of Central Excise,Noida Vs. M/S. Accurate Meters Ltd.  INSC 457 (3 March
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 5901 OF
2006 COMMISSIONER OF CENTRAL EXCISE, NOIDA ...
Whether `freight' and `insurance charges' constitute the value of
the goods for the purpose of computation of Excise Duty in terms of Central
Excise Act, 1944 (for short, "the Act") and the Central Excise
Valuation (Determination of Price of Excisable Goods) Rules, 2000 (for short,
"the Rules") is the question involved in this appeal.
Respondent is engaged in the manufacture of `electric meters' and
parts thereof falling under Chapter Sub-heading No. 9028.00 and 9033.00 of
First Schedule to the Central
Excise Tariff Act, 1985. Its customers, inter alia,
are various State Electricity Boards constituted and incorporated under the Electricity
(Supply) Act, 1948. Indisputably, the State
Electricity Boards in terms of advertisements issued in this behalf called for
quotation for supply of electric meters. The value of the electric meters was
to be fixed as at the factory gate. Freight and the insurance charges, however,
as stipulated therein, were to be charged on an average basis and not on
alia on the premise that the manufactured goods were actually delivered to the
purchasers at their premises and not at the factory gate, a notice dated
6.2.2003 was issued to the assessee asking it to show cause as to why excise
duty amounting to Rs.9,13,260/- not paid on freight and insurance should not be
demanded under Section 11A of the Act along with interest as payable under
Section 11AB thereof as also as to why the penalty in terms of Rule 25 of
Central Excise (No.2) Rules, 2001/Central Excise Rules 2002 should not be
imposed upon it.
Before the Adjudicating Authority, the respondent raised a plea
that keeping in view the nature of transaction, freight and insurance charges
were not to be included for the purpose of calculation of value of the goods.
support of the said contention, reliance was placed on M/s Escorts JCB Ltd. vs.
CCE, Delhi [2002 (146) ELT 31 (SC)]. Distinguishing the said decision, the
Adjudicating Authority by an order dated 5.11.2003 opined that there were ample
reasons to believe that the sale had taken place at the buyer's end. On the
said finding, the demand raised in the show cause notice as also the penalty
proposed was confirmed.
preferred an appeal thereagainst before the Commissioner (Appeals), which by an
order dated 26.5.2004 was allowed.
preferred an appeal before the Customs, Excise & Service Tax Appellate
Tribunal (CESTAT), New Delhi which has been dismissed by reason of the impugned
The only contention of the Revenue in this case is that against the earlier
order passed by the Tribunal, the appeal has been filed before Hon'ble High
Court. The Revenue had not produced any order passed by the Hon'ble High Court
staying the operation of 4 earlier order passed by the Tribunal. In these
circumstances, respectfully following the earlier order passed by the Tribunal,
the appeal is dismissed."
Mr. Vikas Sharma, learned counsel appearing on behalf of the
appellant would urge that the finding of fact arrived at by the authority in
original that the delivery of manufactured goods were made by the assessee at
the place of the buyer's end having not been overturned, Rule 5 of the Rules
Mr. Rajesh Chibber, learned counsel appearing on behalf of the
respondent, however, supported the impugned judgment.
Indisputably, goods were supplied by the assessee to the State
Electricity Boards in terms of the stipulations contained in the advertisements
issued by them. Two separate contracts have been entered into by and between
the respondent and State Electricity Boards therefor;
respect of the supply of the electric meters and another for transportation and
transit insurance thereof.
Section 3 of the Act provides for levy and collection of duty in
the manner as prescribed therein. Section 4 provides for valuation of excisable
goods for purposes of charging of duty of excise.
4(1)(a) of the Act reads as under:
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 their value, then, on each removal of the goods, such value
shall- (a) in a case where the goods are sold by the assessee, for delivery at
the time and place of the removal, the assessee and the buyer of goods are not
related and the price is the sole consideration for the sale, be the
of removal" has been defined in Section 4(3)(c) to mean:
"place of removal" means- (i) a factory or any other place or
premises of production or manufacture of the excisable goods;
warehouse or any other place on premises wherein the excisable goods have been
permitted to be deposited without payment of duty;
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
where such goods are removed;"
Indisputably, a place where excisable goods are sold can be a
place of removal. The question, therefore, what would constitute a place of
removal will depend upon the fact of each case.
demand-cum-show cause notice issued by the Assessing Officer itself, it has
the invoices raised to Government buyers, mainly to Electric Boards, amount of
freight and insurance, which is to be recovered from such buyers is shown
separately. It is at a fixed rate i.e.
freight. It indicates that if the goods are cleared to government buyers, the
`freight and insurance' amounts are borne by the supplier party but it is
recovered from the buyer at a fixed rate irrespective of freight amount, which
has been incurred by the supplier party on sending the goods to the
It was accepted that in the orders placed for supply of meters,
contracted prices pre-determined by the Electric Board have inter alia been
shown as under:
Computed prices or Ex-factory have been quoted.
Prices have been quoted as firm are on F.O.R. destination.
Ex-Factory are quoted without the element of the Excise duty, sales Tax/Trade
Tax and packing, Forwarding, average 7 Freight and Insurance charges, which are
Packing, Forwarding, average Freight and Insurance charges covered by
supplementary orders wherein average charges as per meter are shown."
orders provided for ex-factory prices as Firm on F.O.R., destinations which are
inclusive of excise duty, sales tax, packing, forwarding, freight and insurance
charges. In the price and delivery schedule, average price was to be paid per
meter as shown separately including freight charges. It was opined that the
freight amount being collected was not on actual basis. The Authority in
original also noticed the said fact in his order dated 5.11.2003, stating:
the outset, I observe that the issue raised in the S.C.N. is whether the
element of freight and insurance is includible in the value of the goods after
its clearance from payment of excise duty.
pertains to the sale of goods after its clearance from the factory gate. As per
the Central Excise Act, the valuation of the goods is governed by the
provisions of Section 4 of the Central Excise Act, 1944, wherein it has been
laid down that the value of the goods shall be price at which the goods are not
sold by the assessee, for delivery, at the time and place of removal. In case
the goods are not sold at the time and place of removal, the value of such
goods is to be determined as per the provisions of Central Excise 8 Valuation
Rules, 2000. Further, as per rule 5 of the Valuation Rules, 2000, where any
excisable goods are sold in the circumstances specified in clause (a) of sub
section (1) of section 4 of the Act except in circumstance in which the
excisable goods are sold for delivery at a place other than the place of
removal, then the value of such excisable goods shall be deemed to be the
transaction value. Excluding the actual cost of transportation from the place
of removal upto the place of delivery of such excisable goods provided the cost
of transportation is charged to the buyer in addition to the price for the
goods and shown separately in the invoice for such excisable goods.
assessee has a system, of pricing and sale at uniform prices inclusive of
equated freight for delivery at factory gate or elsewhere, no deductions for
freight element will be permissible."
the same, however, it arrived at a conclusion that the sale had taken place at the
end of the buyer on the premise that the legal ownership of the goods would
pass to the buyer at the latter's place.
Indisputably, the authority in appeal reversed the said decision
following the judgment of the CESTAT in the case of the assessee itself,
The appellants sell the goods manufactured by them on ex-factory price basis.
They also arrange the transport and transit insurance of the goods. Because the
goods 9 are insured in the appellants names during transit revenue contends
that place of delivery of the goods should be taken as place of removal and
Central Excise duty levied on a value including freight and insurance charges.
have carefully perused the case records and considered the submissions made by
both sides. This issue remains settled in favour of the assessee by the
decision of this Tribunal in the case of Associated Strips (2002 (49) RLT 506).
The appeals are allowed following our previous decision."
Before adverting to the decisions of this Court, we may notice Rules
4 and 5 of the `Rules'.
4. The value of the excisable goods shall be based on the value of such goods
sold by the assessee for delivery at any other time nearest to the time of the
removal of goods under assessment, subject, if necessary, to such adjustment on
account of the difference in the dates of delivery of such goods and of the
excisable goods under assessment, as may appear reasonable.
Where any excisable goods are sold in the circumstances specified in clause (a)
of sub- section (1) of section 4 of the Act except the circumstances in which
the excisable goods are sold for delivery at a place other than the place of
removal, then the value of such excisable goods shall be deemed to be the
transaction value, excluding the cost of transportation from the place 10 of
removal upto the place of delivery of such excisable goods."
Rule 5 of
the Rules would apply in a case where clause (a) of sub- section (1) of Section
4 of the Act has no application.
We have noticed hereinbefore that there were two separate
sale of Electricity Meters which was governed by the provisions of the Sale of
Goods Act, and the other governing transportation of the goods.
charges for transportation of the goods were not on actual basis.
was bound to transport the goods from the factory gate to the place of the
State Electricity Boards at the rates specified in the tender.
thereto, the State Electricity Board Authorities were to make inspection of the
In the case of Associated Strips Ltd. vs. Commissioner of Central
Excise, New Delhi reported in [2002 (143) E.L.T. 131], the Tribunal
distinguishing its earlier decision in Commissioner vs. Prabhat Zarda Factory
Ltd. [2000 (119) E.L.T. 191, held:
In the case of Associated Strips Ltd. the goods manufactured are inspected by
the representative of the buyer (Electricity 11 Board) and thereafter the
manufacturer had to mark the name of the buyer on the poles before they are
handed over to the transporter. So also in the case of Mauria Udyog Ltd. the
LPG cylinders manufactured by the appellant are inspected by the
representatives of the oil companies. After getting test certificate from the
Bureau of India Standards Cylinders are to be marked with the name of the oil
companies before they are handed over to the transporter for the purpose of
transmission to the buyer. In the light of the provisions contained in Section
23, it has to be taken that the goods are unconditionally appropriated to the
contract when the above procedure was followed and goods handed over to the
carrier thus passing on the property in the goods to the buyer.
may also refer to the provision contained under Section 39 of the Sale of goods
Act which refers to the legal effect of delivery of the goods to a carrier by
the seller. It is provided that 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, is prima facie deemed to be a delivery of the goods
to the buyer AIR 1966 Patna 346, admittedly, in the present case after
appropriation of the good to the contract they were delivered to the carrier as
per terms of the contract. Therefore, delivery to the carrier has to be taken
as delivery to buyer. Revenue has no case that the goods are not sent to the
buyer through carrier. On the other hand, as mentioned earlier, the 12 only
contention raised is that since the insurance of the goods in transit. At this
juncture we may point out that in the case of Mauria Udyag Ltd. there is no
insurance taken by the seller."
The said decision of the Tribunal has been approved by this Court
in M/s Escorts JCB Ltd. (supra), stating:
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
conditions of sale.
39 of the Sale of Goods Act reads as under:
Delivery to carrier or wharfinger:
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, 13 is prima facie deemed
to be a delivery of the goods to the buyer.
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 do, and the goods are lost or damaged in course of
transit or whilst in the custody of the wharfinger, 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.
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."
factual matrix involved in this case is squarely applicable to the ratio of the
decisions in M/s Associated Strips Ltd. (supra) as also M/s Escorts JCB Ltd.
In that view of the matter and for the reasons stated
hereinbefore, we have no doubt in our mind that the authority in appeal as also
the Tribunal were correct in their view that the amount claimed by way of
transportation charges and insurance cannot be considered for determining the
value of the electric meters supplied.
For the reasons aforementioned, there is no merit in this appeal.
It is dismissed accordingly with costs. Counsel's fee assessed at Rs.25,000/-.
.....................................J. [S.B. Sinha]
.....................................J. [Asok Kumar Ganguly]
.....................................J. [R.M. Lodha]