9911796707
TMI Blog1991 (1) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... k charges at a fixed rate per kg. which covers the cost and profit of the appellants. The appellants shall be responsible for compliance with the provision of the Central Excise Act and Rules framed thereunder and shall maintain separate accounts and records regarding the payment of central excise duty including price of all raw materials, received, consumed, wasted and manufactured. The BIL are also independent manufacturers having their own factory and possessing central excise licence issued under the Act. They were submitting classification lists and price lists from time to time on the basis of the price at which the BIL was selling biscuits in the wholesale market and they were being approved by the central excise authorities from time to time. 2. After the Supreme Court delivered the judgment in Ujagar Prints and Others v. UOI [1987 (27) E.L.T. page 567 (SC)] the appellants submitted the price lists No. 6/87, 7/87 and 8/87 on the basis of cost of raw material and conversion charges. 3. The Asstt. Collector issued a show cause notice dated 16th November, 1987 proposing to disapprove the price lists. The appellant replied on 15th December, 1987 stating that the assessable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince biscuits of identical brand manufactured by BIL in its own factory they will be assessed to duty on wholesale price including his manufacturing cost and manufacturing profit less admissible deductions. The assessable value of biscuits cleared by BIL from its own factory thus would be higher than the value of biscuits of the same brand cleared from the appellants factory. If the appellants contention for the purpose of duty should consist of the cost of raw material and the job charges alone certain elements representing the cost would escape assessment. Holding as above the Collector dismissed their appeal. 5. Challenging the order of the Collector (Appeals) Shri R.N. Das, learned counsel for the appellants made the following submissions :- The agreement between the appellants and the BIL is nothing but job work agreement. The relationship between the appellants and BIL is that of principal to principal and not that of principal and agent. The transaction between the appellants and BIL is at arm s length. The assessable value, therefore, in view of the judgment of the Supreme Court in Ujagar Prints is the cost of raw material plus job work charges plus manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the said manufacturer is selling the said goods and the person so authorised agrees to discharge all the liabilities under the said Act and the rules made thereunder. The price at which he is selling the goods must be the value of the grey cloth or fabric plus the value of the job work done plus the manufacturing profit and the manufacturing expenses but not any other subsequent profit or expenses. It is necessary to include the processor s expenses, costs and charges plus profit, but it is not necessary to include the trader s profits who gets the fabrics processed, because those would be post-manufacturing profits." 6. Challenging the findings of the Collector that there is no sale between the appellants and the BIL at the factory gate he submitted that the term the wholesale trade in Section 4(4)(e) means sales to dealers or other buyers etc. otherwise than in retail. Since the appellants delivery of Britania biscuits to BIL is a deemed sale as per Supreme Court judgment in Ujagar Prints and since such sale is not retail sale it is deemed to be a wholesale sale within the meaning of Section 4(4)(e). He relied on the following judgments in support of his various contentions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to produce documents relating to overhead administrative charges and margin of profit. It is alleged that since the goods are manufactured by Pawan Biscuits on behalf of the BIL and since goods are not sold by Pawan Biscuits to BIL the assessable value should be the wholesale price of Britania. In reply to the show cause notice Mr. Asthana submitted, that the appellants did not furnish any documents as required. However, they invited attention to their so called conversion agreement and claimed determination of the value on the basis of Supreme Court s decision in the case of Ujagar Prints. The Asstt. Collector on the basis of the terms of the agreement namely that the raw material is provided by BIL is kept in godown inside the premises of the factory of the assessee but the material remains under the charge of an officer of BIL who is posted within the factory premises of the appellants, whenever the assessee requires the material they gave a daily requisition slip to the said officer of the BIL who issued raw material; BIL exercised quality control over raw material and products and end-products; the assessee does not procure any raw material from outside; BIL has supervisory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufactured on behalf of the buyers was not raised specifically and considered in the said judgments. 13. He further submitted that assuming for the sake of arguments that the decision of the Supreme Court in Ujagar Prints applies to this case, the value declared in the price list is not ascertainable for the reason that it does not include manufacturing profit of the appellants. In this connection he pointed out that even according to the formula indicated by the Supreme Court the assessable value has to include all those elements which have been specifically held to be includible in the assessable value by the Supreme Court in the case of Bombay Tyre International. The conversion charges can never include the full manufacturing profit because a manufacturer who himself buys his raw material would like to calculate his profit with reference to his total investment and not merely conversion charges. The Supreme Court reference to manufacturing charges, does not imply the manufacturing profit in relation to conversion charges but it covers the entire profit which a manufacturer who is performing all manufacturing functions would like to have on the sale of goods for delivery from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BIL, provide adequate security arrangements to protect against loss by theft or otherwise the materials and equipment supplied by BIL and the manufactured brand/s held on behalf of BIL. (13) The said brand/s to be manufactured by the Manufacturing Concern on the order/s placed by BIL shall be strictly in accordance with BIL s standards, specifications and stipulations hereinbefore contained and shall be of same standard and specifications as the said brand/s manufactured by BIL or as may be laid down by BIL from time to time. If in the opinion of BIL there is any default by the Manufacturing Concern in compliance with BIL s standards, specifications and stipulations hereinbefore contained, BIL shall have the right to reject any of the said brand/s and on such rejection and in addition to what is stated in Clause (4) hereinabove the same shall be destroyed by the Manufacturing Concern without BIL having any liability for any charges, damages or compensation to the Manufacturing Concern and further on such rejection BIL shall have the right to deduct and/or adjust and/or recover from the manufacturing concern the cost of the entire ingredients and packing materials used by the Manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nifest from the clauses of the agreement that in the manufacture of the goods by the appellants BIL has exercised control, direction and supervision and the raw material belongs to BIL. BIL has to make available to the appellant free of charge such information and technical assistance as it considers necessary which includes packing specifications and wrapping and packing material to enable the appellants to manufacture the goods. The goods have to be manufactured strictly in accordance with the processing details, formula, recipe and packing specification provided by BIL. BIL under the agreement has to supply at its own cost to the appellant the biscuit cutters, moulders, ingredients and packing material required for the manufacture of the said brands, and the appellants are prohibited from using the said material for any other purpose other than the manufacture of branded biscuits of BIL. The material thus supplied shall be returned by the appellant at its cost to BIL. It is the BIL which is responsible for insuring the goods which are under custody of the appellant. The appellant has to provide adequate security arrangement to protect the goods against any loss. If the goods man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excess material by BIL the appellant can dispose of the same by powdering/mutilating and is entitled to retain the sale proceeds. The very fact that the appellant cannot dispose of the manufactured product in case where the product is not to the specification prescribed by BIL and in other circumstances shows that the appellant has no title to the goods manufactured by them. Secondly, the appellant has to account for the goods which were defective to BIL. From these circumstances it is clear that the relationship between the appellant and BIL is of agent and principal. Further the appellant has to act with reasonable diligence and use such skill as they possess and they have to pay compensation to BIL in respect of the direct consequences of their act for want of skill etc. In other words where there is a failure on the part of the appellant to comply with the specification prescribed by BIL or where there is a defect in the manufacture of goods the appellant does not get title to those goods unless they make good the loss by permitting BIL either to deduct the loss from the remuneration payable to them or recovered the same from them. Further, the appellant has to deal with the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in Atic Industries Limited v. H.H. Dave [1978 (2) E.L.T. (J 444) (SC)] held as follows :- The only relevant price for assessment of value of the goods for the purpose of excise in such a case would be the wholesale cash price which the manufacturer receives from sale to the first wholesale dealer i.e. when the goods enter the stream of trade. -. It is first immediate contact between the manufacturer and the trade that is made decesive for determining the wholesale cash price which is to be the measure of the value of the goods for the purpose of excise. There can be, therefore, no doubt that whether a manufacturer sells the goods manufactured by him in wholesale to a wholesale dealer at arm s length and in the usual course of business, the wholesale cash price charged by him to the wholesale dealer less trade discount would represent the value of the goods for the purpose of assessment. That would be the wholesale cash price for which goods are sold within the meaning of Section 4(1) (a)." The above observations were reiterated by the Supreme Court in Bombay Tyre International. 26. As pointed out earlier BIL is not a wholesale dealer within the meaning of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds entered into the open market (emphasis supplied) (Late Shri S. Mukherjee, CJ in Ujagar Prints [1988 (38) E.L.T. page 535] when the goods are delivered on the instructions of BIL to their depots there is no open market in existence. The goods are not available for purchase to anyone except to BIL. In other words they are not freely available to all wholesale dealers. Therefore, it is not a sale at arm s length. Therefore, the job charges and the intrinsic value of the raw material supplied by BIL and the appellant s profit does not represent the wholesale cash price in the usual course of business, and therefore, does not represent the normal price within the meaning of Section 4(l)(a). Therefore, the contention of the learned counsel that the issue is squarely covered by the judgment in Ujagar Prints can not be accepted. 27. It follows from the above, that the normal price under Section 4(1)(a) is not ascertainable on the facts of the case. The next provision that is applicable is Section 4(l)(b) which reads as follows :- Where the normal price of such goods is not ascertainable for the reason, that such goods are not sold or for any other reason, the nearest ascertainabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of the case. 29. The learned counsel relied upon a number of judgments/decisions for the purpose of deciding the issue. The First decision relied upon by the learned counsel is the judgment of the Supreme Court in the case of UOI v. Cibatul Ltd. [1985 (22) E.L.T. page 302 SC]. The facts of the said case are as follows: Ciba Geigey of India Ltd. was a registered or the licenced user of the trade mark. The respondent in the said case M/s. Cibatul Ltd. entered into an agreement with Ciba Geigy of India Ltd. for the manufacture of goods mentioned in the agreement. While construing the agreement the Supreme Court observed that the manufacturing programme is drawn up jointly by the Ciba Geigy of India Ltd. and not merely by the buyer (emphasis supplied). It was also observed that it is significant to note that the buyer is not obliged to purchase the goods manufactured by the seller, regardless of their quality and in the event of rejection by the buyer the alternatives present before the seller extend to the sale of the manufactured goods to others or to the very destruction of the goods. It is apparent that the seller cannot be said to manufacture the goods on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In M/s. Harshell Rubber (P) Ltd. [order No. 217/89-A] the appellants were manufacturer of Suction Hoses with the trade name of M/s. Goodyear under the contract. The contention was that the goods were embossed with the trade name of Goodyear indicated that the goods were not of the same kind/quality manufactured by the factory and the goodwill associated with the brand name also cost into the value of goods. The department also contended that the price is depressed on account of, (i) free technical services of Goodyear, (ii) financial help, and (iii) price of the goods cannot be increased unilaterally by the appellants and it has to be done in consultation with M/s. Goodyear. The argument of the appellants was that the department did not base its case on the agreement and for the first time they were setting up a new case. The Tribunal following three judgments in Cibatul, Food Splts., and Siddho Sons held that the assessable value should be the value at which the appellants sold the goods to the Goodyear. This case has no relevance as the raw material belonged to the appellant. The only significant feature is that they only emboss the name Goodyear to the goods manufactured by them ..... X X X X Extracts X X X X X X X X Extracts X X X X
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