Escorts JCB Limited, Commissioner of Central Excise, Delhi Vs. Commissioner of Central Excise
Delhi-II, M/S. Escorts JCB  Insc 443 (24 October 2002)
Variava & Brijesh Kumar. Brijesh Kumar, J.
Appeal (civil) 1163 of 2000
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:
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.
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 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.
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.
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
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
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.
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.
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 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.
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.
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
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, 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 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.
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.
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 connection is
Section 4 of the Act, as it existed then is quoted below:
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.
that- (i).-------------- (ia)------------- (ii)--------------
(iii)------------- (b)-------------- (2) ---------------- (3) ----------------
(4) For the purpose of this Section" (a) ------------- (b) "Place of
--------------- (ii) a warehouse or any other place or 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 factory
and from where such goods are removed.
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.
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 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  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.
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.
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:
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".
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
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, the question involved was regarding deduction of transportation charges
along with cost of insurance. It was held as follows:
the expenses incurred on 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.
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.
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
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.
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.
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.
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.