1995 (2) TMI 172 - AT - Central Excise

Summary

Issues Involved:
1. Determination of the assessable value of detergent cakes manufactured by M/s. Naga for M/s. TOMCO.
2. Relationship between M/s. Naga and M/s. TOMCO: Principal-to-Principal or Principal-Agent.
3. Applicability of Section 4(1)(a) or Section 4(1)(b) of the Central Excises & Salt Act, 1944.
4. Classification of M/s. TOMCO as a wholesale dealer under Section 4(4)(e) of the Central Excises & Salt Act, 1944.

Issue 1: Determination of the Assessable Value
The core issue was whether the assessable value of the detergent cakes should be the price at which M/s. TOMCO sold the product or the price declared by M/s. Naga. The Assistant Collector had issued show cause notices and demanded differential duty, holding that the assessable value should be the price at which M/s. TOMCO sold the detergent cakes, as the goods entered the wholesale trade only in the hands of M/s. TOMCO. The Collector (Appeals) set aside this order, holding that the relationship between M/s. TOMCO and M/s. Naga was on a principal-to-principal basis and that M/s. Naga's declared value should be accepted.

Issue 2: Relationship between M/s. Naga and M/s. TOMCO
The Department argued that M/s. Naga was merely a manufacturing agent of M/s. TOMCO, citing clauses in the agreement that indicated control over raw materials and the use of trademarks. However, the Collector (Appeals) found that there was no evidence that M/s. TOMCO provided men, materials, machinery, or finance to M/s. Naga. The agreement included clauses indicating a principal-to-principal relationship, such as the outright sale of products to M/s. TOMCO and the responsibility of M/s. Naga for excise duty and sales tax.

Issue 3: Applicability of Section 4(1)(a) or Section 4(1)(b)
The Department contended that since M/s. TOMCO controlled the manufacturing process and the goods did not enter the market at the point they left M/s. Naga's factory, the valuation should be done under Section 4(1)(b) with reference to the Valuation Rules. The Collector (Appeals) disagreed, stating that when there is a normal price under Section 4(1)(a), resorting to Section 4(1)(b) was not permissible. The Tribunal upheld this view, noting that the agreement indicated an arms-length transaction and that M/s. Naga was the independent manufacturer.

Issue 4: Classification of M/s. TOMCO as a Wholesale Dealer
The Department argued that M/s. TOMCO could not be considered a wholesale dealer under Section 4(4)(e), as the goods did not enter the wholesale trade at the point they left M/s. Naga's factory. The Collector (Appeals) and the Tribunal found that M/s. TOMCO fell under the category of "other buyers who purchase the requirements otherwise than in retail," as defined in Section 4(4)(e). The Tribunal noted that the definition of "wholesale dealer" in Section 2(k) of the Central Excises & Salt Act, 1944, is inclusive and should be interpreted broadly to include bulk purchasers.

Conclusion:
The Tribunal upheld the Collector (Appeals)'s decision, concluding that the relationship between M/s. Naga and M/s. TOMCO was on a principal-to-principal basis and that the assessable value should be the price declared by M/s. Naga. The Tribunal rejected the Department's contention that M/s. TOMCO was not a wholesale dealer and found no reason to interfere with the orders passed by the Collector (Appeals). The appeals were, therefore, rejected.