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TMI Blog2023 (11) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... ative fails to find advancement with the requirement of sale appended to the rule urged by him to be invoked. Furthermore, from a perusal of the judgement, it would appear that the privilege of deviating from facts in the notice is not extended even if the provisions may be; principles of natural justice dictates that the facts, as detailed in the show cause notice, alone may be utilized for detrimental consequence to assessee even if the provision that applies had not been invoked in the notice. Within that restricted framework, it is permissible, in the light of the decision in re Merino Panel Product Ltd, to examine the applicability of the two remaining rules available. The appellant has also failed to establish that rule 8 has been conformed to even while contending that formulation in the decision of the Hon ble Supreme Court, pertaining to a time when these rules did not exist, had been. It is necessary to determine the assessable value for the purpose of discharge of duty liability in accordance with section 4 of Central Excise Act, 1944 and the rules framed thereunder. The appellant must, needless to state, be accorded opportunity to contest facts and inferences that may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sided to everything other than the rules of valuation instead of according it only contributory, though essential, influence. That, itself, has jeopardized the proceedings for recovery of duty, allegedly short-paid by not including the value of 'invisibles' constituting 'consideration' in the computation of 'price' on which rate of duty was to be levied, and suffices for setting aside the demand at the threshold which we may have, but for the saving grace of pleading by the appellant that appropriate duty had been discharged. 3. It is the contention of the appellants that they were not wanting in discharge of their tax obligations in accordance the formulation enshrined by the Hon'ble Supreme Court, in Ujagar Prints v. Union of India [1989 (39) ELT 493 (SC)], setting out the charge and the measure for duty liability of the transactional engagement. There is no doubt that the judgment did close the gaps inherent in a tariff structure of limited enumeration that enabled, by outsourcing of 'intermediate products', attempts to escape from the ambit of duties of central excise and the practice thereafter drew upon the contents of the judgment till the valuation scheme incorporated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Price of Excisable Goods) Rules, 2000; that was to occur with effect from 1st April 2007 as per notification no. 9/2007-CE (NT) dated 1st March 2007 for incorporating rule 10A therein. 5. This reliance on layered propositions appears to have stemmed from a series of cross-connected transactions which, to the mind of the tax administration, appeared to bear all elements of subterfuge with intent to obscure the reality of the commercial engagement. The 'brand' belonging to M/s Kilitch Co (Pharma) Ltd had been assigned to M/s Kilitch Drugs (India) Ltd who, in turn, contracted, vide agreement of 15th November 2002, with the former to manufacture products, out of raw materials and packaging materials supplied by the latter, that would be sent to them for further disposal. The former was to receive 'processing charges' which, they claim, included 'profit margin' and, by adding the landed cost of free supplies received from the latter thereon, to discharge duty liability. The objective being the loading of all costs that would make up 'price' if the latter had undertaken manufacture, coupled with absence of any mechanism for dealing with 'job work' transactions, central excise authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been permitted to be deposited without payment of duty; (iii) a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory, from where such goods are removed; (cc) "time of removal", in respect of the excisable goods removed from the place of removal referred to in sub-clause (iii) of clause (c), shall be deemed to be the time at which such goods are cleared from the factory;] (d) "transaction value" means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rroneously premised that the rules, intended to handle 'sale' by 'manufacturer' but lacking in one of the other essential determinants of 'transaction value', would apply to the transactions instead of the essence of valuation espoused by the Hon'ble Supreme Court in Ujagar Prints v. Union of India [1989 (39) ELT 493 (SC)]. Learned Counsel placed reliance on circular no. 619/10/2002-CX dated 19th February 2002 of Central Board of Excise & Customs (CBEC) and the decision of the Tribunal in Commissioner of Central Excise, Bangalore v. Group Pharmaceuticals Ltd [2010 (261) ELT 238 (Tri.-Bang.)] which, referring to the decision in re Ujagar Prints as well as that of the Hon'ble Supreme Court in Pawan Biscuits Co (Pvt) Ltd v. Collector of Central Excise, Patna [2000 (120) ELT 24 (SC)], holding that '5. We have considered the submissions made by learned DR. and perused the records. The issue to be decided in this case is whether the value of the goods manufactured and cleared by the respondent to Dr. Reddys Labs Ltd., should be on the basis of the sale price of Dr. Reddys Labs as claimed by the Department or on the cost construction method as has been adopted by the respondents. The ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unless such loan licensees get their goods manufactured out of raw materials supplied by them by exercising supervision, control in another factory by hiring the factory on shift or shifts they cannot be held to be manufacturer of medicines in the other factory." And even in the Indica case, 'Gujarat High court after going into the Drugs and Cosmetics Act and also Section 2(f) of the Central Excise Act has held as follows :- "From the various other judgments of different High Courts and the Supreme Court interpreting provisions of Section 2(f) of the Act on the same line. In view of the aforesaid settled legal position and in the light of the provisions of the Central Excise Act and Rules, it must be held that the loan licensees are also manufacturers within the meaning of the terms as envisaged by the said Act and the rules. In other words, the court has held that the loan licensees are also the manufacturers. That means the court has not ruled out the possibility of the job worker also being a manufacturer. Therefore in our view, the Indica lab case, has not ruled that the loan licensee alone is the manufacturer and not the job worker. Moreover, the decision of the Gujarat H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the principles enunciated in Empire Industries as affirmed in Ujagar Prints II, incorporating the arms length principle. 25. The respondent No. 1 assessee had submitted before the Department and before us that if the assessee was not permitted to rely upon the formula laid down in M/s. Ujagar Prints III then it was entitled to discounts and advertisement expenses. These were not allowed by the Commissioner. As the question whether the respondent No. 1 would be entitled to discounts and deductions claimed would only arise if it held that the ratio of M/s. Ujagar Prints III would not apply, the Tribunal did not address this aspect of the matter at all nor did it consider whether the merchant-manufacturers and the respondent No. 1 were related persons. Since the Tribunal, in our opinion, wrongly upheld the respondent's contention that the formula in M/s. Ujagar Prints III would apply in full measure, it is now necessary for the Tribunal to consider whether the respondents were related persons and whether the respondent No. 1 would be entitled to claim discounts or could exclude the advertisement expenses incurred by the dealers.' in the context of relationship between two entitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, if any, actually paid or actually payable on such goods. RULE 6 of Central Excise Valuation Rules, 2000, says where the excisable goods are sold in the circumstances specified in clause (a) of sub section (1) of section 4 of the Act except the circumstance where the price is not the sole consideration for sale, the value of such goods shall be deemed to be the aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee. Explanation - For removal of doubts, it is hereby clarified that the value, apportioned as appropriate, of the following goods and services, whether supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale of such goods, to the extent that such value has not been included in the price actually paid or payable, shall be treated to be the amount of money value of additional consideration flowing directly or indirectly from the buyer to the assessee in relation to sale of the goods being valued and aggregated accordingly, namely : - (i) value of materials, components, parts and similar item ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee has contended that the assessable value is correctly arrived at by them in view of Central Board of Excise and Customs Circular No.643/84/2002-CX dated 1.7.2002, They have also referred to the Trade Notice No, 65/2002 dated 30.9.2002 of Mumbai-IV Commissionorate, I have carefully gone through the Board's circular dated 1-7-2002 and trade notice No.65/2002 dated 30-9-2002. In those circulars/trade notices, it has been clarified that the valuation is to be determined on the basis of the landed cost of the raw materials/packing materials plus labour charges and notional profit, However, the situation here is quite different, as the job work is undertaken in respect of the company who is marketing their own goods. I find that in the said assessable value, no further elements viz. advertising or publicity, marketing and selling expenses, storage, outward handling, servicing, warrantee, commission etc. has been included in the assessable value. The entire control over the manufacturing of goods rests with the owner of the goods and hence it is necessary that various elements as mentioned above are required to be included in the assessable value. The circulars/trade notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resentative fails to find advancement with the requirement of 'sale' appended to the rule urged by him to be invoked. Furthermore, from a perusal of the judgement, it would appear that the privilege of deviating from facts in the notice is not extended even if the provisions may be; 'principles of natural justice' dictates that the facts, as detailed in the show cause notice, alone may be utilized for detrimental consequence to assessee even if the provision that applies had not been invoked in the notice. Within that restricted framework, it is permissible, in the light of the decision in re Merino Panel Product Ltd, to examine the applicability of the two remaining rules available. 15. We are inclined to approve such evaluation for two especial reasons. The Hon'ble Supreme Court, in re Merino Panel Product Ltd, wherein the dispute for 2009-10 to 2010-11 pertained to sale to 'unrelated persons' being available as benchmark for application to other rules, placed emphasis on '16. It is clear that the latter question goes to the heart of the matter, rather than the issue of whether the show cause notice becomes legally untenable for failure to expressly mention that the valuation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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