2013 (9) TMI 382 - AT - Central Excise

Whether the manufacturer of goods is Job-worker or not - Assessable Value under Rule 10A of the Valuation Rules 2000 - Whether the goods manufactured by INNOCORP and DART (the assessees) in terms of the Contract Manufacturing Agreements with TUPPERWARE and cleared to the latter s godowns during the period from April, 2007 to February, 2008 were to be valued for the purpose of assessment of duty in terms of Rule 10A of the Valuation Rules, 2000 - Held that - The subject goods should be shown to had been produced or manufactured by the assessees qua job workers on behalf of TUPPERWARE - the manufacturing activities carried out by the assessees under the relevant agreements constituted job work for TUPPERWARE who was sought to be presented as principal manufacturer - The appellant considers the assessees as job workers of TUPPERWARE - As per Explanation to Rule 10A, job-worker means a person engaged in the manufacture or production of goods on behalf of a principal manufacturer, from any inputs or goods supplied by the said principal manufacturer or by any other person authorized by him - The terms and conditions of the two agreements were undisputedly similar - The parties to the agreement declared that neither of them was an agent of the other, that their relationship was at arm s length on a principal-to-principal basis, that neither of them had any interest in the other and that they had a buy-and sell relationship of the agreement - It was also declared that TUPPERWARE was the purchaser of the products manufactured by DART The second conditions was also not satisfied. It was true that stringent quality standards were prescribed by TUPPERWARE to be strictly maintained by the manufacturers at every stage of the manufacture - TUPPERWARE could inspect the process of manufacture to ensure that the specified quality standards for the products were being maintained - They also had the liberty to reject the finished goods which did not conform to the specified standards - The things were part of normal commercial practice in respect of business houses who insist on the quality of their merchandise - These cannot be considerations to hold that the manufacturing activities of the assessees were under extensive control of TUPPERWARE reducing the status of the manufacturers to job workers. That the brand name of TUPPERWARE was affixed on the finished goods by the assessees was also immaterial - POONA BOTTLING CO. LTD. AND ANOTHER Versus UNION OF INDIA AND OTHERS 1981 (5) TMI 26 - HIGH COURT OF DELHI AT NEW DELHI . The third condition also remains unfulfilled in the case - In the result, the respondents in these appeals were not manufacturing the subject goods as job workers on behalf of TUPPERWARE - Rule 10A was not applicable to the assessment of the subject goods - The third requirement for the assessees to be job workers of TUPPERWARE had also not been satisfied in this case inasmuch as the goods were not manufactured from any inputs supplied by TUPPERWARE or by any other person authorized by them - The suppliers were chosen by the assessees from a panel furnished by TUPPERWARE does not mean that the actual suppliers were authorized by TUPPERWARE to supply the materials to the assesses - Such materials were to be returned to TUPPERWARE - But the cost of these materials could be billed by the manufacturer to be paid by TUPPERWARE vide clause (11) of TUPPERWARE-DART agreement, which arrangement also reflected a seller-and-buyer relationship between the parties - Following COROMANDEL PAINTS LTD. Versus COMMISSIONER OF C. EX., VISAKHAPATNAM 2010 (9) TMI 315 - CESTAT, BANGALORE The respondent can claim strong support from the decision of this Bench in Coromandel s case - There was no merit in the grounds of the appeals.

Summary

Issues Involved:
1. Applicability of Rule 10A of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
2. Determination of assessable value for the goods manufactured by INNOCORP and DART.
3. Allegations of collusion, misdeclaration, suppression, and fraud.
4. Imposition of penalties under Section 11AC of the Central Excise Act and Rule 25 of the Central Excise Rules, 2002.

Detailed Analysis:

1. Applicability of Rule 10A:
The primary issue was whether the goods manufactured by INNOCORP and DART under their agreements with TUPPERWARE should be valued under Rule 10A of the Central Excise Valuation Rules, 2000. The department contended that INNOCORP and DART were job workers for TUPPERWARE and thus the assessable value should be based on the transaction value at which TUPPERWARE sold the goods to its distributors. The Commissioner, however, held that Rule 10A was not applicable because INNOCORP and DART were operating on a principal-to-principal basis with TUPPERWARE, and their relationship was that of a seller and buyer, not a job worker and principal manufacturer. The Tribunal upheld the Commissioner's view, emphasizing that the agreements explicitly stated a buy-and-sell relationship and the manufacturing activities were carried out independently by INNOCORP and DART.

2. Determination of Assessable Value:
The assessable value of the goods was determined by INNOCORP and DART using the cost construction method under Rule 6 of the Valuation Rules, 2000, which included the cost of raw materials, labor, overheads, notional profit, and the amortized value of the moulds supplied by TUPPERWARE. The department argued that the assessable value should be based on the transaction value at which TUPPERWARE sold the goods to its distributors. The Commissioner and the Tribunal found that the valuation method adopted by INNOCORP and DART was appropriate and in accordance with the law, as the transactions were at arm's length and on a principal-to-principal basis.

3. Allegations of Collusion, Misdeclaration, Suppression, and Fraud:
The show-cause notices alleged that INNOCORP and DART colluded with TUPPERWARE to undervalue the goods and evade duty. The Commissioner found no evidence of such collusion or intent to evade duty, noting that the methodology for determining the assessable value was accepted by the Settlement Commission and not challenged by the department. The Tribunal agreed with the Commissioner, stating that the stringent quality control and use of TUPPERWARE's trademark did not imply collusion or fraud.

4. Imposition of Penalties:
The show-cause notices proposed penalties under Section 11AC of the Central Excise Act and Rule 25 of the Central Excise Rules, 2002, based on the alleged undervaluation and evasion of duty. The Commissioner, having found no evidence of collusion or intent to evade duty, dropped the penalty proposals. The Tribunal upheld this decision, reiterating that the relationship between INNOCORP/DART and TUPPERWARE was that of independent contractors operating on a principal-to-principal basis, and there was no basis for imposing penalties.

Conclusion:
The Tribunal dismissed the appeals, affirming the Commissioner's orders that Rule 10A was not applicable, the assessable value was correctly determined under Rule 6, and there was no evidence of collusion or intent to evade duty. Consequently, no penalties were warranted. The decision was pronounced on 8-5-2012.