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TMI Blog2015 (7) TMI 432X X X X Extracts X X X X X X X X Extracts X X X X ..... actured by FHS would have to be determined in accordance with the Apex Court’s Judgment in the case of Ujagar Prints and Ors. vs UOI [1989 (1) TMI 124 - SUPREME COURT OF INDIA] i.e. aggregate the cost of the raw material, job charges and job worker s profit and not the price at which the goods were being sold by Heinz form their depots and as such the judgments in the case of S. Kumars vs CCE [2005 (11) TMI 71 - SUPREME COURT OF INDIA] would not be applicable to the facts of this case. The impugned order is, therefore, set aside - Decided in favour of assessee. - Excise Appeal No. E/5262/2004-EX[DB], Excise Appeal No. E/5261/2004-EX[DB], - Final Order No. 51908-51909/2015 - Dated:- 28-5-2015 - Mr. Rakesh Kumar, Member (Technical) And Mr. S. K. Mohanty, Member (Judicial),JJ. For the Appellant : Shri B. L. Narasimhan, Advocate, Shri Rahul Tangri, CA For the Respondent : Shri. Govind Dixit, DR ORDER Per: Rakesh Kumar 1. The facts leading to filing of these appeals are, in brief, as under:- 1.1 M/s.Food Health Care Specialities, Plot No.135, Sector-24, Faridabad (hereinafter referred to as FHS) are engaged in blending and packing of various food products ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principal basis and FHS shall not do any act even to induce others to believe that it is an agent of Heinz. 1.2 The dispute in the present case is only in respect of valuation of Glucon-D as the other product Complan being blended and packed by FHS was notified under section 4A of the Central Excise Act and its value was being determined as per the provisions of section 4 A. During the period of dispute, FHS were clearing the blended and packed Glucon D to Heinz on payment of duty on the value determined in terms of the Apex Court judgment in the case of Ujagar Prints and others vs. Union of India reported in 1989 (39) ELT 493 (SC), that is, on the basis of cost of raw-material received plus job charges plus the profit margin of FHS. 1.3 Sometime in October, 2000, the Department initiated enquiry and also analyzed the terms of the agreement between FHS and Heinz to ascertain as to whether the same are on principal to principal basis or not. The enquiry was initiated, as with effect from October, 2000, the assessable value of the Glucon - D manufactured and cleared by FHS to Heinz had been reduced, as compared to the assessable value during the earlier period. Here it may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eon under section 11 AB. Beside this, the Commissioner also imposed penalty of ₹ 1.5 Crores on FHS under Rule 173 Q (1) of the Central Excise Rules 1944/Rule 25 (1) of Central Excise Rules, 2001 and also penalty of same amount on Heinz under Rule 173 Q (1) of Central Excise Rules 1944 read with Rule 25 (1) of Central Excise Rules, 2001 and also another penalty of ₹ 2.00 Crores on the under Rule 209 A of the Central Excise Rules, 1844/ Rule 26 of the Central Excise Rules 2001. 1.5. Against this order of the Commissioner these appeals have been filed. 1.6. The above appeals were earlier decided by the Tribunal vide order dated 12.01.2005 by which the Commissioner s order was set aside and the appeals were allowed. 1.7. Against the above order dated 12.01.2005 of the Tribunal, the Revenue filed an appeal to Supreme Court under section 35 L (b) of Central Excise Act, 1944. The Revenue s appeals were disposed of by the Apex Court vide order dated 13.02.2012 reported in 2012 (277) ELT 3 (SC) by which the Apex Court remanded the matter to the Tribunal for denovo decision observing that if the transaction between job worker and principal manufacturer are not at arm s l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not related persons, then the present decision of the Tribunal will stand affirmed. However, if the Tribunal finds that the Assessee and Heinz are related, it shall remit the matter to the Adjudicating Authority for fresh determination of the assessable value of the goods in question in accordance with law. However, having regard to the facts and circumstances of the case, there will be no order as to costs. 1.8. Thus, the Apex Court remanded this matter to the Tribunal for examining (a) as to whether the nature of relationship between FHS and Heinz is such that the transactions between them cannot to be at to be end arm s length and FHS and Heinz are related persons; and (b) If the Tribunal finds that FHS and Heinz are related persons, it shall remit the matter to the adjudicating authority for fresh determination of the assessable value of the goods in question in accordance with law. 2. Accordingly, the matter was heard on 08.05.2015, 11.05.2015, 12.05.2015 13.05.2015. 3. Shri B.L. Narasimhan, Advocate, the ld. Counsel for the appellant, pleaded that the agreement between FHS and Heinz is on principal to principal basis only and hence, they are not related per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Ltd. Vs.CCE, Vishakhapatnam reported in 2004 (168) ELT 40 (Tri. Bang.) has held that when the job worker has set up his factory with his own finance and functions independently, the job worker and the principal manufacturer cannot be treated as related persons and the value of the goods manufactured by the job worker shall be determined in accordance with Apex Court s judgment in the case of Ujagar Paints Ltd. (Supra) and this judgment of the Tribunal has been affirmed by the Apex Court vide order dated 17th April 2015; that the Tribunal in the case of Glenmark Pharmaceutical Ltd. reported in 2008 (224) ELT 267 (Tri. Mum.) has held that merely giving manufacturing instructions, manufacturing program and specifications of the goods to be manufactured does not mean that the goods were being manufactured under the supervision and control of the raw-material supplier (principal manufacturer) unless there is evidence to show that the factory premises of the job-worker had been hired by the principal manufacturer shift-wise or otherwise, the staff had been completely lent by the job-worker to the principal manufacturer / raw-material supplier and their salaries were paid by the princip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermine the relationship between the assessee (FHS) and Heinz and give a finding whether they are related persons or otherwise. In terms of definition of related person , as given in section 4(3)(b) as it existed during the period of dispute, the two could be treated as related person only if there was mutuality of interest, direct or indirect, in the business of each other. He emphasized that there is nothing in the agreement between FHS and Heinz from which it can be concluded that there was mutuality of interest in each others business. Beside this, he also pointed out that there is no cross-holding of shares, that is, shareholding of FHS in Heinz and share- holding of Heinz in FHS. He, therefore, pleaded that even on the basis of the definition related person as given in section 4(3) (b) of Central Excise Act 1944 , the FHS Heinz cannot be termed as related person and therefore, the Apex Court judgment in the case of S.Kumars (supra) would not be applicable. 4. Shri Govind Dixit, the ld. Departmental Representative, defending the impugned order by reiterating the findings of the Commissioner made the following submissions. (1). In para 2 of the Apex Court s judgment r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent also uses the terms like examination, inspection, testing, advice, recommendation, communication of standards all of which are general in nature and do not restrict the independence of the manufacture (FHS) who is doing the job work for Heinz However, the conditions regarding issue of instructions directions by Heinz to FHS, supervision of production by Heinz, the determining of production schedule of FHS by Heinz and access to all the data of FHS by Heinz are the conditions which restrict and substantially curtail the independence of FHS and the transactions between them cannot be said to be on principal to principal basis. (4) In terms of clause (d) of the preamble to the agreement, Heinz has agreed to allow FHS to blend and pack Glucon D and such other product as may be intimated to it by Heinz from time to time and for the purpose, has agreed to disclose and communicate to FHS the know-how necessary for blending and packing of the same as per the terms and conditions in the agreement. Accordingly, Heinz has provided the necessary know-how to FHS for which FHS has not paid any charges. This is a financial benefit for FHS. This shows that the transaction between them are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime. Shri Dixit pleaded that these two clauses also restrict the freedom of operation of FHS. Shri Dixit pointed out to para 16, 17 and 23 (4) of the agreement and pleaded that these clauses of the agreement also considerably reduce the freedom of operation of the FHS. Shri Dixit citing the Apex Court s judgment in the case Union of India Others Vs. Atic Industries Ltd reported in 1984 (17) ELT 323 (SC) pleaded that interest between two persons in the business of each other can be direct or indirect and pleaded that various clauses of the agreement between FHS Heinz, as discussed above point to direct as well as indirect interest between FHS and Heinz in the business of each other and hence the two have to be treated as related persons. (8). Shri Dixit cited the judgment of Hon ble Bombay High Court in the case of Pilky Foot Wear Co. Pvt. Ltd. vs. Union of India and others reported in 1980 (6) ELT 338 (Bom.) which has been affirmed by the Apex Court vide judgment reported in 2000 (120) ELT 289 (SC). In the case of Pilky Footwear Co. Pvt. Ltd., the assessee as job worker of Bata Shoe Co., in terms of their agreement with Bata Shoe Co. were to manufacture the shoes and the agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the plant and other working expenses of M/s. Pilky Footwear was to be provided by Bata Shoe Co. to Pilky Footwear Co. Pvt. Ltd. with the stipulation that the Pilky Footwear Co. Pvt. Ltd. will sell the whole stock with the brand-name of Bata Shoe Co. and beside this, there was also condition that Pilky Footwear Co. Pvt. Ltd. were also barred from enlarging their production capacity. Besides this, interest free advance had been given to Pilky Footwear Co. Pvt. Ltd. for procurement of machinery. He pleaded that it is mainly because of these facts that the Bombay High Court held that transactions between Pilky Footwear Co. Pvt. Ltd. and Bata Shoe Co. are not on principal to principal basis and it is this judgment which has been affirmed by the Apex Court. Sh. Narasimhan pleaded that in the present case apart from the job charges, no other monetory consideration, direct or indirect, in the form of any interest free advances etc. has been received by FHS from Heinz. He, therefore, pleaded that the Apex Court s judgment in the case of Pilky Footwear Co. Pvt. Ltd. is not applicable to the facts of this case. (2). In the case of Modi Alkalies and Chemicals Ltd. (Supra) and Calcutta Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or quality control in their own quality control department. * The agreement between FHS Heinz shall not be one of agency FHS and Heinz deal on principal to principal basis and FHS shall not do any act or even induce others to believe that it is an agency of Heinz. * FHS shall store on behalf of Heinz in the manner prescribed, sufficient quantities of materials to be blended and packing material as may be necessary and it would be the responsibility of FHS that there is no damage to the goods stored in their premises which belong to FHS and if there is any damage or loss of the raw material/ packing incurred to Heinz, the same shall be compensated by FHS. * Heinz will, from time to time, prescribe a schedule for blending and packing of the said product for such quantities as it may require at the agreed rate and delivery of the packed stocks within the time specified. 6.1 The dispute in the present case is about assessable value of the Glucon D blended and packed by FHS in terms of the above agreement for Heinz. The period of dispute is from October 2000 to February 2002. During the period prior to October 2000 i.e. from March 2000 to September 2000, FHS had paid duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation to section 4(3)(b), the term relative shall have meaning assigned to is in sub-section 41 of section 2 of the Companies Act, 1956 and the term interconnected undertakings shall have the meaning assigned to it in clause (g) of section 2 of Monopoly and Restricted Trade Practices Act, 1969. It is not the case of either side that FHS Heinz are interconnected undertakings or are relatives or that the buyer Heinz is a relative and distributor of the Assessee or sub-distributor of such distributor . The case of the Department is that FHS and Heinz are so associated that they have interest directly or indirectly in the business of each other and that the terms of the agreement between FHS and Heinz clearly indicate to the existence of direct as well as indirect interest in each other s business. 8. In our view, the expression. interest directly or indirectly used in clause (iv) of section 4(3)(b) would refer to the financial interest only. Thus two persons A and B would be treated as related persons only if from the nature of transactions between them it is clear that it is not the intention of the transactions between them that that the sale of goods and/ or servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2 The other conditions of the agreement that - FHS will do the blending and packing of Glucon D and Complan for Heinz as per their specifications and quality standards, and that manufacturing schedule of FHS shall be as per the instructions of Heinz or that Heinz shall have access to the factory of FHS to inspect their operations, cannot be said to be the conditions which will make FHS and Heinz related persons or FHS as a hired labour of Heinz. Similarly the condition that the FHS will be allowed manufacturing/ handling loss of not more than 1.5%, and that the goods which are not found to be as per the specifications and quality standards of Heinz shall be destroyed by Heinz and the cost of the same would be recovered from FHS are the conditions to avoid unnecessary waste and ensure the desired quality of the products and these clauses of the agreement also cannot be said to be the conditions which curtail the financial freedom of FHS to transact with Heinz and make then a pure hired labour and extension of FHS. 8.3 In the present case FHS had invested in their own plant and machinery and were manufacturing food products for other persons also. There is no allegation that H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of SSI exemption was involved which is not a case here and therefore, Apex Court judgment in the case of Supreme Washers (P) Ltd. vs CCE Pune is also not applicable to the facts of this case. 8.6 As regards, the Apex Court s judgment in the case of Calcutta Chromotype Ltd. vs. CCE, Calcutta Cited by Ld. DR, the Apex Court in that case held that the merely because the transaction in between two or more companies, it does not lead to an inescapable conclusion that both are unrelated and the court can always lift the corporate veil of the companies to see whether or not any colourable device has been deployed to get evade the tax. In other words, the principle laid down in this judgment is that the court can lift the corporate veil to ascertain as to whether two or more companies are actually being controlled financially and managerially by the same persons or group of persons and are in fact one entity. In the present case from the terms of agreement between FHS Heinz, we do not find any clause from which it can be concluded that Heinz had all pervasive, managerial and financial control over FHS. There is a clause in the agreement between FHS and Heinz under which FHS are requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the principal manufacturer to ensure that the goods got manufactured by the job worker are as per his quality standards and specifications and there is minimum waste of raw material and packaging material by the job worker. These conditions are compatible with arm s length transactions as freedom of operation to a job worker also not mean freedom to waste the raw material supplier s (Principal Manufacturer) material, or manufacture sub standard goods and not sticking to the delivery schedule of the principal manufacturer. 9. Apex Court in a recent judgment in case of CCE Goa vs Cosme Pharma Laboratory Ltd. reported in 2015-TIOL-35 SC-Cx has held that the loan licensee who has been issued the necessary license by the drug controller to manufacture certain medicaments but does not have the factory and the other infrastructure to manufacture the same and for this reason, he gets the medicaments manufactured through another manufacturer out of raw material supplied by him and as per his specification and under his supervision and control, would not be treated as the manufacturer and it is the job worker in whose premises the goods were manufactured by using his (job worker s) l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doing job work, has established the manufacturing facility with his own finance and functions independently with the profit and loss being to his account, he cannot be considered as a hired labour but has to be treated only as an independent job worker. In the present case, FHS had set up their factory with their own finance and they employed their own labour and they were manufacturing products not only for Heinz, but were manufacturing different food products for other persons also and as such were functioning independently with the profit or loss being to their account. From this criteria also, FHS cannot be treated as a hired labour of Heinz. 11. In the case of M/s Max Health Care (P) Ltd. vs CCE Bhopal reported in 2007 (218) ELT 286 the appellant was manufacturing Vicks cough drops for Proctal Gamble India Ltd. (PGIL) out of raw material, packing material technical knowhow provided by Proctal Gamble India Ltd. (PGIL) and were also manufacturing similar goods on job work basis on the same terms for Dabur India Ltd and Cadbury Nestle India Ltd. In this case also the Tribunal held that just because goods were being manufactured by M/s Max Health Care (P) Ltd. of us ..... X X X X Extracts X X X X X X X X Extracts X X X X
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