M/S. ESCORTS JCB LTD.versusCOMMISSIONER OF CENTRAL EXCISE, DELHI-II

                       MIS. ESCORTS JCB LTD.                                         A
                                 v.
              COMMISSIONER OF CENTRAL EXCISE, DELHI-II

                               OCTOBER 24, 2002

                  [S.N. VARIA VA AND BRIJESH KUMAR, JJ.]                             B


          Central Excise Act, 1944; Sections 2h, 4 & JJA:

          Assessment ofduty on transit insurance ofgoods sold-Payment of duty-
    Liability of seller-Held, sale was complete at the gate offactory of assessee-   C
    manufacturer when the goods were handed over to buyer-Hence, it is not


-   appropriate to include freight and insurance in the normal value of the goods
    for the purpose of assessment of duty.

          Sale of Goods Act, 1930; Sections 23 and 39.
                                                                                     D
            Goods delivered to carrier/Buyer's representative-Transit Insurance
    on goods arranged by seller-Ownership in goods in transit-Held, it is not
    lawful to draw an inference that ownership in the goods is retained by the
    seller.

          Revenue-respondent visited the factory of the assessee-appellant and
                                                                                     E
    found that amount of transit insurance charges was not added to the value
    of certain goods sold and, after issuing show cause notice, imposed excise
    duty and levy of penalty. On appeal, CEGAT confirmed imposition of duty
    but reduced the penalty. Hence these cross appeals.
                                                                                     F
           It was contended for the appellant that ownership rights in the goods
    sold passed on to the buyer during transit. The seller is not liable to pay
    duty on transit insurance only because it was arranged by the assessee-
    seller.

        Allowing the appeal of the assessee and dismissing the appeal of the         G
    Revenue, the Court

         HELD: I.I. 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
                                         261
                                                                                     H
    262                    SUPREME COURT REPORTS [2002) SUPP. 3 S.C.R.

A Tribunal's reasoning that since the transit insurance was arranged by the
  assessee, the ownership of the goods was retained by the assessee until it
  reaches 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, seems to be untenable. The
B 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.
                                                          [266-E; 267-F, GI

          Prudential Staff Union v. Hall, (1947) K.B. 685 and Hepburn v. A.
C Tomlinson (Hauliers) Ltd H.L. (E), (1966) 451, referred to.
          "Chitty on Contracts" Twenty-Eighth Edition Vol.2 Special Contracts
    P. 978, referred to.

        1.2. It would not be lawful to draw an inference of retention qf
D 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 t!lrms and conditions
  of sale. [268-F, G)
E
          Sale of Goods (Fourth Edition) by Benjamain, referred to.

        2. When sale of goods had taken place at the factory gate, the place
  of removal was not the premises of the buyer. In view of the provisions of
  Sections 23 and 39 of the Sale of Goods Act, 1930 the goods are to be
F 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. Thus, in the instant case, the
  Commissioner of Central Excise and the CEGAT erred in drawing an
G inference that the ownership in the property continued to be retained by
  the assessee till it was delivered to the buyer at his place for the reason
  that the assessee had arranged for the transport and the transit Insurance.
  Such a conclusion is not sustainable. [269-F, G, H; 270-AI

         Union of India and Ors. etc. etc. v. Bombay Tyre International Ltd. etc.
H etc., (1983) E.L.T. 1896 (S.C.), referred to.
      MIS. ESCORTS JCB LTD r. COMMR. OF CENTRAL EXCISE [BRIJESH KUMAR, .I.] 263

           Associated Strips ltd. and Anr. v. CCE, New Delhi, (2002) (49) RLT A
     506, approved.

             CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7230 of
     1999.

          From the Judgment and Order dated 24.8.99 of the Central Excise, B
     Customs and Gold (Control) Appellate Tribunal, New Delhi in A.No~ El
     2800/98-A in F.O. No. 1222 of 1999-A.

                                        WITH

             C.A. No. 1163 of 2000.                                               c
           Mukul Rohtagi, Additional Solicitor General, T.R. Andhyarujina, K.
     Parasaran, Joseph Vellapally, T.L.V. Iyer, Ravinder Narain, Rajan Narain,
     Ms. Sonu Bhatnagar, Amit Bhagat, Ajay Agarwal, V. Lakshmikumaran,
     A.R. Madhav Rao, Alok Yadav, Vishwanath Shukla, V. Balachandran,
     Pradeep Ranjan Tiwary, Santosh Kumar, Rakesh K. Sharma, Rajesh Kumar, D
'-   Y.K. Kumar, N.K. Bajpai, K.C. Kaushik, Hemant Sharma and B.K. Prasad
     for the appearing parties.

             The Judgment of the Court was delivered by

         . BRIJESH KUMAR, J. The appeals indicated above, arise out of E
     judgment and order dated .24.8.1999 passed by the Customs Excise and Gold
     (Control) Appellate Tribunai (For short 'CEGAT'), operative part of which
     reads as under:

                   "In the result we dispose of this appeal by confirming the order F
              of the Commissioner imposing a duty of Rs. 29,65,532 under Rule
              '9(2) of the Central Excise Rules, 1944 read with Section 11 A of the
              Act, set aside that part of the order which imposed duty amount to
               Rs. 98,219 and reduce the penalty to Rs. I 0 lakhs under Section 11 AC
              of the Act"                  '
                                                                                  G
     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 H
    264                     SUPREME COURT REPORTS (2002) SUPP. 3 S.C.R.

A penalty to Rs. I0 lakhs as imposed under Section 11 Act 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
B transit risks in the name of M/s. Escorts JCB Ltd. and their bankers appear
  in th°e 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
C 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. It also said
  that Section I IA of the Act is attracted for extending the period upto 5 years
D for demanding the central excise duty. The assessee was also noticed as to
  why penalty under Section l IAC 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
E 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
F 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 CEGA T upheld the view taken by the
  Commissioner, Central Excise in so far it related to completion of the
G 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
H passed on to the buyer during transit but only on delivery of goods at the
 MIS. ESCORTS JCB LTD. v. COMMR. OF CENTRAL EXCISE [BRIJESH KUMAR, J.] 265

buyer's place, is unsustainable. It is submitted that the assessees manufacture A
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 B
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 C
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 ifthe D
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 wou1d separately
 charge the customer. Our attention has also been drawn to some of the copies E
 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.                                        F

      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       G
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. Section 39 of Sale of Goods Act reads as under:
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    266                     SUPREME COURT REPORTS [2002] SUPP. 3 S.C.R.

A          39. Delivery to carrier or wharfinger :

           (I) 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
           ~ransmission to the buyer, or delivery of the goods to wharfinger for
B          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 th.e nature of the goods and the
C          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 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.

D          (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.
E
          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 connection is Section 4 of the Act, as it existed then is quoted below:

F          "Section 4. Valuation of excisable goods for purposes of charging of
           duty of excise. • (I) 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
G              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-
H               (i). - - - - -
 M/S. ESCORTS JCB LTD. v. COMMR. OF CENTRAL EXCISE [BRIJESH KUMAR, J.] 267

            (ia)-----                                                             A
            (ii) - - - - -

            (iii)-----

            (b)----
                                                                                  B
       (2)-----

       (3)-----

       (4) For the purpose of this Section"

            (a)----
                                                                                  c
            (b) "Place of removal'' means:

                 (i)

                 (ii) a warehouse or any other place or premises wherein the      D
                      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    E
                       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          F
goods to the carrier after clearance is at the factory at Ballabgarh.

      A perusal of the orders passed by the authorities and the CEGA T 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 tfre. reasoning that otherwise there       G
would be no ·occasion for the seller namely, !Qe 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     H
    268                      SUPREME COURT REPORTS [2002] SUPP. 3 S.C.R.

A 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. 41Note007 under the heading "Insurance ofAnother'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
B another. Referring to a decision reported in [1947] K.B. 685 Prudential Staff
    Union v. 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 v. 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.
C   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:
D
             "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
E         , 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
F   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
G   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.)
H   Union of India and Ors. etc. etc. v. Bombay Tyre International ltd. etc. etc.,
 MIS. ESCORTS JCB LTD. v. COMMR. OF CENTRAL EXCISE [BRIJESH KUMAR, J.] 269

the question involved was regarding deduction of transportation charges along    A
with cost of insurance. It was held as follows:

       "Therefore, 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.
       Consequently, where the sale is effected at the factory gate, expenses    B
       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       C
       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 organisation at a place or
       places outside the factory gate, the expenses incurred by the assessee    D
       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 places where it is sold.
       The cost of transportation will include the cost of insurance on the      E
       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. and Anr. v. CCE, New Delhi. It is a decision of
CEA GA T. Considering several decisions of different Courts and the terms of     F
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    G
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 CEGA T.

     In view of the discussion held above in our view the Commissioner of
Central Excise and the CEGA T erred in drawing an inference that the
ownership in the property continued to be retained by the assessee till it was H
    270                    SUPREME COURT REPORTS [2002] SUPP. 3 S.C.R.

A 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/
B 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.

    S.K.S.
                                                    CA. No. 7230/99 allowed.
                                                 CA. No. 1163/2000 dismissed.