2000 (7) TMI 78 - SC - Central Excise

Why the assessable value should not be approved on the basis of Britannia's wholesale cash price? Held that - The present case is similar to Ujagar Print's case 1989 (1) TMI 124 - SUPREME COURT OF INDIA wherein it was the grey cloth which was given to the processor whereas in the present case it was the raw material for the manufacture of biscuits given to the appellant. After the biscuits are made, they are given back to or are delivered under the instructions of Britannia. The appellant was entitled to receive processing charges which include its expenses plus profits for the purpose of determining the excise value. However, the cost of the raw material supplied by Britannia will have to be included in addition to the appellant's manufacturing costs and profit. What cannot be included on the ratio of Ujagar Prints' case is any profit of Britannia or expenses which are incurred after the manufacture of the biscuits by the appellant. Despite repeated attempts made by the learned counsel for the respondent, we are unable to distinguish this case from the ratio laid down by this Court in the aforesaid two decisions of Ujagar Prints'case. This appeal is accordingly allowed.

Summary

Issues:
Assessable value of biscuits manufactured for another company, classification of relationship between parties, consideration of post-manufacturing expenses in determining assessable value for excise duty.

Analysis:
The main issue in this case was the assessable value of biscuits manufactured by the appellant for another company, Britannia. The agreement between the parties outlined that Britannia supplied ingredients and manufacturing methods, and the appellant was to manufacture biscuits for Britannia. The agreement specified that the relationship between the parties was that of principal and principal, not principal and agent. The appellant was allowed to manufacture biscuits for other brands as well. The trouble began when the excise authorities sought to determine the assessable value based on Britannia's wholesale price, leading to a series of legal proceedings.

The appellant argued that post-manufacturing expenses should not be considered in determining the assessable value, citing a previous judgment in the case of M/s. Ujagar Prints and Others. In the Ujagar Prints case, the Supreme Court clarified that the assessable value should include the value of raw materials, job work done, manufacturing profits, and expenses. The Court emphasized that post-manufacturing profits should not be included in the assessable value. The judgment provided a clear framework for calculating the correct assessable value for excise duty purposes.

Applying the principles from the Ujagar Prints case to the present situation, the Court concluded that the assessable value of the biscuits should include the cost of raw materials supplied by Britannia, along with the appellant's manufacturing costs and profits. However, any profit or expenses incurred by Britannia after the manufacture of the biscuits should not be included in the assessable value. The Court found that the appellant was entitled to processing charges that covered expenses and profits but excluded post-manufacturing profits of Britannia. The judgment allowed the appeal, directing the excise authorities to determine the excise duty amount afresh in accordance with the law, without imposing any costs on either party.