works
Ballabgarh. The next clause under the heading
"Delivery" provides that all deliveries are Ex-works
Ballabgarh, Haryana. Under the heading ‘Transit Risk
and Insurance’ it is indicated that risk of the goods will be
that of the buyer from the time Escorts JCB Ltd. hands
over the equipment to the buyer’s representative or
carrier or from the time goods leave Escorts JCB Ltd.
premises. Under the heading ‘Mode of Transport’,
delivery by train is indicated or in the alternative if the
buyers so desire, by road, and in such an event, it would
be necessary for the buyer to make the payment at
Ballabgarh prior to despatch of goods. It is submitted
that where the customers so desire or request the
transit insurance and transport is arranged by the
assessee for which they would separately charge the
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customer. Our attention has also been drawn to some of
the copies of the orders placed indicating that a request
was made by the customers to the assessee for making
arrangement for transport with transit insurance. Such
orders also indicate acceptance of general conditions of
sale. Some of the Transport receipts show despatch of
the goods in the name of the customers as consignee and
invoices indicate separate charge towards transit
insurance and freight apart from value of the goods.
The contention is that the fact that the assessee
arranged for the transit insurance would in no way lead
to an inference that the ownership in the goods was
retained by the assessee during the period of the transit
until the delivery of the goods at the place of the buyer.
The terms and conditions of the sale are clear that the
sale is Ex-works at Ballabgarh, Haryana. The payment
is to be made before despatch of the goods from the
factory premises. The machinery, handed over to the
carrier/transporter is as good as delivery to the buyer in
terms of Section 39 of the Sale of Goods Act apart from
terms and cnditions of sale. Section 39 of Sale of Goods
Act reads as under:
39. Delivery to 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 wharfinger for
sale custody, is prima facie deemed to be
a delivery of the goods to the buyer.
(2) Unless otherwise authorized by the
buyer, the seller shall make such contract
with the carrier or wharfinger on behalf of
the buyer as may be reasonable having
regard to the nature of the goods and the
other circumstances of the case. If the
seller omits so to do, and the goods are
lost or damaged in course of transit or
whilst in the custody of the warfinger, the
buyer may decline to treat the delivery to
the carrier or wharfinger as a delivery to
himself, or may hold the seller
responsible in damages.
(3) Unless otherwise agreed , where
goods are sent by the seller to the buyer
by a route involving sea transit, in
circumstances in which it is usual to
insure, the seller shall give such notice to
the buyer as may enable him to insure
them during their sea transit, and if the
seller fails to do, the goods shall be
deemed to be at his risk during such sea
transit.
The possession of the sold goods is handed over to
the buyer at the factory gate. The transaction is full and
complete and nothing remains to be done after the goods
leave the factory premises. The relevant provision in this
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connection is Section 4 of the Act, as it existed then is
quoted below:
"Section 4. Valuation of excisable goods for
purposes of charging of duty of excise. - (1)
Where under this Act, the duty of excise is
chargeable on any excisable goods with
reference to value, such value, shall,
subject to the other provisions of this
section, be deemed to be-
(a) 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 for
delivery at the time and place of
removal, where the buyer is not
a related person and the price is
the sole consideration for the
sale.
Provided that-
(i).--------------
(ia)-------------
(ii)--------------
(iii)-------------
(b)--------------
(2) ----------------
(3) ----------------
(4) For the purpose of this Section"
(a) -------------
(b) "Place of removal" means:
(i) ---------------
(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 and from where such
goods are removed.
From the perusal of the provision quoted above, it
would be clear in the case in hand the place of removal of
goods is factory premises since the transaction of sale,
payment of price and handing over possession of the
goods to the carrier after clearance is at the factory at
Ballabgarh.
A perusal of the orders passed by the authorities
and the CEGAT show that since transit insurance was
arranged by the assessee, therefore it was inferred and
held that the ownership of the goods was retained by the
assessee until it was delivered to the buyer on the
reasoning that otherwise there would be no occasion for
the seller namely, the assessee to take risk of any kind of
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damage to the goods during transportation. To us, the
whole reasoning seems to be untenable. The two aspects
have been mixed up - one relating to the transaction of
sale of the goods and the other arranging for the transit
insurance for the buyer and charging the amount
expended for the purpose from him separately. In
connection with the proposition that insurance can be
taken by a third person on behalf of another, reliance has
been placed by the assessee on "Chitty on Contracts"
Twenty-Eight Edition Vol. 2 Special Contracts P.978
Chap. 41 Note 007 under the heading "Insurance of
Another’s interest" . It s indicated that in varied facts
and circumstances and subject to the statutory
provisions of contract, it is possible to ensure the interest
of another. Referring to a decision reported in [1947]
K.B. 685 Prudential Staff Union versus Hall, it is
observed that a seller in possession of the goods when
the property and risks have passed may insure his
buyer’s interest. Referring to a decision reported in
Hepburn versus A. Tomlinson (Hauliers) Ltd. H.L.
(E) 1966 451, it has been submitted on behalf of the
assessee that a bailee apart from its interest may also
insure the interest of the owner of the property. There
may be floating insurance policy covering not only the
limited interest but the whole interest of the ownership of
the customers in the normal course.
To substantiate the point further, a reference to
Para 5-012 at Page 184 of Benjamin’s Sale of
Goods Fourth Edition has been made which is to the
following effect:
"Insurance. The passing of property is rarely
of relevance to insurance. A person can insure
goods to their full value against any loss on
behalf of anyone who may be entitled to an
interest in the goods at the time the loss
occurs, provided that it appears from the terms
of the policy that it was intended to cover their
interest. Also a buyer will have an insurable
interest in goods if they are at his risk, whether
or not the property has passed to him".
From the above passage it is clear that ownership in
the property may not have any relevance in so far
insurance of goods sold during transit is concerned. It
would therefore not be lawful to draw an inference of
retention of ownership in the property sold by the seller
merely by reason of the fact that the seller had insured
such goods during transit to buyer. It is not necessary
that insurance of the goods and the ownership of the
property insured must always go together. It may be
depending upon various facts and circumstances of a
particular transaction and terms and conditions of sale. A
reference has also been made to Colinvauz’s Law of
Insurance, Sixth Edition by Robert Merkin to indicate that
there may be insurance to cover the interest of others
that is to say not necessarily the person insuring the
interest must be the owner of the property.
In one of the cases referred to and reported in
1983 E.L.T. 1896 (S.C.) Union of India and others
etc. etc. versus Bombay Tyre International Ltd.
etc. etc, the question involved was regarding deduction
of transportation charges along with cost of insurance. It
was held as follows:
"Therefore, the expenses incurred on
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account of the several factors which have
contributed to its value upto the date of
sale, which apparently would be the date of
delivery, are liable to be included.
Consequently, where the sale is effected at
the factory gate, expenses incurred by the
assessee upto the date of delivery on
account of storage charges, outward
handling charges, interest on inventories
(stocks carried by the manufacturer after
clearance), charges for other services after
delivery to the buyer, namely after-sales
service and marketing and selling
organization expenses including
advertisement expenses cannot be
deducted. It will be noted that
advertisement expenses, marketing and
selling organization expenses and after sale
service promote the marketability of the
article and enter into its value in the trade.
Where the sale in the course of wholesale
trade is effected by the assessee through its
sales organisatioin at a place or places
outside the factory gate, the expenses
incurred by the assessee upto the date of
delivery under the aforesaid heads cannot
on the same grounds be deducted. But the
assessee will be entitled to a deduction on
account of the cost of transportation of the
excisable article from the factory gate to the
place or p[laces where it is sold. The cost
of transportation will include the cost of
insurance on the freight for transportation
of the goods from the factory gate to the
place or places of delivery".
The assessee also referred to a decision reported in 2002 (49)
RLT 506 - Associated Strips Ltd. & Anr. versus CCE, New
Delhi. It is a decision of CEAGAT. Considering several
decisions of different Courts and the terms of the contract
between the parties, it was held that sale of goods had taken
place at the factory gate and therefore the place of removal was
not the premises of the buyer. In view of the provisions of
Section 23 and Section 39 of the Sale of Goods Act 1930 it was
found that goods to be treated as delivered to buyer and
property and possession of the goods passed on to buyer when
the goods were handed over to transporter. In such a case
element of freight and transit insurance were not to be included
in the normal value of the goods. We approve of the view taken
by the CEGAT.
In view of the discussion held above in our view the
Commissioner of Central Excise and the CEGAT erred in
drawing an inference that the ownership in the property
continued to be retained by the assessee till it was delivered to
the buyer for the reason that the assessee had arranged for the
transport and the transit insurance. Such a conclusion is not
sustainable.
In the result the Civil Appeal No.7230/1999 is allowed and
judgment and order passed by the Commissioner of Central
Excise and the CEGAT imposing duty and penalty is set aside.
Consequently, Civil Appeal No.1163/2000 preferred by the
Revenue does not survive any more and is rendered
infructuous. It is dismissed as such. There would however be
no order as to costs.
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