COMMISSSIONER, CUSTOMS AND CENTRAL EXCISE, AURANGABADversusM/S ROOFIT INDUSTRIES LTD.

                         [2015] 6 S.C.R. 716


A    COMMISSSIONER, CUSTOMS AND CENTRAL EXCISE,
                    AURANGABAD
                                  v.
                   MIS ROOFIT INDUSTRIES LTD.
B                  (Civil Appeal No.5541 of 2004)

                           APRIL23, 2015

                 [A.K. SIKRI AND R. F. NARI MAN, JJ.]
c        Central Excise Act, 1944 - s. 11A(1), 11AB, 11AC -
    Central Excise Rules, 1994 - r. 9(1) - Sales of Goods Act,
    1930 - s. 19 - Central Excise Duty - Evasion of - Non-
    computation of assessable value offinished goods properly
D   - Place of removal of finished goods different from the factory
    gate, however, deduction of the amount of freight, insurance
    and unloading charges from the price excisable goods -
    Demand of differential excise amount - Adjudicating
    Authority confirming the demand on account of under
E   valuation - Said order set aside by the tribunal - On appeal,
    held: On the basis of the terms and conditions of the orders
    placed by the government authorities with the assessee, it is
    clear that the sale of goods did not take place at the factory
    gate of the assessee but at the place of the buyer on the
F   delivery of the goods - The clear intent of the purchase order
    was to transfer the property in goods to the buyer at the
    premises of the buyer when the goods are delivered and by
    virtue of s. 19, the property in goods was transferred at that
    time only- Tribunal did not take into consideration all these
G   aspects- Thus, the order passed by the tribunal is set aside
    and that by the Adjudicating Authority restored.

        Allowing the appeal, the Court

H                                716
       COMMNR., CUSTOMS & CENTRAL EXCISE,                      717
       AURANGABAD v. ROOFIT INDUSTRIES LTD.

     HELD: 1.1 It is to be seen as to what point of time A
sale is effected namely whether it is on factory gate or at
a later point of time i.e. when the delivery of the goods is
effected to the buyer at his premises. This aspect is to
be seen in the light of provisions of the Sale of Goods
Act by applying the same to the facts of each case to B
determine as to when the ownership in the goods is ·
transferred from the seller to the buyer. The charges
which are to be added have put up to the stage of the
transfer of that ownership inasmuch as once the
ownership in goods stands transferred to the buyer, any C
expenditure incurred thereafter has to be on buyer's
account and cannot be a component which would be
included while ascertaining the valuation of the goods
manufactured by the buyer. That is the plain meanin~
                                                             0
which has to be assigned to Section 4 read with
Valuation Rules. [Para 12) [728-D-F]

     1.2 In the instant case, most of the orders placed wit~
the respondent assessee were by the various
Government authorities. On going through the terms and          E
conditions of the order placed by Kerala Water Authority,
it becomes clear that the goods were to be delivered at
the place of the buyer and it is only at that place where
the acceptance of supplies was to be effected. Price of         F
the goods was inclusive of cost of material, central excise
duty, loading, transportation, transit risk and unloading
charges etc. Even transit damage/breakage on the
assessee account which would clearly imply that till the
goods reach the destination, ownership in the goods             G
remain with the supplier namely the assessee. As per
the 'terms of payment' clause contained in the
procurement order, 100% payment for the supplies was
to be made by the purchaser after the receipt and
verification of material. Thus, there was no money given        H
718      SUPREME COURT REPORTS              [2015] 6 S.C.R.


A earlier by the buyer to the assessee and the
  consideration was to pass on only after the receipt of
  the goods which was at the premises of the buyer. It
  would be manifest that the sale of goods did not take
  place at the factory gate of the assessee but at the place
B of the buyer on the delivery of the goods in question.
  The clear intent of the aforesaid purchase order was to
  transfer the property in goods to the buyer at the
  premises of the buyer when the goods are delivered and
  by virtue of Section 19 of Sale of Goods Act, the property
C in goods was transferred at that time only. These are
  clear finding of facts on the said lines recorded by the
  Adjudicating authority. However, the CESTAT did not
  take into consideration all these aspects and allowed the
  appeal of the assessee by merely referring to the
0
  judgment in the case of Escorts JCB Ltd. Obviously the
  exact principle laid down in the judgment has not been
  appreciated by the CESTAT. Thus, the order passed by
  the tribunal is set aside and that passed by the
E Adjudicating Authority is restored. [Para 13, 14, 15, 16)
  [728-G; 729-A-E; 730-A-D]

      Escorts JCB Ltd. v. Commissioner of Central Excise,
  Delhi-112002 (3) Suppl. SCR 261 : (2003) 1 sec 281; VIP
F Industries Ltd. v. Commissioner of Customs and Central
  Excise, Aurangabad (2003) 5 SCC 507; Commissioner of
  Central Excise, Naida v. Accurate Meters Ltd. 2009 (3) SCR
  1146: (2009) 6 sec 52- referred to.

                       Case Law Reference
G
      2002 (3) Suppl. SCR 261     Referred to.     Para4

      (2003) 5 sec 507            Referred to.    Para 10

      2009 (3) SCR 1146           Referred to.    Para 11
H
       CIVIL APPELLATE JURISDICTION: Civil Appeal No.
       COMMNR., CUSTOMS & CENTRAL EXCISE,                      719
       AURANGABAD v. ROOFIT INDUSTRIES LTD.

5541of2004.                                                      A

    From the Judgment and Order no. A/303/W28 2004-C-I
dated 05.03.2004 of the Customs, Excise & Service Tax
appellate Tribunal in Appeal No. E/2397/2002-MUM.
                                                                 8
    N. K. Kaul, ASG, Nisha Bagchi, Akanksha Kaul, S.
Srivastava, 8. Krishna Prasad for the Appellant.

    The Judgment of the Court was delivered by

      A.K. SIKRI, J.1 Respondent is the holder of Central C
Excise Registration for manufacture of RCC and PSC pipes
falling under Chapter Heading 6804/6807 for the first schedule
to the Central Excise Tariff Act, 1985. The respondent entered
into four agreements for designing, manufacturing, providing
at site, laying, jointing and testing of PSC pipes of specified D
sizes. These are agreements dated 24.06.1996, 01.09.1997,
25.09.1997 and 25.05.1999.

     2) It is the case of the Revenue that on the basis of general
intelligence collected, respondent/assessee was indulging in E
evasion of central excise duty by not computing the assessable
value of finished goods properly to the extent that it was
deducting the amount of freight, insurance and unloading
charges from the price excisable goods though the place of
removal of finished goods was different from the factory gate. F
The preventive party visited the factory premises of the
assessee on 25.03.2000, conducted enquiries and resumed
the records for further scrutiny. After scrutiny of various records
and documents, it was revealed that the assessee had
received work orders from various Government authorities and G
private contractors and the agreements entered into by the
assessee with the above mentioned parties were for designing,
manufacturing, providing at site, laying, jointing and testing of
PSC pipes of specified sizes. The agreement entered, H
720            SUPREME COURT REPORTS                   [2015) 6 S.C.R.


A     therefore, entailed upon the assessee, for delivery of the
      finished goods and not at the factory gate. It was found that no
      sale took place till the goods reached the test of the projects.

        3) A show cause notice dated 02.11.2011 was issued as
B to why the differential central excise duty amounting to
  Rs.43,56,318/- for the period of 01.01.1996 to 30.06.2000
  should not be recovered from them under proviso to Section
  11A(1) of the Central Excise Act read with Rule 9(1) of the
  Central Excise Rules, 1994 and why penalty under Section
C 11AC and interest under Section 11AB should not be imposed.
  The assessee replied and was given personal hearing.
  Learned Adjudicating authority vide its order in original
  confirmed the demand to extent of Rs.36, 16,318/- on account
  of under valuation and on the ground that place of removal
D finished goods was the buyer's premises and not at the factory
  gate.

      4) Aggrieved by the said order, the respondent filed an
  appeal before CESTAT. Learned Tribunal vide its impugned
E judgment and final order dated 30.03.2002 has allowed the
  appeal on the reasoning that the issue is settled in Escorts
  JCS Ltd. v. Commissioner of Central Excise, Delhi-II'.

          5) Feeling aggrieved by the aforesaid order of the
F     CESTAT, present appeal is preferred by the Revenue under
      Section 35L(b) of the Act.

      6) The respondent has been duly served in the appeal.
  However, nobody has entered appearance on behalf of the
G respondent. Matter came up for final arguments on 10.04.2015.
  On that day, we heard learned counsel for the appellant for
  some time as the argument remained inconclusive. For
  remaining arguments, matter was adjourned to 13.04.2015.

H     1   2002 (146) ELT 31 (SC)= (2003) 1   sec 281
COMMNR., CUSTOMS &CENTRAL EXCISE, AURANGABAD v. 721
      ROOFIT INDUSTRIES LTD. [A.K. SIKRI, J.]

However, nobody appeared on behalf of the respondent on A
10.04.201'5 and 13.04.2015. In these circumstances, we had
no option but to reserve the matter for judgment after hearing
Mr. Kaul, learnedASG, who appeared for the Revenue.

     7) Insofar as the legal position is concerned, there cannot B
be any dispute about the same. Section 4 of the Act is the
relevant statutory provision which deals with valuation of
.excisable goods for the purpsose of charging of duty of excise.
Relevant portion thereof, as it existed during the period with
which we are concerned, reads as under:                          C

     "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 D
     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 E
     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-
                                                                F
       (i)            •            •             •
       (i-a)          •            •             •
       (ii)           •            •             •              G
       (iii)          •            •             *

       (b)            *            •             •

       (2)-(3)        •            •             •              H
722            SUPREME COURT REPORTS                      (2015] 6 S.C.R.


A               (4) For the purpose of this section,-

                (a)             •              •                 •
                (b) 'place of removal' means:

B               (i)             •              •             •
               (ii) a warehouse or any other place or premises wherein
               the excisable goods have been permitted to be
               deposited without payment of duty.
c
               (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."
D
           8) A contextual examination of the aforesaid provision, for
      the purpose of the present case, would bring out the following
      the pertinent aspects:

        (i)     The duty of excise is chargeable on excisable goods
E               with reference to the value of those goods.

        (ii)    The value of the goods is deemed to be 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
F               course of wholesale trade.

        (iii) The said normal price is to be seen at the time of
              delivery and place of removal.

        (iv) 'Place of removal' is specifically defined and for our
G
             purposes, it is to be a 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.
H
COMMNR., CUSTOMS &CENTRAL EXCISE, AURANGABAD v. 723
      ROOF IT INDUSTRIES LTD. [A.K. SIKRI, J.]

    Thus, place of removal, in a given case, become A
determinative factor for the purpose of valuation.

       9) If the goods are cleared at the factory gate, then the
 excise duty has to be charged on the valuation of the goods to
 be arrived at the factory gate as that would be the place of        B
 removal of goods. It would mean that the expenses which are
 incurred afterthe removal of goods from the factory gate namely
freight, insurance and unloading charges etc. are not to be
 included in the valuation of the goods for the purposes of excise
 duty. The reason is that the sale of goods to the buyer is at the   C
 factory gate when the property passes to the buyer and the
 aforesaid expenditure are thereafter incurred by the buyer. It
 is this aspect which was gone into by this Court in the case of
 Escorts JCS Ltd. (supra). That was a case where question
 of including insurance charges came up for consideration. It        D
was found as a fact that the goods were cleared at the factory
 gate. On these facts, this Court held that insurance charges,
 or for that matter, transport charges would not be included even
 if the assessee had arranged for the transit insurance. The
Court found that the terms and conditions of sale clearly            E
 stipulated that it was ex-works at the factory gate of the
 assessee. The payment was to be made before discharge of
the goods from the factory premises. In the opinion of the Court,
the machinery which was handed over to the career/transporter        F
on receiving the payment was as good as delivery to the buyer
in terms of Section 39 of the Sale of Goods Act and, therefore,
possession of the sold goods was handed over to the buyer at
the factory gate. In this manner, the transaction was full and
complete and nothing remained to be done after the goods             G
left the factory premises. On these facts, provisions of Section
4 of the Act, which deals with valuation of excisable goods for
the purposes of charging of duty of excise was taken note of
and analysed, holding that the aforesaid charges could not be
                                                                     H
724         SUPREME COURT REPORTS                     [2015) 6 S.C.R.


A     included for the purpose of arriving at valuation of excisable
      goods. The Court found fault with the orders passed by the
      authorities as well as CEGAT in the following manner:

                "A perusal of the orders passed by the authorities
B          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
c          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 111ixed up - one relating to the
           transaction of sale of the goods and the other arranging
D          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"
E          Twenty-Eight Edition Vol. 2 Spcial Contracts P.978
           Chap. 41 Note 007 under the heading "Insurance
           of Another's interest''. It is indicated that in varied facts
           and circumstances and subject to the statutory provisions
           of contract, it is possible to ensure the interest of another.
F
           Referring to a decision reported in [19471 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.
G          Referring to a decision reported in Hepburn versus A.
           Tomlinson (Hauliers) Ltd. H.L. <El 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
H
COMMNR.; CUSTOMS &CEt<ffRAL EXCISE, AURANGABAD v. 725
      ROOF IT INDUSTRIES LTD: [A.K. SIKRI. J.]

    policy covering not only the limited interest but the whole    A
    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             s
    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          c
     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      o
     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 E
    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 F
    that insurance of the goods and the ownership of the
    property insured must always go together. It may i:>e
    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 G
    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.
                                                               H
726   SUPREME COURT REPORTS·                    [2015) 6 S.C.R.


A       In one of the cases referred to and reported in 1983
       E.L.T.1896 (S.C.I 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
8      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
c     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 hanrllin!] ,,harges, interest on
      inventories (stocks carried by the manufacturer after
D     clearance), charges for other services after delivery to
      the buyer, namely after-sales service and ma;keting and
      selling organization expenses incuding advertisement
      expenses cannot be deducted. It will be noted that
      advertisement expenses, marketing and selling
E     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,
 F
      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
G
      places 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".
H
COMMNR., CUSTOMS &CENTRAL EXCISE, AURANGABAD v. 727
      ROOFIT INDUSTRIES LTD. [A.K. SIKRI, J.]

     10) The underlying factor that normal price has to be.!he A
price at the time of delivery and at the place of removal, in
terms of Section 4, has been succintly brought out and amplified
in VIP Industries Ltd. v. Commissioner of Customs and
Central Excise, AurangabacP in the following words:
                                                                   B
      "6. We have heard the parties at length. In our view,
      Section 1 has to be read as a whole. Under Section
      4(1 )(a), the normal price is the price at which goods are
      ordinarily sold by the assessee to a buyer in the course
      of wholesale trade for delivery at the time and place of C
                                   '
      removal, where the buyer is not a related person and
      price is the sole consideration for sale. Therefore, the
      normal price is the price at the "time of delivery" and "at
      the place of removal". Before the amendment, the place
      of removal was only the factory or any other place or D
      premises where the excisable goods were produced or
      manufactured or a warehouse or any other place or
      premises where any excisable goods have been
      permitted to be deposited without payment of duty. Thus, E
      the price would be the price at that place. By the
      amendment proviso (i-a) to Section 1,(1)(a) has been
      atlded. Under Section 1,(1 )(a)(i-a) where the price of the
      goods is different for different places of removal, each
      such price was deemed to be the n_ormal price of such F
      goods in relation to "such place of removal". Thus, ifthe
      place of removal was the factory, then the price would be
      the normal price at the factory. If the place of removal
      was some other place like.a depot or the premises of a
      consignment agent and the price was different then that G
      different price would be the price. It is because the newly
      added proviso (i-a) to Section 1.(1 )(a) was now providing
      for different prices at different places of removal that the

2 (2003)   s sec 507                                              H
728         SUPREME COURT REPORTS                  (2015] 6 S.C.R.


A          definition of the term "place of removal" had to be
           enlarged. Thus the amendment was not negativing the
           judgments of this Court. If that had been the intention it
           would have been specifically provided that even where
           price was the same/uniform all over the country, the cost
B          of transportation was to be added."

           11) In Commissioner of Central Excise, Noida v.
      Accurate Meters Ltd. 3 , the Court took note offew decisions
      including in the case of Escorts JCB Ltd. and reiterated the
C     aforesaid principles by emphasising that the place o! removal
      depends on the facts of each case.

        12) The principle of law, thus, is crystal clear. It is to be
  seen as to whether as to at what point of time sale is effected
o namely whether it is on factory gate or at a later point of time
  i.e. when the delivery of the goods is effected to the buyer at
  his premises. This aspect is to be seen in the light of provisions
  of the Sale of Goods Act by applying the same to the facts of
  each case to determine as to when the ownership in the goods
E is transferred from the seller to the buyer. The charges which
  are to be added have put up to the stage of the transfer of that
  ownership inasmuch as once the ownership in goods stands
  transferred to the buyer, any expenditure incurred thereafter
  has to be on buyer's account and cannot be a component which
F would be included while ascertaining the valuation of the goods
  manufactured by the buyer. That is the plain meaning which
  has to be assigned to Section 4 read with Valuation Rules.

      13) In the present case, we find that most of the orders
G placed with the respondent assessee were by the various
  Government authorities. One such order i.e. order dated
  24.06.1996 placed by Kerala Water Authority is on record. On
  going through the terms and conditions of the said order, it

H ' c2009) e sec s2
COMMNR., CUSTOMS &CENTRAL EXCISE, AUPANGABAD v. 729
      ROOFIT INDUSTRIES LTD. [A.K. SIKRI, J.)

becomes clear that the goods were to be delivered at the place A
of the buyer and it is only at that place where the acceptance
of supplies was to be effected. Price of the goods was inclusive
of cost of material, central excise duty, loading, transportation,
transit risk and unloading charges etc. Even transit damage/
breakage on the assessee account which would clearly imply B
that till the goods reach the destination, ownership in the goods
remain with the supplier namely the assessee. As per the
'terms of payment' clause contained in the procurement order,
100% payment for the supplies was to be made by the
purchaser after the receipt and verification of material. Thus, C
there was no money given earlier by the buyer to the assessee
and the consideration was to pass on only after the receipt of
the goods which was at the premises of the buyer. From the
aforesaid, it would be manifest that the sale of goods did not D
take place at the factory gate of the assessee but at the place
of the buyer on the delivery of the goods in question.

     14) The clear intent of the aforesaid purchase order was
to transfer the property in goods to the buyer at the premises
of the buyer when the goods are delivered and by virtue of
Section 19 of Sale of Goods Act, the property in goods was
                                                                   E
                                                                       .
                                                                       .• ,.f,"'

transferred at that time only. Section 19 reads as under:
                                                                       .. , r
     "19. Property passed when intended to pass.-(1) Where
     there is a contract for the sale of specific or ascertained   F
     goods the property in them is transferred to the buyer at
     such time as the parties to the contract intend it to be
     transferred.

     (2) For the purpose of ascertaining the intentior:t. of the   G
     parties regard shall be had to the terms of the contract,
     the-conduct of the parties and the circumstances of the
     case.

     (3)   Unless a different intention appears, the rules         H

                                                                           " . •'
730         SUPREME COURT REPORTS                   [2015] 6 S.C.R.


A          contained in sections 20 to 24 are rules for ascertaining
           the intention of the parties as to the time at which the
           property in the goods is to pass to the buyer."

           15) These are clear finding of facts on the aforesaid lines
s     recorded by the Adjudicating authority. However, the CESTAT
      did not take into consideration all these aspects and allowed
      the appeal of the assessee by merely referring to the judgment
      in the case of Escorts JCB Ltd. Obviously the exact principle
      laid down in the judgment has not been appreciated by the
C     CESTAT.

          16) As a result, order of the CESTAT is set aside and
      present appeal is allowed restoring the order passed by the
      Adjudicating authority.
D NidhiJain                                            Appeal allowed.