Supreme Court of India
COMMISSIONER OF CENTRAL EXCISE, NOIDAversusM/S. ACCURATE METERS LTD.
- Citation
- 2009 INSC 293
- Decided
- 3 March 2009
- Disposal
- Dismissed
- Bench
- S B SINHA
Holding
Freight and insurance charges cannot be included in the value of the electric meters for the purpose of levying excise duty.
Summary
Accurate Meters Ltd supplied electric meters to various State Electricity Boards under two distinct contracts – one for the supply of meters and another for their transportation and insurance. The contracts stipulated that freight and insurance charges would be levied at average rates, not on actual cost, and the meters were priced on an ex‑factory basis. The Commissioner of Central Excise contended that these freight and insurance amounts formed part of the value of the goods for excise duty under Section 4 of the Central Excise Act, 1944 and the Valuation Rules, 2000. The Tribunal and the lower authority held that the charges could not be included, a view affirmed by the Supreme Court, which relied on the Sale of Goods Act and earlier precedents. Consequently, the Court dismissed the appeal, confirming that transportation and insurance charges are excluded from the assessable value of the meters.
Issues considered
- Whether freight and insurance charges are to be included in the value of excisable goods for the purpose of computing excise duty under Section 4 of the Central Excise Act, 1944 and the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
Legislation cited
- Central Excise Act, 1944s. 3, s. 4(1)(a), s. 4(3)(c)
- Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000s. 4, s. 5
Subjects
central excisevaluationfreightinsurancetransaction valuesale of goods actex‑factory priceexcise dutyrule 5place of removal
Judgment
[2009] 3 S.C.R. 1146
A COMMISSIONER OF CENTRAL EXCISE, NOIDA •
v.
MIS. ACCURATE METERS LTD.
(Civil Appeal No. 5901 of 2006)
MARCH 3, 2009
B
[S.B. SINHA, ASOK KUMAR GANGULY AND R.M.
LODHA, JJ.]
Central Excise Act, 1944 - s.4 - Central Excise
c Valuation (Determination of Price of Excisable Goods) Rules,
2000 - rr. 4 and 5 - Two separate contracts entered into by
and between assessee and the State Electricity Boards; one
in respect of supply of electric meters and another for
transportation and transit insurance thereof - Assessee was
D to transport the goods from factory gate to the place of State
Electricity Boards at specified rates - Computation of Excise
Duty - Dispute over valuation of goods - Whether amount
claimed by way of transportation charges and insurance could
be considered for determining the value of the electric meters
E supplied - Held, No.
Goods were supplied by respondent-assessee to the
State Electricity Boards in terms of the stipulations
contained in the advertisements issued by them. Two
separate contracts were entered into by and between the
F respondent and State Electricity Boards therefor; one in
respect of the supply' of the electric meters and another
for transportation and transit insurance thereof.
Whether 'freight' and 'insurance charges' constitute
G the value of the goods for the purpose of computation
of Excise Duty in terms of Central Excise Act, 1944 and
the Central Excise Valuation (Determination of Price of
Excisable Goods) Rules, 2000 is the question involved in
the present appeal.
H 1146
COMMISSIONER OF CENTRAL EXCISE, NOIDA v. M/S. 1147
ACCURATE METERS LTD.
Dismissing the appeal, the Court A
HELD: 1. In the present case, there were two separate
contracts; one for sale of Electricity Meters which was
governed by the provisions of the Sale of Goods Act, and
the other governing transportation of the goods. The
8
charges for transportation of the goods were not on
actual basis. Respondent 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. Prior
thereto, the State Electricity Board Authorities were to C
make inspection of the goods. [Para 12] [1154-F]
2. 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 D
" meters supplied .. (Para 15] [1157-E]
Mis Escorts JCB Ltd. v. CCE, Delhi 2002 (146) ELT 31
(SC}, relied on.
Associated Strips Ltd. vs. Commissioner of Central E
Excise, New Delhi (2002) 143 ELT 131 and Commissioner
vs. Prabhat Zarda Factory Ltd. (2000) 119 ELT 191, referred
" to.
Case· Law Reference: F
2002 (146) ELT 31 (SC) relied on Para 3
(2002) 143 ELT 131 referred to Para 13
(2000) 119 ELT 191 referred to Para 13
G
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
5901 of 2006.
From the Judgment & Order dated 31.12.2004 in Appeal
No. E/4404/04-NB- by the Customs, Excise and Service Tax H
1148 SUPREME COURT REPORTS [2009] 3 S.C.R.
A Appeal Tribunal, Bench-A, West Block No.2, R.K. Puram, New •
Delhi-110066.
Vikas Sharma, Sanjeev K. Bhardwaj and Anil Katiyar for
B. Krishna Prasad for the Appellants.
B Rajesh Chibber and Rajesh Kumar for the Respondents.
The Judgment of the Court was delivered by
S.B. SINHA, J. 1. Whether 'freight' and 'insurance
charges' constitute the value of the goods for the purpose of
c 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.
D 2. 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
E 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
F to be charged on an average basis and not on actuals.
~
Inter 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
G 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
H
COMMISSIONER OF CENTRAL EXCISE, NOIDA v. MIS. 1149
ACCURATE METERS LTD. [S.B. SINHA, J.]
imposed upon it. A
.;.,
3. 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. B
In support of the said contention, reliance was placed on
Mis 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 c
buyer's end. On the said finding, th~ demand raised in the show
cause notice as also the penalty proposed was confirmed.
Respondent preferred an appeal thereagainst before the
• Commissioner (Appeals), which by an order dated 26.5.2004 D
....
was allowed. Appellant preferred an appeal before the
Customs, Excise & Service Tax Appellate Tribunal (CESTAT),
New Delhi which has been dismissed by reason of the
impugned judgment, holding:
"2. The only contention of the Revenue in this case is E
that against the earlier order passed by the
y 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 earlier order passed by the Tribunal. F
In these circumstances, respectfully following the
earlier order passed by the Tribunal, the appeal is
dismissed."
·~.. ~
4. Mr. Vikas Sharma, learned counsel appearing on behalf G
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 shall apply.
H
1150 SUPREME COURT REPORTS [2009] 3 S.C.R.
A 5. Mr. Rajesh Chibber, learned counsel appearing on
behalf of the respondent, however, supported the impugned
judgment. .-.
6. Indisputably, goods were supplied by the assessee to
the State Electricity Boards in terms of the stipulations
B contained in the advertisements issued by them. Two separate
contracts have been entered into by and between the
respondent and State Electricity Boards therefor; one in respect
of the supply of the electric meters and another for
transportation and transit insurance thereof.
c
7. 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.
D
Section 4(1)(a) of the Act reads as under: •
"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
E 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
F 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
transaction value;"
-
"Place of removal" has been defined in Section 4(3){c) to a
G mean:
"(c) "place of removal" means-
(i) a factory or any other place or premises of
production or manufacture of the excisable
H
COMMISSIONER OF CENTRAL EXCISE, NOIDA v. MIS. 1151
ACCURATE METERS LTD. [S.B. SINHA, J.]
goods; A
(ii) a warehouse or any other place on premises
wherein the excisable goods have been
permitted to be deposited without payment
of duty;
B
(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;
c
from where such goods are removed;"
8. 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. D
In the demand-cum-show cause notice issued by the
Assessing Officer itself, it has been noted:
"... In the invoices raised to Government buyers, mainly to E .
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. equalized 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 F
of freight amount, which has been incurred by the supplier
party on sending the goods to the buyers."
9. It was acci:lpted that in the orders placed for supply of
meters, contracted prices pre-determined by the Electric Board G
have inter alia been shown as under:
"(i) Computed prices or Ex-factory have been quoted.
(ii) Prices have been quoted as firm are on F.O.R.
H
1152 SUPREME COURT REPORTS (2009] 3 S.C.R.
A destination.
(iii) The Ex-Factory are quoted without the element of
the Excise duty, sales Tax!Trade Tax and packing,
Forwarding, average Freight and Insurance
charges, which are paid separately.
B
(iv) Packing, Forwarding, average Freight and
Insurance charges covered by supplementary
orders wherein average charges as per meter are
shown."
c
Purchase 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
D 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:
"At the outset, I observe that the issue raised in the S.C.N.
E is whether the element of freight and insurance is
includible in the value of the goods after its clearance from
payment of excise duty. The issue 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
F 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
G place of removal, the value of such goods is to be
determined as per the provisions of Central Excise
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
H section (1) of section 4 of the Act except in circumstance
COMMISSIONER OF CENTRAL EXCISE, NOIDA v. M/S. 1153
ACCURATE METERS LTD. [S.B. SINHA, J.]
in which the excisable goods are sold for delivery at a 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 B
transportation is charged to the buyer in addition to the
price for the goods and shown separately in the invoice
for such excisable goods. If the assessee has a system,
of pricing and sale at uniform prices inclusive of equated
freight for delivery at factory gate or elsewhere, no c
deductions for freight element will be permissible."
Despite 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. D
10. Indisputably, the authority in appeal reversed the said
decision following the judgment of the CESTAT in the case of
the assessee itself, holding:
E
"2. 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 are insured in the appellants
names during transit revenue contends that place F
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.
3. We have carefully perused the case records and
consii~<:red the submissions made by both sides. G
This issue remains settled in favour of the assessee
by the decision of this Tribunal in the case of
Associated Strips (2002 (49) RL T 506). The
appeals are allowed following our previous
decision." H
1154 SUPREME COURT REPORTS [2009) 3 S.C.R.
A 11. Before adverting to the decisions of this Court, we may
notice Rules 4 and 5 of the 'Rules'.
"RULE 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
B of goods under assessment, subject, if necessary, to such
adjustment on account of the difference in the dates of
t
delivery of such goods and of the excisable goods under
assessment, as may appear reasonable.
c RULE 5. 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
D goods shall be deemed to be the transaction value,
excluding the cost of transportation from the place of
removal upto the place of delivery of such excisable
goods."
Rule 5 of the Rules would apply in a case where clause
IE (a) of sub-section (1) of Section 4 of the Act has no application.
12. We have noticed hereinbefore that there were two
separate contracts; one for sale of Electricity Meters which was
governed by the provisions of the Sale of Goods Act, and the
F other governing transportation of the goods. The charges for
transportation of the goods were not on actual basis.
Respondent 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. Prior thereto, the State Electricity Board
G Authorities were to make inspection of the goods.
13. 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
H in Commissioner vs. Prabhat Zarda Factory Ltd. [2000 (119)
COMMISSIONER OF CENTRAL EXCISE, NOIDA v. MIS. 1155
ACCURATE METERS LTD. [S.B. SINHA, J.]
-,/
E.L.T. 191, held: A
"18. In the case of Associated Strips Ltd. the goods
manufactured are inspected by the representative
of the buyer (Electricity Board) and thereafter the
manufacturer had to mark the name of the buyer on
B
the poles before they are handed over to the
transporter. So also in the case of Mauria Udyog
1
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 c
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 un9onditionally D
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.
E
19. We may also refer to the provision contained under
y 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
F
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 G
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
H
1156 SUPREME COURT REPORTS (2009] 3 S.C.R.
A through carrier. On the other hand, as mentioned
earlier, the 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."
14. The said decision of the Tribunal has been approved
by this Court in Mis Escorts JCB Ltd. (supra), stating:
"5. The contention is that the fact that the assessee
arranged for the transit insurance would in no way lead to
c 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
D 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. Section 39 of the Sale of Goods Act reads as under:
E 39. Delivery to carrier or wharfinger:
(1) Where, in pursuance of a contract of sale, the 'f
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
G
seller shall make such contract with the carrier or
wharfinger on behalf of the buyer as may be
rea·sonable 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
H
COMMISSIONER OF CENTRAL EXCISE, NOIDA v. MIS. 1157
.. ACCURATE METERS l TD. [S.B. SINHA, J.J
damaged in course of transit or whilst in the custody A
of the wharfinger, the buyer may decline to treat the
delivery to the carrier or wharfing er as a delivery to
himself, or may hold the seller responsible in
damages.
B
(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
c
be deemed to be at his risk during such sea
transit."
The factual matrix- involved in this case is squarely
applicable to the ratio of the decisions in Mis Associated Strips D
Ltd. (supra) as also Mis Escorts JCB Ltd. (supra).
15. 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
E
the amount claimed by way of transportation charges and
insurance cannot be considered for determining the value of
1
the electric meters supplied.
16. For the reasons aforementioned. there is no merit in
this appeal. It is dismissed accordingly with costs. Counsel's F
fee assessed at Rs.25,000/-.
B.B.B. Appeal dismissed.
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