2018 (8) TMI 162 – CESTAT NEW DELHI – TMI – Method of Valuation – job-work – it appeared to Revenue that the transaction is not at arms length and accordingly, instead of valuation under Section 4(1)(a) of the Act, the valuation is to be done under Section 4(1)(b) of the Act read with Rule 10 A of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 – Whether the valuation of wall putty manufactured and cleared by the appellant, M/s. Miraj Drymix Pvt. Ltd., has been rightly done for the purpose of levy of duty? – whether the extended period of limitation has been rightly invoked? – Penalty u/r 26 of CER.
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Held that:- Under the provisions of Rule 10A with Explanation, the condition precedent, i.e supply of raw material by the principal to the other manufacturer, job worker is not satisfied in the facts of the present case – the show cause notice is misconceived and the provisions of Rule 10 A of the Valuation Rules 2000 do not attract in the facts
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Drymix Pvt. Ltd., has been rightly done for the purpose of levy of duty; and whether the extended period of limitation has been rightly invoked. The other appellants are the Director and officers of M/s. Miraj Drymix Pvt. Ltd. who have been imposed penalty under Rule 26 of Central Excise Rules, 2002. 2. The appellant inter-alia is engaged in the manufacture and clearance of wall putty falling under chapter 32 of the First Schedule to Central Excise Tariff Act. During the period in dispute i.e January 2012 to March 2016, the appellant had entered into agreement dated 15 February, 2011, for manufacture and sale of the final product – wall putty, from their factory situated at Behror, District Alwar, for Asian Paints Ltd. (under their brand name). The consideration for such sales was mutually agreed price and the transaction between the two, as per the agreement, is on principal-to-principal basis. The appellant also discharged sales tax leviable on the sale price charged by them from Asi
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hereinafter called as Valuation Rules 2000). 4. The admitted facts are that, the Revenue s internal Audit team issued audit note/letter dated 15.02.2014 observing that appellant was paying lesser duty on the package of 30 Kg and 40 Kg than the duty paid on the package of 20 Kg. The following illustrative table is given in para 3 of the impugned order: – S. No. Bag having Qty. MRP shown on Bag Abatement Assessable value Duty payable per bag Duty payable per kg 1 20 Kgs Rs.620/ – 35% Rs.403/- Rs.49.81 Rs.2.49 2 30 Kgs Rs.810/ – NA Rs.266.61 Rs.32.95 Rs.1.01 3 40 Kgs. Rs.1095 /- NA Rs.344.55 Rs.42.59 Rs.1.06 5. Thereafter, further investigation was taken up and statements of one Raj Kumar Yadav, the authorised signatory, Shri Sanjay Mahagaonkar AVP (Technical) were recorded on three different dates being 22nd May, 2014; 26th February, 2015; and 06th December, 2016. On 12.2.015, the officers of Anti-Evasion wing of Central Excise, Alwar visited the factory premises of the appellant for inv
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eir despatch directions. 6. Some documents were also resumed. 7. In the statement of Shri Sanjay Mahagoankar, he inter-alia stated that the premix compound – input was proprietary of Asian Paints formulation of which was strictly confidential and the same could not be disclosed to anybody under the agreement. On being specifically asked about the finished goods cleared in more than 25 Kg packs on transaction value, he stated that the same also bear the MRP imprinted on the package made by them as directed by Asian Paints Ltd. The packages also contain other informations like – manufactured at M/s. Miraj Drymix Pvt. Ltd, and marketed by Asian Paints Ltd., meaning thereby that the wall putty was being manufactured by the appellant on behalf of Asian Paints Ltd. In the case of 30 KG packing, they also put in the package a token of ₹ 60/- inside each bag (provided by Asian Paints Ltd.) meant for the painter to be reimbursed by Asian Paints Ltd. 8. That on being asked about the costin
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ured from any of the location of the appellant and, in the same way, such goods can be sold through any of the depots. Accordingly, the Department was given the details of the sale value of the goods procured from the appellant through email on 27/12/2016. 11. It appeared to Revenue that the appellant have not taken permission under Rule 7 of Central Excise Rules, 2002 for provisional assessment. Further, in terms of Rule 10A(ii) of the Valuation Rules, where the excisable goods are produced or manufactured by a job worker on behalf of the appellant (hereinafter referred to as principal manufacturer ), then in a case where the goods are not sold by the principal manufacturer at the time of removal of goods from the factory of the job worker, but are transferred to some other place from where the goods are to be sold after their clearance from the factory of job worker and where the principal manufacturer and buyer of the goods are not related and the price is the sole consideration for
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The Seller has further offered to manufacture and sell finished products as more fully set out in Annexure I ( hereinafter referred to as the Products ) to the Purchaser and the Purchaser has accepted the said offer based on the Seller s representations; on terms and conditions agreed to by the parties and set out hereunder. Clause 23: This Agreement shall be on a Principal-to-Principal basis. The Parties hereby confirm that this arrangement neither constitute on arrangement of agency nor purports to be on employment basis and understood that this Agreement is on principal to principal basis. There shall not be any privity of relationship or contract between the Seller s employees and the Purchaser. The Seller shall be solely liable inter-alia for any claims of liabilities, compliances under law in relation to it s employees. Clause 9(a): The purchaser will have the right to reject all/ any products which are found not to be in accordance with the order or of the expected quality stand
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15.2.2011 It has the necessary skills, knowledge, experience, expertise, equipments, required capital and net worth to perform its obligation in accordance with the terms of this Agreement. Clause 4(a) & Clause 4(d) of the Agreement dated 15.2.2011 provides that the appellants are required to ensure the quality of the raw material in order to maintain the quality of wall putty, which is extracted hereunder: Clause 4(a) The Seller agrees to carry out rigorous quality control of the Products to be manufactured by him, which shall meet the specification requirements indicated by the Purchaser at all times. The Seller warranties that the Products supplied by him shall be of the highest commercial quality. Clause 4(d) The Purchaser s decision, on the quality of the Products shall be final and binding upon the Seller. The Purchaser shall be entitled to reject the said products processed and manufactured by the Seller if they do not meet the Product specifications as required and communic
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ally agreed between the parties as more fully described in next clause Excise duty and VAT / Sales Tax as applicable on Products will be paid by Purchaser. 13. From the terms of the agreement and the statements recorded, it appeared to Revenue that, Asian Paints was exercising tight control over the affairs of the appellant, particularly its manufacturing process from the stage of procuring of raw material till the use of machinery, and they had no independence in purchasing the raw material of their choice or deciding the price of the final product. It further appeared that the appellant is more or less a job worker for Asian Paints Ltd. as it is manufacturing goods only for Asian paints from the formulation/ raw materials/packing materials approved by Asian Paints for which only actual price was reimbursed to them. Further, they were manufacturing under the brand name of Asian Paints Ltd. by following the specification/formulation supplied by Asian Paints who have the proprietary own
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lation of Rule 10 A (ii) of the Valuation Rules, 2000. It further appeared that the appellant failed to determine the correct value of the excisable goods for payment and/or calculation of excise duty and accordingly, the same resulted in short payment of duty which was determined as under: – S.No. Year Value of goods cleared to various depots of M/s. Asian Paints Ltd. Mumbai on which duty was paid. Differential value of goods as per Rule 10A of Valuation Rules, 2000 (as per Annexure A) C. Excise duty payable on the differential value. 1 1.1.2012 to 31.3.2012 42720651 61667350 6522984 2 2012-13 25724085 320983314 39673538 3 2013-14 352519715 414651809 51250964 4 2014-15 424979785 495226427 61273350 5 2015-16 375960886 438275377 54784422 Total 1453423122 1730804277 213505257 14. The Show Cause Notice was adjudicated by the Commissioner vide impugned Order-in-Original dated 21/07/2017 who confirmed the proposed demand along with equal amount of penalty under Section 11 AC(1)(c) along wit
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he assessable value, for the purposes of excise duty, is the transaction value where the following conditions are duly specified: – • there is sale of excisable goods, • the sale is for delivery at the time and place of removal, • the assessee and buyer are not related, • price is the sole consideration for the sake. When any one of the conditions specified under section 4(1)(a) is not satisfied, then the value of excisable goods is determined under section 4(1)(b). It is for this purpose [section 4(1)(b)] that the Central Excise Valuation Rules, 2000 have been prescribed. 16. In explanation to Rule 10 A of the Valuation Rules, job worker have been defined as follows: – " explanation – for the purposes of this Rule, job worker means a person engaged in the manufacture or production of goods on behalf of the principal manufacturer, from any inputs or goods supplied by the principal manufacturer or by any other person authorised by him." From the definition
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anufacturer. It is submitted that, only supply of tangible inputs which are used as raw materials are relevant for the purposes of determination as to whether a transaction is job work or not. The status of such raw materials cannot be accorded to intangible information / specifications/ formulations/ technical know-how etc. by any stretch of imagination. This is clear from the bare language used in the definition of job work which uses the phrase from any inputs or goods supplied by the said principal manufacturer . In the light of the same, finding of the Commissioner is not legally sustainable. 19. It is most respectfully submitted that the Legislature in its own wisdom has included only the words on behalf of in the definition of job-worker and any interpretation of the definition must be in consonance with the language of the law as well as the intention of the Legislature. This contention of the Appellant is supported by a catena of decisions of the Tribunals of various judicatur
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o inspect the goods and reject them when they are deficient in quality, would make the manufacturer-assessee a job-worker of the buyer. However, the Tribunal dismissed the appeal of the Department and held that activities undertaken by the Appellant were normal commercial transactions. The Tribunal also held that, the quality tests etc. did not suggest that there was extensive control and held that the transaction was not in the nature of job-work . 22. Further, reliance is placed on the following decisions of the Tribunals of various judicatures, which for the sake of brevity have been summarized in the table: S. No Case Key contractual obligaton Held 1. Coromandel Paints vs. CCE, 2010(260) ELT 440(T) Explicit prohibition on use of raw material and packing material for any other purpose than the manufacture on behalf of the Purchaser. No input or raw material was supplied by the purchaser. Compensation was given on the basis of actual material cost and additional specific profits. Adv
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nation of value under Rule 6. Rule 10A shall not apply in such case. 3 Ravi Kiran Plastics Pvt. Ltd. vs. CCE 2014 (303) ELT 144 (T) Negotiation of prices of the raw material with the vendors by done by the buyer. Payment made to be vendors by the buyer, as advance to the Appellant. The Appellant cannot manufacture air coolers for anybody else during the existence of the said contract. Activities of monitoring, assistance, supervision and payments to vendors on Appellant‟s behalf as advance to Appellant, in the nature of assistance for timely supply of raw material, were purely professional and commercial in nature. These do not suggest that the contract was one of job-work. The transaction was one of sale and it was held that when price is not the sole consideration. Rule 10A cannot be said to have automatic application. 4 Nirmal R Ruparel vs. CCE, 2014 (304) ELT 711 (T) Prices were mutually agreed. Specifications for manufacture were provided. Held that monitoring of inputs used
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he quality of workmanship. However, in the instant case, the entire responsibility of quality of the final products, viz. arising from the usage of inputs as well as from workmanship, is that of the Appellant. Thus, the present transaction cannot be said to be one of job-work. 24. Furthermore, Rule 4 of Cenvat Credit Rules, 2004 clarifies the Legislature s intent behind the definition of job-worker . The Rule prescribes that, a manufacturer shall be entitled to take credit with respect to inputs when the goods are directly sent from the vendor to the job-worker. This can only be in a scenario wherein the principal manufacturer (viz. recipient of job-worked goods) has paid for the goods to the vendor and asked him to deliver the same to the job- worker. Thus, it becomes even more perspicuous from the said provision that the law pre-supposes free of cost supply of raw materials as a mandatory test in case of job work transactions. 25. It is humbly submitted by the learned advocate appear
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undertaking job-work manufacture. Further, the agreement dated 15.02.2011 prescribes general guidelines to be followed by the Appellant so as to ensure that the final product is of certain quality, since APL enjoy massive reputation in the market. 26. The finding of the Ld. Commissioner vide the impugned order holding that APL supplied formulation of pre-mixture over which they had propriety interest is contended to be factually incorrect. The Appellant was provided with the specifications of the final product, from which they prepared pre-mix by way of backward integration of such specifications. This is clear from the cross-examination of Shri Sanjay Mahagaonkar, which though conducted before the Ld. Commissioner, however, has been brushed aside on flimsy grounds. 27. It is humbly submitted that the contention of the Appellant is that, the manufacture of the final product was undertaken for APL, and not on behalf of APL. It is pertinent to note here, that the definition of job-worker
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and Asian Paints, it can be implied that the transactions were not at arms. Some of the terms of agreement implied that Asian Paints had propriety interest in the goods manufactured by the assessee, from the raw material stage itself. The agreement imposed many conditions on the assessee and consequently they had very little liberty in the matters relating to production. Therefore, I hold that that the assessee was manufacturing the goods for Asian Paints and not on behalf of Asian Paints and the scope of manufacturing activities of the assessee was that of job-work as envisaged under Rule 10A of the Valuation Rules, 2000. It was not in dispute that the raw materials were supplied by the persons approved by Asian Paints and quality of raw material also examined by the nominated persons of Asia Paints. [Emphasis Supplied] 29. It is humbly submitted that the Ld. Commissioner has recorded a finding that the manufacture by the Appellants was for and not on behalf of APL. Despite recording
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me barred, being beyond the normal period of one/ two years, and the same is not sustainable and is liable to be set aside. 31. It is further submitted that in light of the arguments above, the Appellant had correctly determined the assessable value of final products manufactured and sold to APL in terms of Section 4(1)(a) of the Excise Act. The issue is one of pure interpretation of provisions of law and the position adopted by the Appellant is in line with the settled judicial precedents quoted above. Thus, the extended period of limitation is not invokable. 32. For the same reasons, the penalty is also not imposable against the Appellant. 33. Further, the personal penalties imposed under Rule 26 of the Excise Rules imposed on the Director, AVP and Authorized Signatory are also not sustainable, since the demand is not legally unsustainable; the issue is contentious; there is no evidence that these persons dealt with the goods with the knowledge that the same are liable for confiscati
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appellant. Thus, in the facts of the present case, sharing of the formula to manufacture premix renders the appellant as job worker of Asian Paints Ltd. He has further relied on the final order of this Tribunal in the case of Hershey India Pvt. Ltd. vs CCE & ST, Bhopal, by a Coordinate Bench of this Tribunal being Final Order dated 19.01.2018 in Appeal No. E/50379/2017-DB wherein under the facts that Hershey India was engaged in manufacture of ready to drink iced tea under the brand name "Tealite lemon" and Tealite Apple" falling under the Central Excise Tariff Heading 2202 of the CETA, 1985. In the course of audit, Revenue found that the goods were manufactured by the said Hershey India under an agreement dated 08/07/2010 with M/s. Zydus Wellness Ltd. In terms of the agreement Hershey India was required to undertake manufacture making use of the technical knowhow and specifications of the goods as supplied by M/s. Zydus Wellness Ltd. The process was subject to qual
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atisfies the third condition in the Explanation to Rule 10 A. Further, on perusal of the various clauses of agreement read together leads to the conclusion that the goods have been manufactured by Hershey India as a job worker on behalf of M/s. Zydus Wellness Ltd. This conclusion is further reinforced by the fact that in case of principal-to- principal transaction, the goods are to be priced including all the elements of cost involved in the manufacture and sale of goods. It further appeared that from the price agreed to between the parties, it is obvious that various elements of cost which clearly are required to be included in the selling price of instant product have not been included. It further appeared that elements of cost, like technology, standard and technical know-how have escaped the agreed price between the parties. Accordingly, it is concluded that Hershey India was in fact a job worker of the M/s. Zydus Wellness Ltd. and the M/s. Zydus Wellness Ltd. and Rule 10 A of the
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sidered the rival contentions, we find that under the provisions of Rule 10A with Explanation, the condition precedent, i.e supply of raw material by the principal to the other manufacturer – job worker is not satisfied in the facts of the present case. Accordingly, we hold that the show cause notice is misconceived and the provisions of Rule 10 A of the Valuation Rules 2000 do not attract in the facts and circumstances of the present case. We also find that the facts herein are squarely covered by the Precedential rulings of this Tribunal in the case of CCE vs Innocorp Ltd. in favour of the appellant wherein the facts are similar and this Tribunal held as follows: – 7.3 It is easily discernible from the agreement (a) that the assessee was appointed by TUPPERWARE, on a principal-to- principal basis, to manufacture the products as per the latter s specifications and to sell the goods to TUPPERWARE, (b) that TUPPERWARE was liable to pay to the assessee the price of the goods invoiced by
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assessee had to use their own equipments, labour and know-how to manufacture/assemble the products, to carry out quality control tests on the products and to pack and ship the products in terms of the Purchase Orders of TUPPERWARE, (i) that the agreement left the assessee free to manufacture goods not similar to the products for third parties and (j) that TUPPERWARE was free to source the products from other manufacturers. All these features of the contract would clearly indicate that the assessee was manufacturing the goods for TUPPERWARE and selling the goods to them for a price at arms length on principal-to-principal basis. Therefore, the contention of the appellant that the respondents were manufacturing the goods as job workers on behalf of TUPPERWARE cannot be accepted. The second requirement noted in para (7.1) was, therefore, not satisfied in this case. 7.4 It is true that stringent quality standards were prescribed by TUPPERWARE to be strictly maintained by the manufacturers
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ase inasmuch as the goods were not manufactured from any inputs supplied by TUPPERWARE or by any other person authorized by them. It is not in dispute that the necessary raw materials and packing materials were procured by the assessees from suppliers named by TUPPERWARE. The cost of these materials were expressly recognized as expense of the assessees. That the suppliers were chosen by the assessees from a panel furnished by TUPPERWARE does not mean that the actual suppliers were authorized by TUPPERWARE to supply the materials to the assessees. Insofar as the moulds are concerned, undisputedly, they were returned by the assessees to TUPPERWARE after use (without availing Cenvat credit) and the amortised value thereof was included in the assessable value of the finished goods. On these facts, it has to be held that the third condition also remains unfulfilled in this case. In the result, the respondents in these appeals were not manufacturing the subject goods as job workers on behalf
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