2007 (10) TMI 210 - AT - Central Excise

Related person - Revenue proceeded against assessee to enhance the value of goods, raise demand & penalty allegation is that assessee hadn t declared their association & agreement with TDCEL in the mfg. & testing activities of TVs. & value had been deliberately suppressed by excluding mfg. cost - A joint venture with a Govt. corp. holding more than 25% of its shares can t be held to have mutuality of interest with TDCEL Both companies operated at arms length - revenue appeal dismissed

Issues Involved:
1. Inclusion of warranty charges in the assessable value.
2. Inclusion of advertisement charges in the assessable value.
3. Financial flow back between DVL and TDCEL.
4. Mutuality of interest between DVL and TDCEL.
5. Responsibility for warranty or repair work.
6. Status of DVL as a dummy unit of TDCEL.
7. Apportionment of rent for premises occupied by TDCEL.
8. Inclusion of expenses for machinery, tools, and jigs in the assessable value.
9. Determination of profit margin for job worker.
10. Validity of job work arrangement as a setup to evade duty.
11. Inclusion of notional interest on interest-free loans in the assessable value.
12. Justification for extended period and imposition of penalty.

Detailed Analysis:

1. Inclusion of Warranty Charges:
The Commissioner observed that "warranty charges incurred by the merchant manufacturer were not includible in the assessable value at the end of job worker-cum manufacturer" as per the judgment of the Apex Court in the Ujagar Prints case.

2. Inclusion of Advertisement Charges:
Similarly, "the advertisement charges incurred by the merchant manufacturer were also not includible in the assessable value of sets manufactured by job worker."

3. Financial Flow Back:
The Commissioner found "no proof of financial flow back from DVL to TDCEL," indicating no hidden financial benefits or transactions between the two entities.

4. Mutuality of Interest:
It was determined that "the mutuality of interest between DVL and TDCEL had not been established," meaning there was no shared financial interest that would affect the assessable value.

5. Responsibility for Warranty or Repair Work:
The Commissioner noted that "it was not the responsibility of the job worker to take responsibility of warranty or repair work," which was solely the merchant manufacturer's responsibility.

6. Status of DVL as a Dummy Unit:
The Commissioner concluded that "DVL was incorporated much earlier to TDCEL and DVL could not be termed as a dummy unit of TDCEL."

7. Apportionment of Rent:
The Commissioner stated that "the question of notionally working out the rent of the godown or office premises occupied by TDCEL would not arise as the cost was already apportioned to the job charges."

8. Inclusion of Expenses for Machinery, Tools, and Jigs:
The Commissioner included "the expenses by way of machinery and tools and jigs supplied by TDCEL to DVL" in the assessable value by way of apportionment.

9. Determination of Profit Margin:
The Commissioner held that "the profit margin of the job worker was to be determined with reference to the job charges alone and not to the wholesale price of the goods."

10. Validity of Job Work Arrangement:
The Revenue argued that "the job work arrangement was a setup to evade duty," but the Commissioner found that "DVL and TDCEL had operated at arms length as between two principals."

11. Inclusion of Notional Interest:
The Revenue contended that the Commissioner "ought to have also confirmed duty on the notional interest on the interest-free loan amount," but the Commissioner did not find this necessary as the loan was advanced before the job work arrangement.

12. Justification for Extended Period and Penalty:
The cross-objections by the respondents challenged the "findings of the ld. Commissioner in the impugned order justifying extended period and imposing a penalty of Rs.1,00,000/-," arguing that the addition of testing equipment costs should not be considered suppression of facts with the intention to evade duty.

Conclusion:
The appeal by the Revenue was dismissed, and the cross-objections by the assessee resulted in the reduction of the penalty on DVL to Rs. 50,000/-. The Commissioner's decision to include the cost of materials and services not initially accounted for by DVL in the assessable value was upheld, following the principles laid down by the Apex Court in the Ujagar Prints case. The Commissioner correctly excluded warranty and advertisement charges from the assessable value and found no evidence of financial flow back or mutuality of interest between DVL and TDCEL.

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