2005 (12) TMI 177 - AT - Central Excise

Time Limitation - clubbing of clearances - mutuality of interest - whether price adopted for the job work should be accepted and not the selling price of M/s. Nestle India Ltd.? - THAT - The Tribunal in the case of COMMISSIONER OF C. EX. MUMBAI VERSUS MAGANLAL NANDLAL SONS 1999 (5) TMI 244 - CEGAT NEW DELHI has held that when an appeal is filed by the department against only one firm without impleading the other two firms then the appeal is not maintainable in an issue where clearance of all the three are proposed to be clubbed. In the case of COMMISSIONER OF CENTRAL EXCISE RAJKOT VERSUS SOMPURA CERAMICS 2000 (11) TMI 208 - CEGAT COURT NO. IV NEW DELHI the appeal of the Revenue was dismissed on a similar ground. The Revenue had filed an appeal against a single unit. They were proceeding to club the clearances of more than one unit. The appeal against the other unit had been dismissed as barred by time. Therefore in that situation also the other appeal was dismissed as not maintainable. It is also found that the Commissioner s reasoning to drop the Show Cause Notice is correct in law. M/s. Nestle India Ltd. was supplying the raw material. They had given loan for purchase of machinery but it had not influenced the pricing and the assessable value of the goods manufactured by the assessee as an independent job worker. The value of the job worker alone is required to be adopted in terms of the Apex Court judgment rendered in the case of PAWAN BISCUITS CO. (PVT.) LTD. VERSUS COLLECTOR OF CENTRAL EXCISE PATNA 2000 (7) TMI 78 - SUPREME COURT which has followed the earlier judgment of the Apex Court rendered in the case of UJAGAR PRINTS ETC. ETC. VERSUS UNION OF INDIA OTHERS 1989 (1) TMI 124 - SUPREME COURT . There is no flow back of funds and the assessee herein does not have interest in M/s. Nestle India Ltd. s profits. There is no mutuality of interest and the relationship was on principal-to-principal basis. In view of this settled position of law dropping of proceedings by the Commissioner in both these orders is correct legal and proper. There is no merit in these appeals and the same are rejected.

Summary

Issues Involved:
1. Determination of the manufacturer under Section 2(f) of the Central Excise Act.
2. Re-determination of the assessable value of Nestle brand chocolates.
3. Inclusion of commitment charges in the assessable value.
4. Demand of duty on shortages of chocolates.

Detailed Analysis:

1. Determination of the Manufacturer:
The core issue was whether M/s. Nestle India Ltd. should be considered the manufacturer of chocolates produced at M/s. Campco's factory under Section 2(f) of the Central Excise Act. The Revenue argued that M/s. Campco should be deemed an agent of M/s. Nestle India Ltd. due to the interest-free loans provided by Nestle for purchasing machinery. However, the Commissioner found that both entities operated independently with no mutual interest or flowback of funds. The relationship was on a principal-to-principal basis. The Commissioner concluded that M/s. Campco was an independent job worker, and thus, the price adopted by M/s. Campco for job work should be accepted.

2. Re-determination of the Assessable Value:
The Revenue contended that the assessable value of Nestle chocolates should be based on the price set by M/s. Nestle India Ltd. The Commissioner, however, found no evidence that the interest-free loans from Nestle influenced the pricing of the goods. The price adopted by M/s. Campco for their own branded chocolates and for job-work clearances of Nestle chocolates was not comparable. The Commissioner cited the Supreme Court's decision in the Ujagar Prints case, which clarified that the assessable value should include the cost of raw materials, job charges, and job-worker's profit, excluding any subsequent profits or expenses. Thus, the price adopted by M/s. Campco was deemed appropriate.

3. Inclusion of Commitment Charges:
The show cause notice proposed to include commitment charges for semi-finished goods in the assessable value. The Commissioner found this allegation unsustainable, noting that the commitment charges were treated as exceptional debits in Nestle's Profit and Loss Account, akin to fines or penalties for non-performance. The Commissioner referenced the Supreme Court's ruling in the Indian Oxygen case, which held that such charges are not includible in the assessable value as they are compensation for non-performance, not a price for manufacture. The investigation lacked evidence to prove that these charges were extra payments or part of the normal selling price.

4. Demand of Duty on Shortages:
The show cause notice included a demand for duty on shortages of chocolates noticed by the Superintendent of Central Excise. The Commissioner found this issue unrelated to the main investigation and time-barred. The shortages were attributed to trial production and laboratory purposes, and the demand was not raised promptly.

Conclusion:
The Tribunal upheld the Commissioner's decision to drop the show cause notices. It was determined that:
- M/s. Campco was an independent job worker, not an agent of M/s. Nestle India Ltd.
- The assessable value should be based on the job worker's price, not the selling price of Nestle.
- Commitment charges for semi-finished goods are not includible in the assessable value.
- The demand for duty on shortages was time-barred and unrelated to the main issues.

The appeals were rejected as the Commissioner's orders were found to be correct, legal, and proper. The Tribunal also noted that the absence of an appeal against M/s. Nestle India Ltd. rendered the Revenue's appeal unsustainable.