2011 (2) TMI 1074 - AT - Central Excise

Penalty under section 11AC - Demand of differential duty - Praxair entered into an agreement with Vikram Ispat to manufacture pure/refine carbon dioxide for which Praxair supplied plant and equipment on lease basis and also personnel at the premises of Vikram Ispat. Vikram Ispat sold the entire carbon dioxide to Praxair at a contract price of Rs.431 per kg. whereas M/s Praxair sold the goods subsequently at a higher price. The department was of the view that Praxair are the real manufacturers of the pure carbon dioxide and hence they were liable to pay duty Held that - As decided in MAHYCO SEEDS LTD. 2003 (11) TMI 108 - HIGH COURT OF JUDICATURE OF BOMBAY AT AURANGABAD raw materials supplier could not be treated as manufacturer under Section 2(f) of the Central Excise Act. Also in the case of Kambatwala 1996 (5) TMI 84 - SUPREME COURT OF INDIA where in held that goods produced by household ladies in their own premises out of the raw materials supplied by the respondent who paid wages on the basis of number of pieces manufactured - in such cases, the household ladies have to be treated as manufacturer of the goods and the goods cannot be said to have been manufactured on behalf of the respondent. In the instant case, the raw material namely impure carbon dioxide has been manufactured by Vikram and the cost of manufacturing has been borne by them. That being so, there is no way it can be held that they are not manufacturers, transaction between Vikram and Praxair are between principal to principal basis and the price at which Vikram has sold the goods to Praxair is the price at which duty liability has to be discharged, in the absence of any evidence indicating that the transactions were not at arms length and there were additional considerations flowing from Praxair to Vikram, appeal filed by the department rejected

Summary

Issues:
1. Whether Praxair or Vikram Ispat should be considered the manufacturer of pure carbon dioxide.
2. Whether Praxair is liable to pay duty on the goods sold at a higher price.

Analysis:
Issue 1:
The case involved a dispute regarding the manufacturing of pure carbon dioxide between Praxair and Vikram Ispat. Praxair supplied equipment and personnel to Vikram Ispat for purifying carbon dioxide, which was then sold back to Praxair. The department argued that Praxair should be considered the manufacturer and held liable for duty. However, the Commissioner concluded that Vikram Ispat should be treated as the manufacturer based on factors such as ownership of the factory, generation of power, and production of raw materials. The Commissioner emphasized the absence of financial flowback between the two entities, indicating a principal-to-principal relationship. The Tribunal upheld this decision, citing legal precedents where the entity bearing the cost of raw materials and manufacturing was considered the manufacturer.

Issue 2:
The department contended that Praxair should be deemed the manufacturer due to its setup and operation of the purification facility, despite leasing it to Vikram Ispat. However, the Tribunal rejected this argument, highlighting the agreement terms where Vikram Ispat paid lease rental charges and operational fees to Praxair. The Tribunal emphasized that the transactions were on a principal-to-principal basis, with no evidence of additional considerations. Citing legal judgments, the Tribunal held that Vikram Ispat, as the entity bearing the manufacturing costs, should be considered the manufacturer. Consequently, the appeal filed by the department was rejected, affirming Vikram Ispat's status as the manufacturer of pure carbon dioxide and determining the duty liability based on the price at which Vikram sold the goods to Praxair.