2016 (11) TMI 1275 - AT - Central Excise

Valuation - short-payment or recovery of differential duty - Altec Expectorant 100 ml - principal-to-principal sale - Held that - he appellant has discharged duty liability by arriving at the assessable value wherein the appellant has considered cost of raw materials, packing material, cost of conversion charges and the profit margin. It is the case of Revenue that this price is very low considering the fact that M/s Lyka Hetero Healthcare Ltd has sold these products at a very high price - during the period in question, April 2002 to January 2003, P&P medicaments were not covered under the regime of Section 4A of the Central Excise Act, 1944 and the duty liability was to be discharged under the provisions of Section 4 of the Central Excise Act, 1944, which mandated the determination of the assessable value after ascertaining the normal price. Secondly, there is no dispute that the appellant is manufacturing Altec Expectorant 100 ml on an agreement entered with M/s Lyka Hetero Healthcare Ltd. During the period in question, there is also a factual matrix recorded that the discharge of the duty liability by the appellant is on the raw material packing material conversion charges and the margin of profit. This formula for discharge of duty liability is for goods manufactured on principal-to-principal agreement, is a settled law by the apex Court in the case of Ujagar Prints 1989 (1) TMI 124 - SUPREME COURT OF INDIA . We find that the entire issue stands covered by the judgment of the apex Court in the case of Ujagar Prints. There is no dispute that the appellant has discharged duty liability based upon the formula as has been settled by the apex Court in the case of job-work manufacturer - appeal allowed.

Summary

Issues:
1. Undervaluation of goods leading to differential duty demand.
2. Interpretation of assessable value for duty calculation.
3. Application of Section 4 of the Central Excise Act, 1944.
4. Discharge of duty liability based on manufacturing agreement.
5. Comparison of selling price with assessable value for duty calculation.
6. Error in the first appellate authority's decision.

Analysis:
1. The case involved a dispute regarding the undervaluation of pharmaceutical goods, specifically "Altec Expectorant 100 ml," leading to a demand for the payment of differential duty. The appellant, a manufacturer, calculated the duty liability based on material cost, packing cost, manufacturer's margin, and sold the goods to another company. The Revenue alleged undervaluation based on the selling price of the goods by the buyer.

2. The appellate tribunal noted that the duty liability calculation was based on a principal-to-principal manufacturing agreement between the appellant and the buyer. The appellant's method of determining assessable value was found to be in compliance with the law, as established by the apex court's decision in the Ujagar Prints case. The tribunal emphasized that the duty liability was to be discharged under the provisions of Section 4 of the Central Excise Act, 1944, during the relevant period.

3. The tribunal highlighted that the first appellate authority erred in setting aside the original order, as the duty liability calculation method used by the appellant was consistent with the legal requirements and the established principles of law. The tribunal clarified that the duty liability calculation based on raw material cost, packing cost, conversion charges, and profit margin for goods manufactured under a principal-to-principal agreement was in accordance with the law.

4. By referencing the Ujagar Prints case, the tribunal reaffirmed that the appellant had discharged its duty liability correctly, and there was no basis for the Revenue's claim of undervaluation. The tribunal concluded that the impugned order was incorrect and set it aside, allowing the appeal in favor of the appellant.

In conclusion, the appellate tribunal ruled in favor of the appellant, emphasizing the legality of the duty liability calculation method based on the manufacturing agreement and established legal principles, ultimately rejecting the Revenue's claim of undervaluation.