2017 (6) TMI 323 - AT - Central Excise

Valuation - job-work - whether the commercial arrangement, comprising of a lease agreement, rent agreement and a job work contract, entered into between M/s. Suzuki Textiles Ltd. and M/s. PGO Processors was a sham arrangement to evade payment of central excise duty? Held that - reliance was placed in the case of RAJASTHAN SPG. & WVG. MILLS LTD. Versus COMMISSIONER OF C. EX., JAIPUR 2001 (4) TMI 118 - CEGAT, COURT NO. I, NEW DELHI , where it was held that such lease agreement for process house cannot be considered as a sham and process house owner cannot be regarded as real manufacturer. Accordingly, it was held that demand was not sustainable. The various aspects of this case need to be re-adjudicated in the light of the cited decision. On perusal of the impugned orders, we find that the adjudicating authority did not appear to have considered the said decision. Hence, we consider it appropriate to set aside all the impugned orders and remand the entire matter for reconsideration by the jurisdictional Commissioner - appeal allowed by way of remand.

Issues Involved:
1. Whether the commercial arrangement between M/s. Suzuki Textiles Ltd. and M/s. PGO Processors was a sham to evade central excise duty.
2. Correct valuation of clearances effected by M/s. PGO Processors.
3. Applicability of Notification No. 36/98-CE and 42/98-CE(NT) to M/s. PGO Processors.
4. Entitlement to deductions and abatements in duty demands.

Issue-Wise Detailed Analysis:

1. Whether the commercial arrangement between M/s. Suzuki Textiles Ltd. and M/s. PGO Processors was a sham to evade central excise duty:
The department contended that the lease agreements between Suzuki and PGO were bogus, designed to evade excise duty. Suzuki provided all financial support to PGO, indicating financial control over the process-house. The department argued that Suzuki was the actual manufacturer and liable for duty based on the sale price of the fabrics. The adjudicating authority held that Suzuki was the manufacturer under Section 2(f) of the Central Excise Act, 1944, and revoked PGO’s Central Excise Registration. However, the appellants argued that both entities were separate legal entities with independent registrations and operations, and the arrangement was genuine.

2. Correct valuation of clearances effected by M/s. PGO Processors:
The department insisted that the clearances should be valued based on Suzuki’s sale price, while the appellants maintained that the valuation was correctly done under the Ujagar Prints Principle (cost of grey fabrics plus processing charges). The Tribunal referred to a similar case (Rajasthan Spg. and Wvg. Mills Ltd.), where the lease of a process house was deemed genuine, and duty was correctly paid based on processing charges. The Tribunal found similarities between the cases and noted that the adjudicating authority had not considered this precedent.

3. Applicability of Notification No. 36/98-CE and 42/98-CE(NT) to M/s. PGO Processors:
PGO claimed to be an “independent processor” under the notifications, paying duty at specified rates per chamber per month. The department rejected this claim, arguing that Suzuki had a proprietary interest in weaving fabrics, making PGO ineligible. The Rajasthan High Court allowed PGO to clear goods provisionally under the notification until the matter was resolved. The adjudicating authority later ruled that PGO was not an independent processor, making the notifications inapplicable.

4. Entitlement to deductions and abatements in duty demands:
The appellants sought deductions for selling expenses and brokerage, which the department partially allowed. The Tribunal noted that the adjudicating authority had granted some relief but needed to reconsider all aspects in light of the cited precedent. The Tribunal emphasized re-adjudication to ensure all relevant deductions and abatements were appropriately considered.

Conclusion:
The Tribunal set aside the impugned orders and remanded the matter for reconsideration by the jurisdictional Commissioner. The Commissioner was directed to re-evaluate the facts in light of the Tribunal and Supreme Court decisions, providing a fair hearing to all appellants and admitting additional evidence as per law. The judgment emphasized the need for a thorough re-examination to ensure proper application of legal principles and accurate determination of duty liabilities.

← Previous Next →