2012 (10) TMI 268 - AT - Central Excise

Clearances on principal to principal basis v/s job workers to principal basis - duty demand on differential value with interest & penalty - Held that - Definition of job worker incorporates the words on behalf of . In the market no one knows the OEMs (five appellant firms). Air Coolers are recognised as of Symphony only. There is no sale to Symphony nor to anyone else. In such a situation, what the OEMs are doing is nothing but manufacturing on behalf of Symphony. The fact that in this case Symphony used their clout and capacity to market the products and their reputation to ensure that the profits made by OEMs was always limited and had nothing to do with the demand for products in the market. While there is a cap for the profit and the earnings of job workers based on Symphony s market, there is no cap for the earning of Symphony, who has exercised total control over every aspect of the transaction with the OEMs and the transaction of the OEMs with the Vendors. Under these circumstances, it would be appropriate to require Symphony also to deposit a portion of the penalty since they are the main party and main beneficiary of the whole arrangements and the transactions. Moreover when the law was amended Symphony had the responsibility to change the system of Valuation being the driving force behind the whole operation. It would be totally unfair and unjust to require only job workers to make pre-deposit of duty and allow Symphony to go scot free without requiring any deposit in spite of the fact that maximum profit accrued to Symphony and not the job workers in this case. Thus the OEMs are required to deposit 10% of the duty demanded within eight weeks from today & M/s. Symphony Comfort Systems is required to deposit an amount of equal to 20% of the penalties imposed on them in various orders within eight weeks from today. Subject to such pre-deposit of the amounts detailed above, the requirement of pre-deposit of balance dues from all the appellants, is waived and stay against recovery of the same is granted during the pendency of appeals.

Issues Involved:
1. Denial of cross-examination of witnesses and officers.
2. Nature of transactions between the five firms and Symphony Comfort Systems.
3. Application of Rule 10A of the Central Excise Valuation Rules.
4. Allegations of wilful suppression or mis-declaration.
5. Determination of pre-deposit amounts for appellants.

Detailed Analysis:

1. Denial of Cross-Examination:
The appellants sought cross-examination of several witnesses and officers, which was denied. The adjudicating authority discussed this issue elaborately, supported by judicial pronouncements, and concluded that the appellants did not specify what they intended to elicit from the witnesses. The case was primarily based on records, and the absence of cross-examination did not affect the appellants' defense. The Tribunal agreed with this conclusion, noting that the appellants failed to demonstrate how the denial of cross-examination impacted their defense.

2. Nature of Transactions:
The appellants argued that the transactions were on a principal-to-principal basis, contending that sales tax was paid on raw materials and finished products, and the transactions were in line with the Sale of Goods Act. They denied manufacturing air coolers on behalf of Symphony, asserting that vendors were supplying inputs to the appellant firms independently.

However, the Tribunal found that the agreements and communications indicated that Symphony had significant control over the manufacturing process. Symphony identified vendors, negotiated prices, and ensured payments to vendors. The Tribunal noted that Symphony paid for air coolers upon production, not upon delivery, indicating a manufacturing agreement rather than a sale. The Tribunal concluded that the transactions were not purely purchase and sale but involved manufacturing on behalf of Symphony.

3. Application of Rule 10A:
The appellants relied on previous decisions (Corromondal Paints and Innocorp Limited) to argue that their transactions were similar and should not be considered job work. However, the Tribunal identified substantial differences, noting that Symphony's agreements and control over the manufacturing process indicated a job work relationship. The Tribunal referenced the Bombay High Court decision in Jabil Circuit India Pvt. Limited, which supported the view that Symphony's control over inputs and payments indicated a job work arrangement.

The Tribunal concluded that the OEMs (Original Equipment Manufacturers) were job workers for Symphony under Rule 10A, as Symphony supplied inputs and controlled the manufacturing process.

4. Allegations of Wilful Suppression or Mis-Declaration:
The appellants argued that their billing patterns and methodologies remained unchanged after Rule 10A was introduced, indicating no wilful suppression or mis-declaration. The Tribunal noted that the purpose of Rule 10A was to ensure excise duty payment based on the principal's price. By not reviewing their transactions post-Rule 10A, the appellants reduced their liability. The Tribunal concluded that the appellants should have reassessed their transactions to comply with the new rule.

5. Determination of Pre-Deposit Amounts:
The Tribunal considered the appellants' inability to make a prima facie case for a complete waiver of pre-deposit. However, it took a lenient view for the job workers, requiring them to deposit 10% of the duty demanded. Symphony Comfort Systems, being the main beneficiary, was required to deposit 20% of the penalties imposed. The Tribunal emphasized that Symphony had the responsibility to change the valuation system post-Rule 10A and should not be allowed to avoid deposit requirements while the job workers were penalized.

Conclusion:
The Tribunal required M/s. Ravikiran Plastics Pvt. Limited, M/s. Shaily Engineering Plastics Limited, M/s. Polyset Plastics Pvt. Limited, M/s. Prince Containers Pvt. Limited, and M/s. Kisan Moulding Limited to deposit 10% of the duty demanded within eight weeks. M/s. Symphony Comfort Systems was required to deposit an amount equal to 20% of the penalties imposed. Compliance was to be reported by 14.11.2012, with a stay on the recovery of the balance dues during the pendency of the appeals.

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