2003 (5) TMI 463 - Commissioner - Central Excise

Issues Involved:
1. Determination of the correct assessable value of the goods.
2. Relationship between the Appellants and M/s. Almet Corporation Ltd. (ACL).
3. Legitimacy of the demand for differential duty and imposition of penalty.
4. Applicability of Notification No. 27/92.
5. Relevance of the Supreme Court's decision in Pawan Biscuits.
6. Imposition of penalty and recovery of interest.

Issue-wise Detailed Analysis:

1. Determination of the correct assessable value of the goods:
The primary issue was the determination of the correct assessable value of the goods manufactured by the Appellants for M/s. ACL. The adjudicating authority had confirmed the demand of duty based on the depot price of M/s. ACL, arguing that the transaction between the Appellants and M/s. ACL was not a sale but a transfer of goods. The Appellants contended that the assessable value should be determined on a costing basis, supported by a Chartered Accountant's certificate. The judgment referenced the Supreme Court's decisions in Ujagar Prints v. UOI and Pawan Biscuits Co. Pvt. Ltd. v. Collector of Central Excise, Patna, which established that the assessable value should include the value of raw materials, job work, manufacturing profits, and expenses, excluding post-manufacturing profits.

2. Relationship between the Appellants and M/s. Almet Corporation Ltd. (ACL):
The adjudicating authority had inferred a principal-agent relationship between the Appellants and M/s. ACL based on an agreement and the control M/s. ACL had over the manufacturing process. However, the judgment found no evidence to substantiate that the Appellants were employed by M/s. ACL or represented them in dealings with the Central Excise department. Thus, it concluded that the relationship between the Appellants and M/s. ACL could not be considered that of a principal and an agent.

3. Legitimacy of the demand for differential duty and imposition of penalty:
The Appellants argued that the adjudicating authority had erred in confirming the differential duty demand and imposing a penalty. The judgment noted that the adjudicating authority had relied on a Tribunal decision in Pawan Biscuits, which was later reversed by the Supreme Court. It emphasized that no demand is sustainable if based on a Tribunal decision reversed by the Supreme Court. Consequently, the judgment found no merit in the demand for differential duty or the imposition of penalties.

4. Applicability of Notification No. 27/92:
The adjudicating authority had invoked Notification No. 27/92, which was not alleged in the Show Cause Notice (SCN). The judgment found that the adjudicating authority had traversed beyond the scope of the SCN and concluded that the notification was inapplicable in this case. It emphasized that merely because the goods were transferred to the depots of M/s. ACL did not establish a principal-agent relationship.

5. Relevance of the Supreme Court's decision in Pawan Biscuits:
The judgment heavily relied on the Supreme Court's decision in Pawan Biscuits, which clarified the method for determining the assessable value of goods manufactured on a job work basis. It reiterated that the assessable value should include the value of raw materials, job work, manufacturing profits, and expenses, excluding post-manufacturing profits. The judgment found that the adjudicating authority had erred in not following this established legal principle.

6. Imposition of penalty and recovery of interest:
Since the demand for differential duty was found unsustainable, the judgment concluded that no case for the imposition of penalty or recovery of interest survived against the Appellants. It emphasized that penalties and interest could not be imposed when the primary demand itself was invalid.

Conclusion:
The judgment set aside the Order-in-Original, allowed the appeal with all consequential reliefs, and disposed of the appeal accordingly.

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