REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5901 OF 2006

COMMISSIONER OF CENTRAL  EXCISE, NOIDA … APPELLANT

VERSUS

M/S. ACCURATE METERS LTD.       … RESPONDENT

J U D G M E N T

S.B. Sinha, J.

1. Whether ‘freight’ and ‘insurance charges’ constitute the value of the

goods for the purpose of computation of Excise Duty in terms of Central

Excise Act,  1944 (for short,  “the Act”) and the Central Excise Valuation

(Determination of Price of Excisable Goods) Rules,  2000 (for short,  “the

Rules”) is the question involved in this appeal.  

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  Electricity  (Supply)  Act,  1948.   Indisputably,  the  State  Electricity

Boards in terms of advertisements issued in this behalf called for quotation

for supply of electric meters.  The value of the electric meters was to be

fixed as at the factory gate.  Freight and the insurance charges, however, as

stipulated  therein,  were  to  be  charged  on  an  average  basis  and  not  on

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  amounting  to  Rs.9,13,260/-  not  paid  on  freight  and

insurance should not be demanded under Section 11A of the Act along with

interest as payable under Section 11AB thereof as also as to why the penalty

in terms of Rule 25 of Central Excise (No.2) Rules, 2001/Central  Excise

Rules 2002 should not be imposed upon it.  

2

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.

In support of the said contention, reliance was placed on M/s Escorts

JCB Ltd. vs. CCE, Delhi [2002 (146) ELT 31 (SC)].  Distinguishing the said

decision,  the  Adjudicating Authority by an order  dated 5.11.2003 opined

that there were ample reasons to believe that the sale had taken place at the

buyer’s  end.   On the  said finding,  the  demand raised  in  the  show cause

notice as also the penalty proposed was confirmed.   

Respondent  preferred  an  appeal  thereagainst  before  the

Commissioner (Appeals), which by an order dated 26.5.2004 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 that against the earlier order passed by the Tribunal,  the  appeal  has  been filed before  Hon’ble  High  Court.  The  Revenue had not  produced any order passed  by the Hon’ble High Court staying the operation of

3

earlier  order  passed  by  the  Tribunal.   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  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.  

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  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.  

4

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.   

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 reference to their value, then, on each removal of the goods, such value shall-

(a) in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of goods are not related and the price is the sole consideration for the sale, be the transaction value;”

“Place of removal” has been defined in Section 4(3)(c) to mean:

“(c) “place of removal” means-

(i) a factory or any other place or premises of production or manufacture of the excisable goods;

(ii) a warehouse or any other place on premises wherein the 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 be sold after their clearance from the factory;

from where such goods are removed;”

5

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.   

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 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  of  freight  amount,  which  has  been incurred  by  the  supplier  party  on  sending  the goods to the buyers.”

9. It  was  accepted  that  in  the  orders  placed  for  supply  of  meters,

contracted prices pre-determined by the Electric Board have inter alia been

shown as under:

“i) Computed  prices  or  Ex-factory  have  been quoted.

ii) Prices  have  been  quoted  as  firm  are  on F.O.R. destination.

iii) The  Ex-Factory  are  quoted  without  the element of the Excise duty, sales Tax/Trade Tax  and  packing,  Forwarding,  average

6

Freight  and  Insurance  charges,  which  are paid separately.

iv) Packing,  Forwarding,  average  Freight  and Insurance  charges  covered  by supplementary  orders  wherein  average charges as per meter are shown.”

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  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.  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  by the  provisions  of  Section  4  of  the Central Excise Act, 1944, wherein it has been laid down that the value of the goods shall be price at which the goods are not sold by the assessee, for delivery, at the time and place of removal.  In case the  goods  are  not  sold  at  the  time and  place  of removal,  the  value  of  such  goods  is  to  be determined as per the provisions of Central Excise

7

Valuation Rules, 2000.  Further, as per rule 5 of the  Valuation  Rules,  2000,  where  any excisable goods  are  sold  in  the circumstances  specified  in clause (a) of sub section (1) of section 4 of the Act except  in  circumstance  in  which  the  excisable goods are sold for delivery at a place other than the  place  of  removal,  then  the  value  of  such excisable  goods  shall  be  deemed  to  be  the transaction  value.   Excluding  the  actual  cost  of transportation from the place of removal upto the place of delivery of such excisable goods provided the cost of transportation is charged to the buyer in addition  to  the  price  for  the  goods  and  shown separately in the invoice for such excisable goods. 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 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.   

10. Indisputably,  the  authority  in  appeal  reversed  the  said  decision

following the judgment of the CESTAT in the case of the assessee itself,

holding:

“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

8

are insured in the appellants  names during transit  revenue  contends  that  place  of delivery  of  the  goods  should  be  taken  as place  of  removal  and  Central  Excise  duty levied  on  a  value  including  freight  and insurance charges.

3. We have carefully perused the case records and  considered  the  submissions  made  by both  sides.   This  issue  remains  settled  in favour of the assessee by the decision of this Tribunal  in  the  case  of  Associated  Strips (2002  (49)  RLT  506).   The  appeals  are allowed following our previous decision.”

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  of  goods  under assessment,  subject,  if  necessary,  to  such adjustment  on  account  of  the  difference  in  the dates  of  delivery  of  such  goods  and  of  the excisable goods under assessment, as may appear reasonable.  

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  goods shall  be  deemed  to  be  the  transaction  value, excluding the cost of transportation from the place

9

of  removal  upto  the  place  of  delivery  of  such excisable goods.”

Rule 5 of the Rules would apply in a case where clause (a) of sub-

section (1) of Section 4 of the Act has no application.   

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 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  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  in  Commissioner  vs.  Prabhat  Zarda

Factory Ltd. [2000 (119) E.L.T. 191, held:

“18. In  the  case  of  Associated  Strips  Ltd.  the goods  manufactured  are  inspected  by  the representative  of  the  buyer  (Electricity

10

Board) and thereafter the manufacturer had to mark the name of the buyer on the poles before  they  are  handed  over  to  the transporter.  So  also  in  the  case  of  Mauria Udyog Ltd. the LPG cylinders manufactured by  the  appellant  are  inspected  by  the representatives of the oil companies.  After getting  test  certificate  from the  Bureau  of India Standards Cylinders are to be marked with the name of the oil  companies before they are handed over to the transporter for the purpose of transmission to the buyer.  In the  light  of  the  provisions  contained  in Section 23, it has to be taken that the goods are  unconditionally  appropriated  to  the contract  when  the  above  procedure  was followed  and  goods  handed  over  to  the carrier  thus  passing on the property in the goods to the buyer.

19. We  may  also  refer  to  the  provision contained  under  Section  39  of  the Sale  of goods Act which refers to the legal effect of delivery  of  the  goods  to  a  carrier  by  the seller.   It  is  provided  that  where,  in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose  of  transmission  to  the  buyer,  is prima facie deemed to be a delivery of the goods  to  the  buyer  AIR  1966  Patna  346, admittedly,  in  the  present  case  after appropriation  of  the  good  to  the  contract they  were  delivered  to  the  carrier  as  per terms of the contract.  Therefore, delivery to the  carrier  has  to  be  taken  as  delivery  to buyer.  Revenue has no case that the goods are not sent to the buyer through carrier.  On the  other  hand,  as  mentioned  earlier,  the

11

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

M/s 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 an inference that the ownership in the goods was retained by the assessee during the period of the transit  until  the delivery of the goods  at  the  place  of  the  buyer.  The  terms  and conditions of the sale are clear that the sale is Ex- works at Ballabgarh, Haryana. The payment is to be  made  before  despatch  of  the  goods  from the factory premises.  The machinery, handed over to the carrier/transporter is as good as delivery to the buyer in terms of Section 39 of the Sale of Goods Act  apart  from  terms  and  conditions  of  sale. Section  39  of  the  Sale  of  Goods  Act  reads  as under:

39. Delivery to carrier or wharfinger:

(1) 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,

12

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 the nature of the goods and the other  circumstances  of  the  case.  If  the seller omits so do, and the goods are lost or damaged in course of transit or whilst in  the  custody  of  the  wharfinger,  the buyer may decline to treat the delivery to the carrier or wharfinger as a delivery to himself,  or  may  hold  the  seller responsible in damages.

(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.”

The factual matrix involved in this case is squarely applicable to the

ratio  of  the  decisions  in  M/s  Associated  Strips  Ltd. (supra)  as  also  M/s

Escorts JCB Ltd. (supra).   

13

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 the amount claimed by way of transportation

charges and insurance cannot be considered for determining the value of the

electric meters supplied.

16. For the reasons aforementioned, there is no merit in this appeal.  It is

dismissed accordingly with costs.  Counsel’s fee assessed at Rs.25,000/-.   

……………………………….J. [S.B. Sinha]

..…………………………..…J. [Asok Kumar Ganguly]

……………………………….J. [R.M. Lodha]

New Delhi; MARCH 03, 2009

14