Bayer Abs Ltd. Vs. the Commissioner of Central - Court Judgment

Excerpt:
1. the appellants have been engaged in the manufacture of abs resins falling under heading 39.03. as these goods are used in the manufacture of telephone, house hold appliances, computer appliance, automobile parts, writing instructions, etc., the customers of the appellants also availed invariably modvat credit of the duty so paid by appellants on their final products. (a) during the period october 1996 to 31.5.96, (the period of demand is from oct 96 to june 2000) the appellants, as submitted, used to sell the excisable goods directly to the customers/dealers from their factory. however, from 1.6.99 the appellant had adopted two channels for marketing the goods. in the first channel, they entered into agreement with some 10 or 12, parties termed consignment stockist. in this case,.....

Judgment:
1. The appellants have been engaged in the manufacture of ABS resins falling under Heading 39.03. As these goods are used in the manufacture of Telephone, House Hold Appliances, Computer Appliance, Automobile parts, Writing instructions, etc., the customers of the appellants also availed invariably modvat credit of the duty so paid by appellants on their final products.

(a) During the period October 1996 to 31.5.96, (the period of demand is from Oct 96 to June 2000) the appellants, as submitted, used to sell the excisable goods directly to the Customers/Dealers from their factory. However, from 1.6.99 the appellant had adopted two channels for marketing the goods. In the first channel, they entered into agreement with some 10 or 12, parties termed consignment stockist. In this case, goods were insured by the appellants up to the premises the consignment stockists. Similarly the freight from the appellant's factory to the premises of the consignment stockists was also borne by the appellants and was included in the assessable value for payment of excise duty. In the second channel, the appellants supplied the goods from their factory to the customers directly. In such cases, it was agreed upon between the appellant and the customers, that the appellants would charge a pre-fixed amount towards 'average freight' and 'insurance' in addition to basic price, which was ex-factory gate sale price. For the purpose of payment of excise duty, the appellant did not include in the assessable value, the aforesaid average freight and insurance amount due to an understanding that the freight/insurance amount was not includible, if incurred and charged separately for transportation of the excisable goods from the place of removal (the appellants' factory in such case) to the place of delivery (the customers premises).

(b) A show cause notice dated 29/10/2001 demanding duty for the period October, 1996 to June, 2000 on equalised freight, collected by the assessee, was issued on the grounds- (i) While the assessee had declared that goods are sold at the factory gate they had mis-declared the fact of collecting 'equalised freight' from the customers. In the declaration made, they had stated that the price included transportation charges.

(ii) It was found that insurance policy had been taken, from time to time, to cover the risk, of damage to the goods in transit up to the premises of the customers.

(iii) From the contract dated 1.6.99, between the assessee and one of the consignment stockists, M/s. Mansuklal Vanmalidas & Company, it could be seen goods not sold could be transferred to another person for consequent sale, insurance for the stock held by stockists was to be borne by the assessee on actual basis. The assessee was also required to bear freight and insurance cost from the factory to the warehouse of the stockist which would indicate that the assessee had not relinquished ownership of the goods till the buyer's premises.

(c) In this view, it was alleged that since the ownership of the goods continued to be with the assessee and actual sale of excisable goods had taken place only at buyer's premises, then value of goods at the place where it was sold should have been taken for assessment. Thus, the price charged, by the assessee from wholesale buyers, for the purpose of duty, should also included equalised freight so recovered.

(d) The show cause notice was inter alia contested on merits and on limitation. The Commissioner rejected both the pleas to confirm the demand.

(e) When the matter was herd the learned Advocate for the appellants took us to the following findings of the Commissioner on the plea of limitations.

"I have carefully considered the above plea of the assessee. I find that this plea of the assessee is not correct. I have carefully gone through the declaration filed by them under Rule 173C of the Central Excise Rules. I find that the assessee has declared the place of removal as the factory gate and under the General information column they have declared that the transport charges upto the place of removal is included in the sale price. I find that the assessee has at no point of time declared to the department that the goods sold by them have been insured for any damage/loss in transit, thereby retaining the property in the goods. By insuring the goods in transit for any damage/loss, the assessee has retained the ownership of the goods till they reach the destination. In this connection, I have also gone through the Contract relied upon in the show cause notice. I find that it is clearly mentioned therein that the company (assessee, in this case) shall bear the cost of freight and insurance from the factory of the company to the warehouse/godown of the consignment stockist. It further elaborates that in case the consignment stockist is not able to sell the goods within a specified period, the assessee shall be at liberty to transfer such goods to another agent or sell such goods directly, thereby clearly establishing the ownership of the goods of the noticee. The insurance policy taken out by the assessee also shows the name of the assessee as the assured party. I find that all these material facts that the actual sale of the goods was taking place at the consignment stockist's/customer's premiers and not at the factory gate with an intention to evade payment of duty. I therefore find that extended period of five years is invokable in this case and the demand does not suffer by limitation. They have not shown any evidence that the issue raised in the show cause notice was ever examined earlier or was disclose by them to any Central Excise Authority. Hence extended period is fully applicable for recovery of duty short paid." & submissions made on this account, as recorded, in the impugned order as follows:- "The show cause notice is patently time bared. The show cause notice dated 29.10.2001 relates to the period from Oct '96 to June 2000.

The amount of freight charges was clearly shown by the appellant in their Central Excise invoices. In their declaration filed under Rule 173C also they had indicated the fact about collection of such freight charges. The question whether the place of removal is appellant's factory or the customers premises is the pure question of interpretation involving meaning and scope of Section 4 as amended w.e.f 29.6.96 and Section 2(h) of the Central Excise Act, 1944. The legal position about correct place of removal to be considered in case of insurance coverage taken by the manufacturer, was made clear for the first time after pronouncement of the judgment of the Hon'ble Tribunal in case of Escorts JCB Ltd. v. CCE vide MF (DR) CBE&C Circular No. 533/29/00-CX (F. 383/124/99-JC) dated 24.5.2000. In fact the legal position on this highly complicated legal issue came to be further analysed in the Larger Bench of the Hon'ble Tribunal in case of Prabhat Zarda Factory Ltd. in or around May 2000. This authoritative pronouncements came to the surface and settled he law on the issue for the first time in or around May 2000. Consequently it is quite evident that this is not a case of any willful suppression of facts, etc. with an intent to evade payment of duty. This is rather a case of interpretation of law about which the correct position in law came to be pronounce for the firs time in or around May 2000 vide the aforesaid Board Circular. Any short levy, even if assumed to be existing, cannot, therefore, be brought within the larger limitation period by alleging suppression of facts etc. in a case like this. This is a case of bonafide contention, an so even if such bonafide contention is not upheld, resulting into the alleged short levy, the larger limitation period cannot be invoked. This apart, the Central excise invoices were statutory document which were made available to the Range Office at all times during the relevant period. All these documents including Insurance Policy were also scrutinized and verified by the Central Excise Audit team, and other officer from the Range, Preventive, etc. wings from time to time. It is not open to the department to pretend ignorance thereof at this belated stage with an oblique motive of taking shelter of longer limitation period for clinging to an otherwise time barred demand." 2. After considering the submissions and material on record it is found- (a) The Apex Court in the case of Escorts JCB Ltd. v. Commissioner of Central Excise, Delhi-II reported in 2002 (53) RLT 1 (S.C.) held that the question of ownership in the property may not have any relevance in so far insurance of goods sold during transit is concerned. It would therefore not be lawful to draw an inference of retention of ownership in the property sold by the seller merely by reason of the fact that the seller had insured such goods during transit to buyer. It was further held that it was 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 and thereafter they allowed the Civil appeals after setting aside the duty and penalty and held that Revenue's appeal did not survive. The Commissioner vide his impugned order had relied upon the said case of Escort JCB Ltd. (2001 (180) ELT 650 of the Tribunal, which has been set aside by the Apex Court. In view of the law, nothing would turn on the alleged facts of insurance being at the cost of the assessee.

(b) As regards the question of equalized freight and cost of transportation from the factory to the Depot of the stockists/agent, the issue has been settled in the case of VIP Industries Ltd. v. Commissioner of Customs & Central Excise., Aurangabad (by the Supreme Court) vide order reported in 2003 (155) ELT 8 (S.C.) wherein it was held that Amendments of Section 4 of Central Excise Act, 1944 have made no difference to the earlier position as settled by the Court vide its orders in the case of Union of India v. Bombay Tyre International Ltd. (1983 (14) ELT 1896 (S.C.) and Govt. of India v. Madras Rubber Factory Ltd. (1995 (77) ELT 433 (S.C.) which had held the eligibility of deductions and thus no levy on equalised freight. In VIP Industries Ltd. case, after considering the amendments made to Section 4 of the Central Excise Act, 1944 as regards the "place of removal" the court held as follows- "5. After the amendment, the Department sought to include in the value the cost of transport from factory to the depot even in case where the manufacturer sold the goods at a uniform price all over the country by including the element of equalized freight. The Tribunal has upheld the view of the Department on the reasoning that by this amendment the definition of the term "Place of removal" has been extended to include the depot. The Tribunal has also held that Section 2(2) which excluded the cost of transportation from the place of removal to the place of delivery was not amended when the definition of the term "Place of removal" was extended. According to the Tribunal the result was that only the transport charges from the place of removal to the place of delivery were to be excluded from the value.

6. We have heard the parties at length. In our view, Section 4 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 course of wholesale trade for delivery at the time and place of removal, which 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 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, the price would be the price at the place. By the amendment Section 4(ia) has been added. Under Section 4(ia) where the price of the goods is different for different places of removal, each such price was deemed to be the normal price of such goods in relation to "such place of removal". Thus, if the place of removal was the factory, then the price would be normal price at the factory. If place of removal was some other place like a depot or the premises of a consignment agent and the price was different then that different price would be the price. It is because newly added Section 4(ia) was now providing for different prices at different places of removal that the 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 of transportation was to be added." Following the aforesaid decisions, we also find no merit in this case and in the result, set aside the demand on the question of this case.

3. In view of the above finding, the order is set aside and the appeal is allowed with consequential relief.