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TMI Blog2023 (1) TMI 590X X X X Extracts X X X X X X X X Extracts X X X X ..... cleared during the disputed period. However, the cost of moulds needs to be apportioned on the value of clearances from the period 24.01.2003 to the time the said mould were used to manufacture goods for ITC - It is also noticed that the ITC has supplied gifts valued at Rs.1.5 Crores which are to be backed with the products manufactured by LHL is free gifts to be supplied to the customers. The ITC has deputed certain employees by Leamak. The role of the employees was coordination of dispatches of material to various godowns, supervision of quality of raw material, packing material and finished goods - the staff deputed not for the purpose of manufacturing the goods but only for the purpose of inspection and supervision and quality control cannot be part of the assessable value of the goods. M/s. LHL and ITC have contended that the amount of Rs.1,72,69,155/- which as been sought to be included in the assessable value is the value which the appellant have already included in the assessable value, fresh inclusion of the said in the assessable value amount to double taxation. The cost of production not included by Leamak has already suffered excise duty and the appellants have n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . on job work basis. As per the agreement entered between LHL and ITC, the packing material has been supplied by ITC and the goods manufactured by the LHL were handed over to ITC at factory gate. The LHL was paying Central excise duty on the value arrived at on the basis of raw material cost plus packing material cost plus conversion cost. Prior to June, 2005 the LHL was discharging duty on MRP basis under Section 4A of the Central Excise Act, 1944. 1.3 A show cause notice was issued by revenue alleging that ITC and LHL have interest directly or indirectly in the business of each other and therefore, the two are related in terms of Section 4(3)(b) of the Central Excise Act, 1944 and therefore, the assessable value should be governed by Rule 9 of Central Excise Valuation (Determination of Price of Excisable goods) Rules, 2000. Consequently, demand of central excise duty was raised against LHL and notice for imposing penalty was issued to both the LHL and ITC. The said demand was confirmed by Order-In-Original dated 10.08.2010 holding that LHL and ITC were related in terms of Section 4(3)(b)(iv) of the Central Excise Act, 1944. The penalty was also imposed on both LHL and ITC. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid down by Apex Court's decision in the case of M/s Ujagar Prints (supra). In this case the valuation of goods is required to be decided by the adjudicating authority under the provisions of Rule 11 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000 applicable at the relevant time. We accordingly remand the case back to the adjudicating authority to determine the value of the goods as per the provisions of Rule 11 of the Valuation Rule 2000. Needless to say that appellants should be given an opportunity to present their case in de-novo proceedings, before taking a final view on the issue. The Commissioner in the remand proceeding again confirmed the demand of central excise duty amounting to Rs.2,48,06,064/- along with interest under Section 11AB of the Central Excise Act, 1944, penalty under Section 11AC of the Central Excise Act read with Rule 25(1) of Central Excise Rules, 2002 was also imposed on LHL and a penalty of Rs.60 lacs was imposed on ITC under Rule 26(1) of Central Excise Rules, 2002. Aggrieved by the said order, the LHL and ITC are in appeal before this tribunal. Revenue is also in appeal against the said order. 02. Lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .12.2004 was amended from time to time and the last agreement was 01.04.2009. The common features of all the agreements entered into on 13.12.2004, 20.05.2005, 01.07.2007, 11.12.2008 and 01.04.2009 are as follows:- Leamak shall manufacture confectionary as per weight and specification as given in the P.O. placed by ITC and the know-how given by ITC. The price of the finished products will be indicated in Annexure 2 inclusive of sales tax, other taxes, duties, etc. The Central Excise duty paid by Leamak will be reimbursed at actual after receipt of a debit note by ITC. The raw materials / packing materials required for use will be in accordance with specifications given by ITC who would give list of approved suppliers. If there is a delay in supply, ITC is entitled for the discount of 0.50 Paise / kg. on the agreed price. Leamak will arrange for the moulds for the manufacture of confectionary. Leamak shall deliver the confectionary to ITC ex-factory and deliver the same to the transporter nominated by ITC. ITC shall have the right at all times to inspect the premises of Leamak including during the preparation, production, packaging of the confectionary withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erms of the agreements entered into between Leamak and ITC. He argued that if the buyer has deputed staff to ensure quality control that cannot be a ground for holding that the price of the assessee at which the goods are cleared with the buyer is not the normal price. He relied on the following judgments:- JJ Confectionery P. Ltd. v CCE-2007(210) ELT 196(T-Bang); OCP India P.Ltd.-2003(156)ELT 378 (T-Kol); CIMMCO Ltd. v CCE 1994(74)ELT 687 (T) 2.7 He argued that payment of Rs.25,88,257/- by ITC towards 50% of the cost of moulds, this amount was paid by ITC during the year 2002-2003 and the said moulds were exclusively used in the manufacture of confectionary. This transaction took place much before the impugned period, viz., 2005-2007 and as such has no bearing to the present case. In a five member bench decision in the case of Mutual Industries Ltd., vs. CCE 2000 (117) ELT 578 (T-LB) it was held that if advance was received against moulds and dies, notional interest on such advance is not includable in A.V. However, the cost of moulds and dies should be amortized and included in the A.V. During 2003-04, the agreement was Buy-Sell model and the transaction value ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods for free supply to buyers is not includible to arrive at the assessable value in this connection. In this regard he placed reliance on the following judgments:- Oswal Fats Oils v CCE - 2003(156) ELT 112 (T-Del)] Pace marketing Specialties Ltd v. CCE Meerut - 2003(153) ELT 621 (T-Del) 2.11 He argued that Cost certificates were issued by M/s. Shome and Banerjee, Cost Accountants, Kolkata. The cost certificates indicate the conversion cost of the impugned goods manufactured by Leamak during the period 1.9.2005 to 31.3.2006 is Rs.13.50 per kg. The Cost Accountant appointed by the Department in his Special Audit Report vide Paras 6.1.2. and 6.1.2.1 observed as follows: Details of product-wise consumption of items of inputs provided by Leamak by M/s. Shome Banerjee, Cost Accountants have tallied, except for free goods provided by Leamak (sic) for packing the same in the product packs during the course of manufacture, with the certificates . 2.12 He further argued that the following cost elements are not includible in the assessable value : Cost of production which was not included by Leamak Outward freight from Leamak to ITC Marketing spends ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessable value, as such expenditure is not incurred on behalf of the manufacturer (assessee). The above decision was upheld and maintained by the Hon'ble Supreme Court as reported 2006 (197) ELT A192 (SC). This position was also clarified in CBEC vide Circular F.No.354/81/2000-TRI dated 30.6.2002 [2000 (119) ELT T22] 2.14 He further pointed out that the Institute of Cost And Works Accountants of India in CAS 22 Cost Accounting Standard on manufacturing cost published by the Institute in Para 4.2. clarified that Administrative Overheads in relation to Marketing, Projects Management, Corporate Office or any other expense not related to manufacturing activities shall be excluded from the manufacturing cost . Further, the IC WA, New Delhi in their clarificatory letter No. Tech/05/2007 dated 11.5.2007 addressed to CC, Ahmedabad in response to a letter No.MP/PI-V/Ing-20/0506 Pt-1/2451 dated 9.4.2007 stated that Marketing spends and fixed cost of ITC is not includable in the assessable value of the impugned goods cleared by Leamak to ITC . 2.15 He argued that the differential duty demanded in this case covers the period Sept 2005 to March 2007. In this case a Show Cau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Justice and on this count itself the impugned order is liable to be quashed. 2.18 He further submit that the Final Order No. A / 1000210003/ 2014 dated 1.1.2014 of the Tribunal was passed with specific directions to the Learned Commissioner to determine the Assessable Value in terms of Rule 11 of CVR, 2000. Further, the Tribunal have given a clear finding that ITC and Leamak are not related persons and there was no mutuality of interest. The Tribunal have not made any adverse observations against the Appellants (ITC), in the determination or the declaration of the assessable value by Leamak. The Tribunal have given only specific directions regarding the re-determination of the assessable value under Rule 11 of the CVR, 2000 and it was not an open remand to the effect that All issues are kept open. 2.19 He pointed out that the order of the adjudicating authority is not proper in terms of directions of the tribunal. He pointed out that the tribunal has specifically directed that the assessment needs to be done in terms of Rule 11 of CV Rules. He argued that for arriving at the assessable value in the instant case in normal course the recourse has to be taken to Rules 4 to 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. On a plain reading, it would appear that where the value of any excisable goods cannot be determined under the preceding Rules i.e rules 4 to 11 which are the substantive rules laying down the manner or formula for determination of value, that is, if none of the substantive rule is per se applicable, the value is to be determined as per the principles and general provisions of the Rules as well as Section 4(1) of the Act. In other words, when no particular rule or rules can be strictly applied per se, the value shall be determined using reasonable parameters consistent with the express provisions of the Rules and sub-section (1) of Section 4 of the Act. However, the rule itself does not contain any formula and therefore, cannot be applied independently de hors the provisions of Rules 4 to 10 and Section 4(1) of the Act. 3.2 He argued that while tribunal has directed invocation of Rule 11 of the CV Rules, the said rule should have been applied read with Rule 7 of the CV Rules as the said rule is the closest approximation to the nature of the transaction. He also relied on the decision of the tribunal in the case of ALUPEX INDIA PVT. LTD.- 2009 (247) ELT 253 (T) wherei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in case these rules cannot be directly applied for in terms of Rule 11. The said rules can be applied with minor modifications. 3.3 He further submits that the impugned order holds that ITC is equivalent to a trader however since, the entire manufacturing and production was at the behest of ITC and under total control of ITC. The ITC should be treated as principal manufacturer and not as a mere trader. He argued that the goods being manufactured and sold in the market by ITC and not given for any job work, ITC would have quoted higher price over and above the cost of production and operating cost to include their profit. 3.4 He argued that in view of the peculiar circumstances, the adjudicating authority should have determined the assessable value of the goods manufactured by the assessee on the basis of the value of such goods sold by the principal manufacturer at the same time from the place of removal‟ i.e. depot. 04. Countering the above assertions of the learned AR, the learned counsel for LHL and ITC argued that the LHL has its own land, building, plant and machinery and full fledged factory. He argued that apart from manufacturing sugar confectionary for IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Cost. 4.2 He further argued that when revenue seeks assessment under Rule 7 of the CV Rules then revenue is questioning the correctness of remand of the tribunal. He further argued that the tribunal had specifically held that none of the rules except Rule 11 is applicable to the current transaction. Learned counsel further argued that the show cause notice issued by revenue on 08.07.2009 invoked Rule 9 of the CV Rules however, the appeal filed by the revenue now seeks to invoke Rule 7 of the CV Rules. He argued that the appeal of the revenue should be dismissed on this count itself. 05. We have considered the rival submissions. We find that the issue involved in the instant case is the valuation of the goods manufactured by LHL on behalf of ITC wherein, the ITC has provided certain inputs, machineries and funds to LHL. The matter was remanded by tribunal with the following observations :- 11. In view of the above facts though mutuality of interest is not established but it has been correctly held by the adjudicating authority that the judgment of Hon'ble Supreme Court in the case of M/s Ujagar Prints (Supra) cannot be made applicable to the present proceedings b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven an opportunity to present their case in de-novo proceedings, before taking a final view on the issue. The original proceedings started on the line that M/s. LHL and ITC are related persons however, the said assertion was not supported by the earlier decision of the tribunal and the tribunal directed the assessment invoking Rule 11 of the CV Rules which reads as follows:- Rule11. If the value of any excisable goods cannot be determined under the foregoing rules, the value shall be determined using reasonable means consistent with the principles and general provisions of these rules and sub-section (1) of section 4 of the Act. 5.1 No one has challenged the earlier order of the tribunal and therefore, the directions given in the earlier order of the tribunal become final and binding on both the parties. In this background the following issues are settled:- (i) The LHL and ITC are not related parties. (ii) Rule 1 to 10 of the CV Rules did not fit directly in the facts of the situation. (iii) The assessment has to be done in terms of Rule 11. (iv) The said decision of the apex court in the case of M/s Ujagar Prints cannot be applied to the instant case. As i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value; Rule 4 to 10 of the CV Rules reads as follows:- RULE 4. The value of the excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the removal of goods under assessment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment, as may appear reasonable. [RULE 5. Where any excisable goods are sold in the circumstances specified in clause (a) of sub-section (1) of section 4 of the Act except the circumstances in which the excisable goods are sold for delivery at a place other than the place of removal, then the value of such excisable goods shall be deemed to be the transaction value, excluding the cost of transportation from the place of removal upto the place of delivery of such excisable goods. Explanation 1. - Cost of transportation includes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods. [Explanation 2. - Where an assessee receives any advance payment from the buyer against delivery of any excisable goods, no notional interest on such advance shall be added to the value unless the Central Excise Officer has evidence to the effect that the advance received has influenced the fixation of the price of the goods by way of charging a lesser price from or by offering a special discount to the buyer who has made the advance deposit. Illustration 1. - X, an assessee, sells his goods to Y against full advance payment at Rs. 100 per piece. However, X also sells such goods to Z without any advance payment at the same price of Rs. 100 per piece. No notional interest on the advance received by X is includible in the transaction value. Illustration 2. - A, an assessee, manufactures and supplies certain goods as per design and specification furnished by B at a price of Rs. 10 lakhs A takes 50% of the price as advance against these goods and there is no sale of such goods to any other buyer. There is no evidence available with the Central Excise Officer that the notional interest on such advance has resulted in lowering of the prices. Thus, no notional i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cribed in rule 9. Explanation . - In this clause holding company and subsidiary company shall have the same meanings as in the Companies Act, 1956 (1 of 1956). (b) in any other case, the value shall be determined as if they are not related persons for the purpose of sub-section (1) of section 4. 5.3 From the impugned order, it is seen that the impugned order rules out direct applicability of Rule 4 to 10 on various grounds as they did not specifically cover the current transaction. The impugned order also rules out the applicability of the new Rule 10(A) of Valuation Rules which was introduced with effect from 01.04.2007 on the ground that at the material time the said rule was not part of the central excise valuation rules. The impugned order takes a view that all those elements of expenditure which would have been incurred by ITC had they manufactured the product at their own are required to be included in the assessable value of the goods. The impugned order further argues that since the goods are not sold by LHL but are sold only by ITC at their godown, all the cost till the goods reach the godown are includable in the assessable value. On the aforesaid l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Value (Rs) Rate/Kg (Rs) Assessable Value on which Excise Duty Paid by Leamak Excise Duty paid by Leamak E Cess Paid by Leamak Differential Excise Duty paid by Leamak Differential Cess paid by Leamak Cost of Production on which diff. ED paid 9900742 597576140 4780609 988667 1381532 30113 17269155 665051699 67.17 Outward Freight from Leamak to ITC Godowns Marketing spends Fixed costs Profit Margin ITC Net Selling Price 49503710 168721542 68286233 99537162 5.00 17.04 6.90 10.05 1051100346 106.16 Note 1. Outward Freight/Kg represents the average cost of transportation incurred by us to transport finished goods from our various contract manufacturing locations to our wareho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nless there is anything repugnant in the subject or context, - (h) sale and purchase , with their grammatical variations and cognate expressions, mean any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration; It is seen that sale for the purpose of central excise act means transfer of the possessions of the goods by one person to another. In the instant case, it is not in dispute that the goods are handed over by LHL to the transporter designated by ITC at the factory gate. In these circumstances any expenses incurred after clearance from the factory cannot form part of the assessable value in terms of Section 4(1)(a). 5.7 It is seen that the impugned order adopts deductive method to arrive at the assessable value at the factory gate. From the net selling price of ITC, it allows deduction of profit margin of ITC Ltd. and includes all other costs incurred in the assessable value (including the duty and taxes paid by the appellant). The following inclusions have been challenged by LHL and ITC. (a) Outward freight from LHL to ITC godown. (b) Market spen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... publicity charges, in respect of the said goods, will not be added to the assessable value, as such expenditure is not incurred on behalf of the manufacturer (assessee) . 5.In view of the above, the OIO cannot be sustained. Hence we allow the appeal with consequential relief. The aforesaid decision also been maintained by Hon‟ble Apex Court as reported in 2006 (197) ELT A192. In this background, we find that in the facts of the case the inclusion of marketing costs in the assessable value is beyond the scope of Section 4(1)(a). In this circumstances, when such costs are incurred by the buyer after clearance from factory the same cannot be included in the assessable value. 5.8 The impugned order includes in the assessable value fixed cost by ITC. We find that no breakdown of the fixed cost has been given by ITC. It is not in dispute that ITC has supplied certain machineries to LHL and ITC has also extended certain amount as advances to the LHL. The fixed cost of ITC in general cannot be added to the assessable value for the reason that these costs are incurred beyond the place of removal namely the factory gate. In the instant case the goods are sold at factory ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Oswal Fats Oils v CCE - 2003(156) ELT 112 (T-Del). In the said decision following has been observed:- 2.It is the submission of the appellants that free supply of bindis to buyers of soaps by M/s. Hindustan Lever Limited has no relation to the appellant s activity of manufacture of soaps and the sale of those soaps to M/s. Hindustan Lever Ltd. Learned Counsel representing the appellant has stressed that bindis have no place in the manufacture of soaps. Nor does the cost of the bindis form part of the cost of the soap. He pointed out that manufacture of soaps and supply of bindis were under entirely different contracts and one did not have any dependence on the other. Bindis were also merely packed in the cartons along with soaps as directed by M/s. Hindustan Lever Ltd. The learned Counsel also pointed out that the decision of the Apex Court in the case of Bombay Tyre International and the Tribunal in the case of Hindustan Cocoa Products Ltd. have no application to the present case inasmuch as no deduction is claimed from the price of soap towards the cost of freely supplied bindis. Instead, assessments of soap are made at the full value of the soap in terms of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the testing charges on notional basis in the assessable value of the final product. The appellants have strongly contended that sleepers were in fully manufactured condition and were duly entered in RG-1 register before the same were tested by the employees of the railways. As such it was the finished sleepers which were being inspected by the purchaser for his own satisfaction. As rightly contended by the ld. Adv., such inspection for which no expenses were either being incurred or were being paid to the appellant, cannot be held to be pre-manufacture inspection charges. There is no justification for addition of notional testing charges in the assessable value of the goods when there is no dispute that what the appellant was receiving from the railways was only the contract price entered into between the two on which duty was being paid by them. The Tribunal, as noted above has in a number of cases held that even the inspection charges paid by the railways to RITES are not includible in the assessable value of the goods supplied to the railways. In the instant case we find that even the above situation is not available inasmuch as no charges are being paid to the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X
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