# NAGPUR v. M/S. ISPAT INDUSTRIES LTD

- **Citation:** [2015] 15 S.C.R. 259
- **Court:** Supreme Court of India
- **Decided:** 2015-10-07
- **Case number:** Civil Appeal No. 637 of 2007
- **Bench:** A. K. Sikri, R. F. Nariman
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/nagpur-v-m-s-ispat-industries-ltd-30639
- **Pages:** 28

## Headnote

Excise Laws - Central Excise and Salt Act, 1944 - s.4
B
- Valuation of excisable goods - Place of removal of goods C
for purpose of s. 4 of the Act - Period involved being
28.09.1996 to 31.03.2003 - Whether, by virtue of a transit
insurance policy in the name of the manufacturer, excise duty
is liable to be recovered on freight charges incurred for
transportation of goods from the factory gate to the buyer's D
premises, treating the buyer's premises as the place of
removal - Held: s.4 as substituted by the 1973 Amendment
Act suffered a further amendment in 1996 -
The
amendments carried out were to have effect from 28. 9. 1996,
which is also the starting point on facts in the present case -
E
With effect from the Amendment Act of 28.9. 1996, the place
of removal only has reference to places from which the
manufacturer is to sell goods manufactured by him, and can,
in no circumstances, have reference to the place .of delivery
which may, on facts, be th~ buyer's premises - By an F
Amendment Act which came into effect on 1. 7. 2000, s. 4 was
substituted yet again -'- For the second period in question in
the present case, namely, 1.7. 2000 to 31.3. 2003, the depot,
premises of a consignment agent or any other place from
which excisable goods are to be sold after their clearance G
from the factory are no longer places of removal -Also, the
definition of "transaction value" makes it clear that freight or
transportation expenses are not included in calculating the
excise duty payable- By an Amendment Act with effect from
14. 5. 2003, s. 4 was again amended- On and after 14. 5. 2003,
H
259
260
SUPREME COURT REPORTS
[2015] 15 S.C.R.
A the position as it obtained from 28.9.1996 to 1. 7.2000 has
now been reinstated - r.5 of the Central Excise Rules as
substituted in 2003 also confirms the position that the cost of
transportation from the place of removal to the place of
delivery is to be excluded, save and except in a case where
B the factory is not the place of removal - Thus, in law, it is
clear that for the period from 28. 9. 1996 up to 1. 7. 2000, the
place of removal has reference only to places from which
goods are to be sold by the manufacturer, and has no
reference to the place of delivery which may be either the
c buyer's premises or such other premises as the buyer may
direct the manufacturer to send his goods -
Revenue's
argument that freight charges must be included as the sale
in the present facts took place at the buyer's premises is
incorrect- Further, for the period 1. 7. 2000 to 31. 3. 2003 there
D will be no extended place of removal, the factory premises
or the warehouse (in the circumstances mentioned in the
Section), alone being places of removal -
Under no
circumstances can the buyer's premises, therefore, be the
place of removal for the purpose of s.4 on the facts of the
E present case - Central Excise Va/uc.,ion (Determination of
F
G
H
Price of Excisable Goods) Rules, 2000 - rr. 5 and 7.
CCE & Customs v. Roofit Industries Ltd., (2015)
319 E.L.T. 221 (S.C.); Commissioner Central
Excise, Mumbai-I/Iv. Mis. Emco Ltd. [Judgment
dated July 31, 2015 of-Supreme Court in Civil
Appeal 3418 of 2004 and Civil Appea: 8966 of
2011]- distinguished.
Escorts JCB Ltd. v. CCE (2003) 1 SCC 281;
Prabhat Zarda Factory Ltd. v. Commissioner of
Central Excise 2002 (146) ELT 497 (S.C.); Union
of India v. Bombay Tyre International Ltd. (1984)
1 SCC 467; and VIP Industries Ltd. v.
Commissioner of Customs & Centre/ Excise
(2003) 5 sec 507 - relied on.
COMMNR. OF CUSTOMS AND CENTRAL EXCISE,
261
NAGPUR v. M/S. ISPAT INDUSTRIES
A.K. Roy v. Valtas Ltd. (1973) 3 SCC 503;
A
Government of India v. Madras Rubber Factory
Ltd. (1995) 4 sec 349 - referred to.
Case Law Reference
(2003) 1-SCC 281
relied on
Para 6
B
2002 (146) ELT 497 (S.C.)
relied on
Para 7
(2015) 319 E.L.T. 221 (S.C.)
distinguished Para 8
(1973) 3 sec 503
referred to
Para 11
(1984) 1 sec 467
relied on
Para 13 c
(1995) 4 sec 349
referred to
Para 14
(2003) 5 sec 501
relied on
Para 28

## Text

_Characters 0–39,555 of 52,814. This is a partial read: ask again with offset=39555 for what follows._

[2015] 15 S.C.R. 259
COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE,
A
NAGPUR
v.
M/S. ISPAT INDUSTRIES LTD.
(Civil Appeal No. 637 of 2007)
OCTOBER 07, 2015
[A. K. SIKRI AND R. F. NARIMAN, JJ.]
Excise Laws - Central Excise and Salt Act, 1944 - s.4
B
- Valuation of excisable goods - Place of removal of goods C
for purpose of s. 4 of the Act - Period involved being
28.09.1996 to 31.03.2003 - Whether, by virtue of a transit
insurance policy in the name of the manufacturer, excise duty
is liable to be recovered on freight charges incurred for
transportation of goods from the factory gate to the buyer's D
premises, treating the buyer's premises as the place of
removal - Held: s.4 as substituted by the 1973 Amendment
Act suffered a further amendment in 1996 -
The
amendments carried out were to have effect from 28. 9. 1996,
which is also the starting point on facts in the present case -
E
With effect from the Amendment Act of 28.9. 1996, the place
of removal only has reference to places from which the
manufacturer is to sell goods manufactured by him, and can,
in no circumstances, have reference to the place .of delivery
which may, on facts, be th~ buyer's premises - By an F
Amendment Act which came into effect on 1. 7. 2000, s. 4 was
substituted yet again -'- For the second period in question in
the present case, namely, 1.7. 2000 to 31.3. 2003, the depot,
premises of a consignment agent or any other place from
which excisable goods are to be sold after their clearance G
from the factory are no longer places of removal -Also, the
definition of "transaction value" makes it clear that freight or
transportation expenses are not included in calculating the
excise duty payable- By an Amendment Act with effect from
14. 5. 2003, s. 4 was again amended- On and after 14. 5. 2003,
H
259
260
SUPREME COURT REPORTS
[2015] 15 S.C.R.
A the position as it obtained from 28.9.1996 to 1. 7.2000 has
now been reinstated - r.5 of the Central Excise Rules as
substituted in 2003 also confirms the position that the cost of
transportation from the place of removal to the place of
delivery is to be excluded, save and except in a case where
B the factory is not the place of removal - Thus, in law, it is
clear that for the period from 28. 9. 1996 up to 1. 7. 2000, the
place of removal has reference only to places from which
goods are to be sold by the manufacturer, and has no
reference to the place of delivery which may be either the
c buyer's premises or such other premises as the buyer may
direct the manufacturer to send his goods -
Revenue's
argument that freight charges must be included as the sale
in the present facts took place at the buyer's premises is
incorrect- Further, for the period 1. 7. 2000 to 31. 3. 2003 there
D will be no extended place of removal, the factory premises
or the warehouse (in the circumstances mentioned in the
Section), alone being places of removal -
Under no
circumstances can the buyer's premises, therefore, be the
place of removal for the purpose of s.4 on the facts of the
E present case - Central Excise Va/uc.,ion (Determination of
F
G
H
Price of Excisable Goods) Rules, 2000 - rr. 5 and 7.
CCE & Customs v. Roofit Industries Ltd., (2015)
319 E.L.T. 221 (S.C.); Commissioner Central
Excise, Mumbai-I/Iv. Mis. Emco Ltd. [Judgment
dated July 31, 2015 of-Supreme Court in Civil
Appeal 3418 of 2004 and Civil Appea: 8966 of
2011]- distinguished.
Escorts JCB Ltd. v. CCE (2003) 1 SCC 281;
Prabhat Zarda Factory Ltd. v. Commissioner of
Central Excise 2002 (146) ELT 497 (S.C.); Union
of India v. Bombay Tyre International Ltd. (1984)
1 SCC 467; and VIP Industries Ltd. v.
Commissioner of Customs & Centre/ Excise
(2003) 5 sec 507 - relied on.
COMMNR. OF CUSTOMS AND CENTRAL EXCISE,
261
NAGPUR v. M/S. ISPAT INDUSTRIES
A.K. Roy v. Valtas Ltd. (1973) 3 SCC 503;
A
Government of India v. Madras Rubber Factory
Ltd. (1995) 4 sec 349 - referred to.
Case Law Reference
(2003) 1-SCC 281
relied on
Para 6
B
2002 (146) ELT 497 (S.C.)
relied on
Para 7
(2015) 319 E.L.T. 221 (S.C.)
distinguished Para 8
(1973) 3 sec 503
referred to
Para 11
(1984) 1 sec 467
relied on
Para 13 c
(1995) 4 sec 349
referred to
Para 14
(2003) 5 sec 501
relied on
Para 28
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 637 D
of 2007.
From the Judgment and Order No. A/1392/WZB/06-Clll(EB ), dated 24.07.2006 of the Customs, Excise and Service
Tax Appellate Tribunal, West Zonal Bench at Mumbai in Appeal
No. E/4042/03.
E
A. K. Panda, Sr. Adv., Arijit Prasad, B. Krishna Prasad,
Adv. for the Appellant.
S. K. Bagaria, Sr. Adv., Ms. Praveena Gautam, Vipin
Jain, Shiren Khanna, Ajeet Singh.Adv. forthe Respondent.
The Judgment of the Court was delivered by
R. F. NARIMAN, J. 1. The issue involved in the present
appeal is whether, by virtue of a transit insurance policy ih the
name of the manufacturer, excise duty is liab[e to be recovered
F
on freight charges incurred for transportation of goods from
G
the factory gate to the buyer's premises, treating the buyer's
premises cas the place of removal.
2. M/s lspat Industries Limited, the respondent herein, is
engaged in the manufacture of H.R. sheets/coils, C.R. sheets/ H
262
SUPREME COURT REPORTS
[2015] .:15 S.C.R.
A
coils, and Galvanized/colour coated/sheets, falling under
Chapter 72 of the First Schedule to the Central Excise Tariff
Act, 1985. Intelligence revealed that M/s I spat were indulging
in evasion of central excise duty by a mis-declaration that their
factory gate was the place C?f removal, and not the buyer's
B
premises, consequent to which freight charges recovered from
their buyers was sought to be added in determining the amount
of central excise duty payable by them. The period involved in
the present appeal is from 28.9.1996 to 31.3.2003. Five show
cause notices were issued to the respondents stating that the
c property in goods manufactured by them remained with I spat
while the goods were in transit as !spat had taken out an
insurance policy to cover the risk of loss or damage to the
goods while in transit. Purchase orders as well as agreements
with transporters did not suggest that the transporters were
o taking delivery on behalf of the buyers. All this was corroborated
by a statement made by Shri S.P. Dahiwade, Deputy General
Manager, stating that the ownership of the goods in transit
remained with !spat. It was thus stated that the buyer's place
or the place of delivery should be treated as the place of
E
removal of the goods for the purpose of Section 4 of the Central
Excise Act, and this being so, the necessary consequence
would be that the freight charges paid by the buyers to !spat
ought to be included in the excise duty payable by I spat.
3. In reply to the five show cause notices, M/s. I spat stated
F that all their prices were ex-works, and that th"e goods were
cleared from the factory on payment of central or local sales
tax. Most of their sales were against Letters of Credit opened
by the customer or through Bank discounting facilities. lnvoic~s
were prepared at the factory directly in the name of the
G customers, and the name of the Insurance Company as well
as the number of Transit Insurance Policy were both mentioned.
Based on the details mentioned in the invoice, the lorry receipt
was prepared by the transporter and was in the buyer's name.
This receipt carried a caution notice as well a notice to the
H
COMMNR. OF CUSTOMS AND CENTRAL EXCISE,
263
NAGPUR v. M/S. ISPAT INDUSTRIES [R. F. NARI MAN, J.]
effect that deliveries were to be made to the buyer alone, and
A
to nobody else.
4. M/s. I spat further stated that these transactions were
entered in their sales register and were booked as sales, the
stock or inventory of finished goods being reduced by such
sales. In the event that there was an insurance claim, recovery
B
was credited to the customer's ledger account against the
recovery due from the customer in respect of the sale of the
said goods. Excise invoices were prepared at the time that
the goods left the factory in the name and address of the
customers, and once the goods were handed over to the C
transporter, the respondent did not reserve any right of disposal
of the goods in any manner. It had no right to divert the goods
so handed over to the transporter and meant for a particular
customer to anybody else.
D
5. The learned Commissioner, by his order dated
3.10.2003, held that as the insurance agreement with the
transporter was entered into by lspat who had taken out an
Insurance Policy to cover risk to the loss or damage of the
goods while in transit, the property in goods remained with
E
lspat and was not transferred to the buyer at the factory gate.
It was also held that in the order acceptance form, it was
mentioned that the transport would be by !spat. Thus, lspat
had assumed responsibility of transportation of the goods up
to the door of the customers. Further, that the purchase orders
F
as well as the agreement with the transporters did not suggest
that the transporters were taking delivery on behalf of the buyer.
Above all, Shri S.P. Dahiwade, Deputy General Manager,
Excise, had clearly admitted in his statement dated 5.2.2001,
that till the material is delivered to the customer, ownership of G
the goods remains with I spat. Further, since payment terms
were 30 days after the receipt of the material and not 30 days
after dispatch of the material, it is clear that property in the
goods remained in lspat until payment was made. The
Commissioner, therefore, held:
H
264
A
8
c
D
E
F
SUPREME COURT REPORTS
[2015] 15 S.C.R.
"In the facts and circumstances of the case as discussed
above, the charges framed under the said Show Cause
Notices remain substantiated.
(i) I hold Customers premises as actual place of removal
instead of factory gate of Mis. I spat of terms of sub clause
(iii) of Section 4(4) (b) of Central Excise Act, 1944 and
in term of Sub Clause (3) (c) of Section 4 of the Central
Excise Act, 1944 for the period from 28.09.96 to
30.06.2000 and from 01.07.2000 onwards respectively.
(ii) I confirm demand of Central Excise duty amounting
to Rs. 2,43,31,003/-(Rs. Two Crores Forty Three Lakhs
Thirty One Thousand Three only), (Rs.2, 16,09,006.00/-
+ Rs.1,77,828/- + Rs.8,97,780/- + Rs.12,91,700/-) and I
order recovery of the same from them under Rule 9(2) of
the Central Excise Rules, 1944 read with Section 38A of
the Central Act, 1944 and the first proviso to Section 11 A
of the Central Excise Act, 1944 by invoking extended
period of limitation of five years.
(iii) I impose Penalty of Rs.2,43,31,003/- (Rs. Two Crores
Forty Three Lakhs Thirty One Thousand Three only), upon
them under Rule 1730 and 9(2) of the erstwhile Central
Excise Rules, 1944 read with Section 11 AC of the Central
Excise Act, 1944.
(iv) I order recovery of appropriate interest from them
under Section 11AB of the Central Excise Act, 1944."
6. On appeal by the respondents herein, CESTAT, by its
judgment dated 24.7.2006, reversed the order of the
Commissioner holding that, on the facts of the case, this
G Court's judgment in Escorts JCB Ltd. v. CCE, (2003) 1 SCC
281 concluded the issue in favour of !spat. CESTAT also relied
upon a Board's circular dated 3.3.2003 which acknowledged
that the question of ownership of goods in transit cannot be
determined solely with reference to an Insurance Policy taken
H out by the manufacturer. As regards the statement of Shri
COMMNR. OF CUSTOMS AND CENTRAL EXCISE,
265
NAGPUR v. MIS. !SPAT INDUSTRIES [R. F. NARIMAN, J.]
Dahiwade, according to CE STAT, such statement would not
A
carry the revenue much further as whether the property in the
goods passed at the factory gate to the buyer was a question
of law which was determined in favour of I spat by the aforesaid
judgment of this Court in Escorts JC B's case. It was further
held that at least two of the Commissioner's grounds, namely,
B
that the payment terms were 30 days after receipt of the
materials and that the order acceptance form shows that it
was the obligation of !spat to arrange transportation of goods
to the buyer's premises, were beyond the show cause notices
issued as no such charge was leveled against I spat in any of C
the five show cause notices mentioned herein3bove.
7: Shri A.K. Panda, learned senior counsel appearing
on behalf of the revenue, extensively read from the order of the
learned Commissioner and stated that the facts in the present
case being different from the facts in Escorts JCB's case,
D
the Tribunal was in error in relying on Escorts JC B's case.
According to learned counsel, the circular dated 3.3.2003
which referred to both the Escorts JCB's case and to
Prabhat Zarda Factory Ltd. v. Commissioner of Central
Excise, 2002 (146) ELT 497 (S.C.), clearly laid down that for E
the period in question Section 4 of the Central Excise and
Salt Act, 1944 made it clear that since the buyer's place was
in fact the place of removal of I spat's goods, freight payments
being payments made prior to the goods being sold to the
buyers are liable to be included in the central excise duty
F
payable by M/s. lspat. He relied on two recent judgments
delivered by this Court to buttress his submissions.
8. Shri S.K. Bagaria, learned senior counsel appearing
on behalf of lspat, painstakingly took this Court through Section
G
4 of the Central Excise and Salt Act as originally enacted
together with all the amendments made thereto, up to date.
According to learned counsel, the period involved in the present
case divides itself into two periods-the period from 28.9.1996
to 30.6.2000 and the period 1 :1.2000 to 31.3.2003. According
H
266
SUPREME COURT REPORTS
[2015] 15S.C.R.
A
to learned counsel, on a correct construction of Section 4 as it
stood at the relevant time in both periods and on a reading of
Rule 5 of the Central Excise Rules, it is clear that the buyer's
premises can never in law be the place of removal of excisable
goods. So far as the first period is concerned, the place of
B
removal can extend only up to a manufacturer's depot or other
premises from which the manufacturer is to sell his goods,
and no further. So far as the second period is concerned, after
Section 4 was substituted completely by the Amendment Act
which came into force on 1. 7 .2000, even a depot or other
c premises could not be considered to be a place of removal,
the only place of removal being the factory premises of the
manufacturer. This being so, learned counsel argued that he
ought to succeed on first principle as all the show cause notices
and the findings of the Commissioner are based on the fact
o that in the present case the buyer's premises is the place of
removal of goods. He argued that this would involve
conceptual confusion inasmuch as the place of removal can
never be equated with the place of delivery and the place of
removal alone is relevant for the purpose of Section 4
E throughout its chequered history. He further argued that on
facts his case came within the ratio of Escorts JCB and not
within the ratio of two other judgments of this Court, namely,
Commissioner Central Excise,
Mumbai-Ill v. M/s. Emco
Ltd., dated July 31, 2015 in Civil Appeal 3418 of 2004 and
F Civil Appeal 8966 of 2011, and CCE & Customs v. Roofit
Industries Ltd., (2015) 319 E.L.T. 221 (S.C.). He also argued
that the learned Commissioner was in error because he had
ignored altogether the reply made by the assessee which would
show that the assessee's facts are in pari materia with the
G facts in Escorts JCB and not the facts in either Emco or Roofit
Industries, supra. He further supported the Tribunal's
judgment by stating that not only did the Commissioner not
give any heed to I spat's reply, but that it also entered into areas
which were no part of the show cause notices, and thus several
H findings of the Commissioner were rightly held by the Tribunal
COMMNR. OF CUSTOMS AND CENTRAL EXCISE,
267
NAGPUR v. M/S. ISPAT INDUSTRIES [R. F. NARIMAN, J.]
to be beyond the show cause notices issued in the present A
case.
9. As this case involves the correct interpretation of
Section 4 as it stood at the relevant time, it is necessary to
recapitulate the history of the said provision insofar as it relates
to freight charges being part of excise duty.
8
10. Section 4, as it stood before the 1973 amendment
made to the Central Excise and Salt Act, provided as follows:-
"Section 4. Where under this Act, any article is chargeable
with duty at a rate dependent on the value of the article, C
such value shall be deemed to be-
(a) the wholesale cash price for which an article of the
like kind and quality is sold or is capable of being sold at
the time of the removal of the article chargeable with duty 0
from the factory or any other premises of manufacture or
production for delivery at the place of manufacture or
production, or if a wholesale market does not exist for
such article at such place, at the nearest place where
such market exists, or
E
(b) where such price is not ascertainable, the price at
which an article of the like kind and quality is sold or is
capable of being sold by the manufacturer or producer,
or his agent, at the time of the removal of the article
chargeable with duty from such factory or other premises
F
for delivery at the place of manufacture or production, or
if such article is not sold or is not capable of being sold
at such place, at any other place nearest thereto.
Explanation.-ln determining the price of any article
under this section, no abatement or deduction shall be
G
allowed except in respect of trade discount and the
amount of duty payable at the time of the removal of the
article chargeable with duty from the factory or other
"premises aforesaid."
H
268
SUPREME COURT REPORTS
[2015] 15 S.C.R.
A
11. It will be seen that the value of an article chargeable
with excise duty is deemed to be the wholesale cash price for
which an article of the like kind and quality is sold or capable
of being sold at the premises of manufacture or production. In
A.K. Roy v. Voltas Ltd., (1973) 3 SCC 503, this Court had
B
occasion to deal with the said provision and in para22 thereof
c
stated:-
" ... The section postulates that the wholesale price should
be taken on the basis of cash payment thus eliminating
the interest involved in wholesale price which gives credit
to the wholesale buyer for a period ?f time and that the
price has to be fixed for delivery at the factory gate
thereby eliminating freight, octroi and other charges
involved in the transport of the articles." [at para 22]
0
12. By an amendment Act of 1973, which came into force
E
F
G
H
on 1.10.1975, Section 4 was substituted as follows:-
" Section 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 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 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-
(i) Where, in accordance with the normal practice of
the wholesale trade in such goods, such goods are
sold by the assessee at different prices to different
classes of buyers (not being related persons) each
such price shall, subject to the existence of the other
COMMNR. OF CUSTOMS AND CENTRAL EXCISE,
269
NAGPUR v. M/S. ISPAT INDUSTRIES [R. F. NARIMAN, J.]
circumstances specified in clause (a), be deemed to
A
be the normal price of such goods in relation to each
such class of buyers;
·
(ii) Where such goods are sold by the assessee in
the course of wholesale trade for delivery at the time
and place of removal at a price fixed under any law for B
the time being in force or at a price, being the
-maximum, fixed under any such law, then,
notwithstanding anything contained in clause (iii) of
this proviso, the price or the maximum price, as the
case may be, so fixed, shall, in relation to the goods C
so sold, be deemed to be the normal price thereof;
(iii) Where the assessee so arranges that the goods
are generally not sold by him in the course of wholesale
trade except to or through a related person, the normal
0
price of the goods sold by the assessee to or through
such related person shall be deemed to be the price
at which they are ordinarily sold by the related person
in the course of wholesale trade at the time of removal,
to dealers (not being related persons) or where such
E
goods are not sold to such dealers, to dealers (being
related persons), who sell such goods in retail;
(b) Where the normal price of such goods is not
ascertainable for the reason, that such goods are not
sold or for any other reason, the nearest ascertainable
F
equivalent thereof determined in such manner as may
be prescribed.
(2) Where, in relation to any excisable goods the price
thereof for delivery at the place of removal is not known
and the value thereof is determined with reference to the G
price for delivery at a place other than the place of
removal, the cost of transportation from the place of
removal to the place of delivery shall be excluded from
such price.
H
270
SUPREME COURT REPORTS
[2015] 15S.C.R.
A
(3) The provisions of this section shall not apply in respect
_of any excisable goods for which a tariff value has been
fixed under sub-section (2) of section 3.
B
c
( 4) For the purposes of this section, -
(a) "assessee" means the person who is liable to pay
the duty of excise under this Act and includes his agent;
(b) "place of removal" means -
(i) a factory or any other place or premises of
production or manufacture of the excisable goods;
or
(ii) a warehouse or any other place or premises
wherein the excisable goods have been permitted
to be deposited without payment of duty,
D
from where such goods are removed."
13. It will be seen that three important changes have been
made in the amended Section 4 so far as the present case is
concerned. First, the value of excisable goods is deemed to
E
be the "normal price" thereof that is the price at which such
goods are ordinarily sold by the assessee to a buyer in the
course of wholesale trade. Where the goods are sold at
different prices to different classes of buyers, each such price
shall be deemed to be the normal price. "Place of removal"
F
has been defined for the first time to mean not only the premises
of production or manufacture of excisable goods but also a
warehouse or any other place or premises wherein such goods
have been permitted to be deposited without payment of duty
and from where such goods are ultimately removed.
G Interestingly, in Section 4(2), which is introduced for the first
time, where in relation to excisable goods the price thereof for
delivery at the place of removal is not known, and the value is
determined with reference to the price for delivery at a place
other than the place of removal, the cost of transportation from
H the place of removal to the place of delivery is statutorily
COMMNR. OF CUSTOMS AND CENTRAL EXCISE,
271
NAGPUR v. M/S. ISPAT INDUSTRIES [R. F. NARIMAN, J.]
excluded. As the law stood thus, this Court in Union of India A
v. Bombay Tyre International Ltd., (1984) 1SCC467, after
extracting the substituted Section 4 by the Amendment Act of
1973, held:-
"Where the excisable article or an article of the like kind
and quality is not sold in wholesale trade at the place of 8
removal, that is, at the factory gate, but is sold in the
wholesale trade at a place outside the factory gate, the
value should be determined as the price at which the
excisable article is sold in the wholesale trade at such
place, after deducting therefrom the cost of transportation C
of the excisable article from the factory gate to such place.
The claim to other deductions will be dealt with later." [at
para 27]
The Court further went on to say:
"Where the sale in the course of wholesale trade is
effected by the assessee through its sales organisation
D
at a place or places outside the factory gate, the
expenses incurred by the assessee upto the date of
delivery under the aforesaid heads cannot, on the same
E
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 freight for F
transportation of the goods from the factory gate to the
place or places of delivery." [at para 50]
14. This view of the law was reiterated in Government
of India v. Madras Rubber Factory Ltd., (1995) 4 SCC 349.
Interestingly, in paragraph 39 of the judgment, cost of G
transportation from the factory gate to the place of removal not
forming part of excise duty was conceded by the revenue.
15. Section 4 as substituted by the 1973 Amendment
Act suffered a further amendment in 1996. Ttie' amendments H
272
SUPREME COURT REPORTS
[2015] 15 S.C.R.
A
carried out were to have effect from 28.9.1996, which is also
the starting point on facts in the present case. Three important
changes were made to Section 4. First a new sub-section
(ia) was added to Section 4(1) which reads as follows:-
B
c
D
E
"(ia) Where the price at which such goods are ordinarily
sold by the assessee is different for different places of
removal, each such price shall, subject to the existence
of other circumstances specified in clause (a), be
deemed to be the normal price of such goods in relation
to each such place of removal;"
Also, for the first time, "the place of removal" had one
more category added to it. Section 4(4)(b)(iii) and 4.(4)(ba)
state as follows:-
"(4 )(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
and,
"(4 )(ba) "time of removal", in respect of goods removed
from the place of removal referred to in sub-clause (iii)
of clause (b ), shall be deemed to be the time at which
such goods are cleared from the factory;"
16. It will thus be seen that where the price at which goods
are ordinarily sold by the assessee is different for different
F places of removal, then each such price shall be deemed to
be the normal value thereof. Sub-clause (b)(iii) is very
important and makes it clear that a depot, the premises of a
consignment agent, or any other place or premises from where
the excisable goods are to be sold after their clearance from
G the factory are all places of removal. What is important to note
is that each of these premises is referable only to the
manufacturer and not to the buyer of excisable goods. The
depot, or the premises of a consignment agent of the
manufacturer are obviously places which are referable only to
H the manufacturer. Even the expression "any other place or
COMMNR. OF CUSTOMS AND CENTRAL EXCISE,
273
NAGPUR v. M/S. ISPAT INDUSTRIES [R. F. NARI MAN, J.]
premises" refers only to a manufacturer's place or premises A
because such place or premises is stated to be where
excisable goods "are to be sold". These are the key words of
the sub-section. The place or premises from where excisable
goods are to be sold can only be the manufacturer's premises
or premises referable to the manufacturer. If we are to accept B
the contention of the revenue, then these words will have to be
substituted by the words "have been sold" which would then
possibly have reference to the buyer's premises.
17. It is clear, therefore, that as a matter of law with effect
from the Amendment Act of 28.9.1996, the place of removal
C
only has reference to places from which the manufacturer is to
sell goods manufactured by him, and can, in no circumstances,
have reference to the place of delivery which may, on facts, be
the buyer's premises.
D
18. By an Amendment Act which came into effect on
1.7.2000, Section 4 was substituted yet again as follows:-
"Section 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 E
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 the goods are not related
F
and the price is the sole consideration for the sale, by
the transaction value;
(b) In any other case, including the case where the goods
are not sold, be the value determined in such manner G
as may be prescribed.
(2) The provisions of this section shall not apply in respect
of any excisable goods for which a tariff value has
been fixed under sub-section (2) of section 3.
H
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SUPREME COURT REPORTS
[2015] 15 S.C.R.
A
(3) For the purpose of this section,-
B
c
(a) "asses~ee" means the person who is liable to pay
-the duty of excise under this Act and includes his agent;
(b) Person shall be deemed to be "related" if-
(i) they are inter-connected undertakings;
(ii) they are relatives;
(iii) amongst them the buyer is a relative and a
distributor of the assessee, or a sub-distributor of such
distributor; or
(iv) they are so associated that they have interest,
directly or indirectly in the business of each other.
Explanation. - In this clause -
(i) "inter-connected undertakings" shall have the
0
meaning assigned to it in clause (g) of section 2 of
the Monopolies and Restrictive Trade Practices Act,
1969 (64of1969); and
(ii) "relative" shall have the meaning assigned to it in
clause (41) of section 2 of the Companies Act, 1956
E
(1 of 1956);
F
G
H
(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 or premises
wherein the excisable goods have been permitted to
be deposited without payment of duty,
from where such goods are removed;
(d) "transaction value" means the price actually paid or
payable for the 'goods, when sold, and includes in
addition to the amount charged as price, any amount
that the buyer is liable to pay to, or on behalf of, the
assessee, by reason of, or in connection with the sale,
whether payable at the time of the sale or at any other
time, including, but not limited to, any amount charged
COMMNR. OF CUSTOMS AND CENTRAL EXCISE,
275
NAGPUR ".· M/S. ISPAT INDUSTRIES [R. F. NARIMAN, J.]
for, or to make provision for, advertising or publicity,
A
marketing and selling organization expenses, storage,
outward handling, servicing, warranty, commission or
any other matter; but does not include the amount of
duty of excise, sales tax and other taxes, if any, actually
paid or actually payable on such goods."
B
19. A cursory reading of the substituted provision makes
it clear that the concept of "normal value" has given way to the
concept of "transaction value". Thus, no longer is there a
normative price for purposes of valuation of excisable goods.
The actual price that is paid or payable on each removal of C
goods becomes the transaction value. Interestingly, it will be
noticed that under Section 4(3)(c), the place of removal is
defined as it had been defined in the substituted Section 4 (by
the 1973 Amendment) before its further amendment in 1996.
What is conspicuous by its absence in the present Section is
D
Section 4(2) and sub-section (b)(iii) in the previous Section 4
(after its amendment in 1996). It is clear therefore that for the
second period in question in the present case, namely,
1.7.2000 to 31.3.2003, the depot, premises of a consignment
agent or any other place from which excisable goods are to
E
be sold after their clearance from the factory are no longer
places of removal. Also, the definition of "transaction value"
makes it clear that freight or transportation expenses are not
included in calculating the excise duty payable.
20. It is necessary also to refer to Rules 5 and 7 of the
F
Central Excise Valuation (Determination of Price of Excisable
Goods) Rules, 2000 which came into force on the same date
as the amendment to Section 4 i.e. 1.7.2000. These Rules
read as under:-
"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
G
the excisable goods are sold for delivery at a place other H
276
SUPREME COURT REPORTS
[2015] 15 S.C.R.
A
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
B
the buyer in addition to the price for the goods and shown
separately in the invoice for such excisable goods.
c
D
E
Rule7.
Where the excisable goods are not sold by the assessee
at the time and place of removal but are transferred to a
depot, premises of a consignment agent or any other
place or premises (hereinafter referred to as "such other
place") from where the excisable goods are to be sold
after their clearance from the place of removal and where
the assessee and the buyer of the said goods are not
related and the price is the sole consideration for the
sale, the value shall be the normal transaction value of
such goods sold from such other place at or about the
same time and, where such goods are not sold at or
about the same time, at the time nearest to the time of
removal of goods under assessment."
21. The actual cost of transportation from the place of
removal up to the place of delivery of excisable goods is
excluded from the computation of excise duty provided it is
F charged to the buyer in addition to the price of goods and shown
separately in the invoices for such goods. Interestingly, despite
the substituted Section 4 not providing for a depot or other
premises as a place of removal, Rule 7 deals with the normal
transaction value of goods transferred to a depot or other
G premises which is said to be at or about the same time or the
time nearest to the time of removal of goods under
assessment.
22. To complete the picture, by an Amend merit Act with
effect from 14.5.2003, Section 4 was again amended so as
H
COMMNR. Of CUSTOMS AND CENTRAL EXCISE,
277
NAGPUR v. M/S. ISPAT INDUSTRIES [R. F. NARIMAN, J.]
to re-include sub-clause (iii) of old Section 4(3)(b) (pre 2000) A
as Section 4(3)(c)(iii). This amendment reads as follows:-
"(3)(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;"
B
Also, Rule 5 of the Central Excise Rules was substituted,
with effect from 1.3.2003, to read as follows:
"Rule 5. Where any excisable goods are sold in the
circumstances specified in clause (a) of sub-section (1) of C
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 of removal upto the place of D
delivery of such excisable goods.
Explanation 1 - "Cost of transportation" includes -
(i) the actual cost of transportation; and
(ii) in case where freight is averaged, the cost of E
transportation calculated in accordance with generally
accepted principles of costing.
Explanation 2 - For removal of doubts, it is clarified that
the cost of transportation from the factory to the place of F
removal, where th~ factory is not the place of removal,
shall not be excluded for the purposes of determining
the value of the excisable goods."
23. It is clear, therefore, that on and after 14.5.2003, the
position as it obtained from 28.9.1996to 1.7.2000 has now G
been reinstated. Rule 5 as substituted in 2003 also confirms
the position that the cost of transportation from the place of
removal to the place of delivery is to be excluded, save and
except in a case where the factory is not the place of removal.
H
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SUPREME COURT REPORTS
[2015] 15 S.C.R.
A
24. It will thus be seen that, in law, it is clear that for the
period from 28.9.1996 up to 1. 7.2000, the place of removal
has reference only to places from which goods are to be sold
by the manufacturer, and has no reference to the place of
delivery which may be either the buyer's premises or such other
B
premises as the buyer may direct the manufacturer to send
his goods. As a matter of law therefore the Commissioner's
order and Revenue's argument based on that order that freight
charges must be included as the sale in the present facts took
place at the buyer's premises is incorrect. Further, for the
c period 1.7.2000 to 31.3.2003 there will be no extended place
of removal, the factory premises or the warehouse (in the
circumstances mentioned in the Section), alone being places
of removal. Under no circumstances can the buyer's premises,
therefore, be the place of removal for the purpose of Section 4
D on the facts of the present case.
25. It now remains to deal with some of the judgments
cited at the Bar. Escorts JCB Ltd. v. CCE, (2003) 1 SCC
281, was-strongly relied upon by Shri Bagaria and sought to
be distinguished by Shri Panda. The facts of Escorts JCB's
E
case are similar to the facts in the present case. The show
cause notice in that case alleged that freight and transit
insurance were charged from buyers but no central excise duty
· was paid by mis-declaring the place of removal as the factory
gate instead of the buyer's premises. It will be noted that just
F
as in the present case, the price was "ex-works" and exclusive
of freight insurance etc. After setting out Section 4 post its
amendment in 1996, this Court held:-
G
H
"A perusal of the orders passed by the authorities and
CEGAT shows 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 the seller,
namely, the assessee to take risk of any kind of damage
COMMNR. OF CUSTOMS AND CENTRAL EXCISE,
279
NAGPUR v. M/S. ISPAT INDUSTRIES [R. F. NARI MAN, J.]
to the goods during transportation. To us, the whole A
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 forthe purpose from him separately." [at para
B
8]
"From the above passage it is clear that ownership in
the property may not have any relevance insofar as
insurance of goods sold during transit is concerned. It
would therefore not be lawful to draw an inference of C
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 the buyer. It is not necessary
that insurance of the goods and the ownership of the
property insured must always go together. It may be
D
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
Insurance, 6th Edn. by Robert Merkin to indicate that
there may be insurance to cover the interest of others,
E
that is to say, not necessarily the person insuring the
interest must be the owner of the property." [at para 1 OJ
26.