M/s. Miraj Drymix (P) Ltd., Shri Ashok N Mehta, Director, Shri Sanjay Mahagaonkar, AVP (Tech), Shri Raj Kumar Yadav Versus Commissioner of CGST CC & CE, Alwar
Central Excise
2018 (8) TMI 162 – CESTAT NEW DELHI – TMI
CESTAT NEW DELHI – AT
Dated:- 19-7-2018
Excise Appeal No. 51653 – 51656 of 2017 – Final Order No. 52571-52574/2018
Central Excise
Hon'ble Mr. Anil Choudhary, Member ( Judicial ) And Hon'ble Mr. C L Mahar, Member ( Technical )
Shri V Lakshmikumaran, Shri Rahul Tangri, Consultant for the Appellants
Shri R K Mishra, AR for the Respondent
ORDER
Per Anil Choudhary
The issue in these appeals is, 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; 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
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of the agreement, the activity of the appellant is more in the nature of a job worker. Further, as the various activities of the appellants, like approval of source of raw material, quality control measures, audit by the said Asian Paints Ltd. from time to time in the plant of the appellant, 100% of the output under the brand name of Asian Paints Ltd. to be cleared to Asian Paints only or as per its directions, 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 (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
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of raw material, production and clearance of finished goods. The company is engaged in the manufacture of wall putty only for Asian Paints Ltd. under their brand name ( Asian Wall Putty ) as per the specification and formulation. The goods were cleared in various packings including the packing up to 25 Kgs assessed under MRP based assessment. The wall putty of packaging of more than 25 Kgs were cleared on transaction value. Their unit was frequently audited by the authorized signatory of Asian Paints. The main raw material is “in premix compound” containing Dolomite and White Cement. The 'premix compound' was supplied by another unit of the appellant company situated at Vadodara. The finished goods – wall putty was cleared to the various depots of Asian Paints as per their 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 w
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e only amount retained by them was the margin which they added after mutual consent with Asian Paints Ltd. The appellants also provided the product price at depots, detail of sales/clearances for the period 2011 – 2012 to 2015 – 2016, packing in bags having the quantity of 25 Kgs remuneration.
9. Mr Sanjay Mahagoanker, the AVP (Technical), further stated that the premix compound was manufactured at their Vadodara unit as per the formulation given by Asian Paints Ltd. He also stated that the ratio of raw material provided by Asian Paints Ltd. cannot be changed by them unilaterally.
10. Shri Rohit Gupta, Manager Taxation of Asian Paints Ltd., was also summoned and his statement recorded. He inter alia stated that, the finished goods, namely, Asian wall putty, can be procured 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 a
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time nearest to the time of removal of said goods from the factory of job worker. Further, in terms of explanation to Rule 10 ibid, 'job worker' means, a person engaged in the manufacture or production of goods on behalf of a principal manufacturer from any inputs or goods supplied by the said principal manufacturer or by any other person authorised by him. Thus, there appeared to be two main ingredients in this definition of 'job worker' : –
“goods have to be produced on behalf of principal manufacturer from any inputs/goods supplied by the principal manufacturer or any person authorised by him.”
12. On perusal of the agreement dated 15/07/2011 between the appellant and Asian Paints Ltd., the following clauses were taken notice of: –
Clause D of the agreement read as under:
“D. 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 t
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ver the Products or perform the services in full conformance with the warranties under this Agreement, above within the time specified.
Clause 3 (c ) of the agreement dated 15.2.2011
The Seller shall be responsible for monitoring their manufacturing processes, performance and conducting sufficient process control, inspection, testing, proactive and preventive measures in order to ensure that all Products delivered to the Purchaser are in full compliance to the specifications. Statistical sampling is strongly encouraged to ensure that the manufacturing processes are in statistical control. Seller shall share all related information of the Product to the purchaser at any point of time. Regardless, the Seller is responsible for each part confirming to specifications.
Clause 10(e) of the agreement dated 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 Ag
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g material of desired quality as per specification given by Purchaser for manufacturing the Products. Seller will test these raw and packing materials as per instruction from purchaser at its own expense. Specifications and Testing methodology for Raw material, packing material and the Products are given in Annexure 2 and Annexure 3 respectively.
Clause 4(f) of the agreement dated 15.2.2011
The Seller shall ensure that the raw and packing material purchased comply with specifications as given by the Purchaser. Such procurement by the Seller with the specified vendors would be on principal to principal basis. The Seller agrees to share information on Commercial negotiations.
Clause 6(a) of the agreement dated 15.2.2011
The Purchaser has consented to purchase the Products from the Seller at a price which will be as mutually 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. Fr
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raw material and their specifications/quality to the appellant. As the goods were cleared from the appellant's factory to the depots of Asian Paints, therefore, the goods were not sold by the principal manufacturer at the time of removal of the goods from the factory of the job worker – appellant, but were transferred to some other place from where the said goods were sold after their clearance from the factory of the job worker. The price of the finished goods, so cleared, was determined as per agreement/purchase order and thus appellant was not aware of the price at which Asian Paints Ltd. further sold from the depots. In other words, the product under the brand name 'Asian wall putty', was cleared to the principal manufacturer depots without taking into account the depot price of the principal manufacturer which is in violation 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
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Director, was also imposed to the tune of Rs. 75 lakh under Rule 26 and further Rs. 25 lakh under Rule 26 was imposed on Shri Sanjay Mahagoankar, the Assistant Vice President (Technical) and further, penalty was also imposed on Shri Raj Kumar Yadav, the authorised signatory under Rule 26 of Central Excise Rules. Being aggrieved, the appellants are in appeal before this Tribunal.
15. The learned Counsel for the appellant, Mr V Lakshmikumaran, urges that the provisions of Rule 10 A of the Valuation Rules 2000 are attracted only in case of job work, where there is supply of raw material / semi-finished goods by the principal manufacturer. In the facts of the present case, there was no supply of raw materials and consequently the findings in the impugned order that the contract was of job work nature is erroneous and legally unsustainable. It is further submitted that, in terms of Section 4(1)(a), the assessable value, for the purposes of excise duty, is the transaction value where the fo
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wo conditions before manufacturing activity can be called as job work; firstly, the raw material is to be supplied by the manufacturer, and secondly, the manufacture must be done on behalf of the principal manufacturer.
17. It is apparently clear from the factual matrix of the present case that there was no supply of raw material at all by Asian Paints Ltd. to the appellant for the manufacture of final product. Thus, the appellant have correctly discharged the duty on the transaction value in terms of Section 4(1)(a) of the Central Excise Act.
18. The learned Commissioner has observed in the impugned order that, the Appellant received the formulation of the pre-mix from APL, which was the major input used in the manufacture of the final product. Thus, it appears that the Commissioner has treated the supply of such formulations as supply of inputs by APL in the capacity of principal manufacturer. It is submitted that, only supply of tangible inputs which are used as raw materials are
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e of control and indirect supply of raw material. However, it has been unanimously held in all such cases that the transaction is not of job work but that of normal commercial sales.
20. The Hon'ble Supreme Court in the case of Prestige Engineering (India) Ltd. vs. CCE, Meerut, 1994 (73) ELT 497 (SC) held that, the contract of job-work is largely and substantially that of labour and skill of the job-worker done with the help of their tools, gadgets or machineries. When the job-worker contributes its own raw materials in significant quantities to the articles supplied by the customers to manufacture the final goods, then it does not amount to job-work.
21. In CCE vs. Innocorp Ltd. [2012-TIOL-956-CESTAT-Bang] the Department had sought to raise a duty demand on similar grounds as in the case in hand. The Department alleged in the above case, that stringent quality standards, including the right to inspect the goods and reject them when they are deficient in quality, would make the manuf
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om the specified vendor, can it be held that the activities were
carried on job-work basis.
* Receiving advance money for payment towards the purchases of raw materials is within normal commercial terms.
* The fact that the compensation was based on the material cost along with specific profits cannot be used alone to uphold that there was job work manufacture.
* Since no inputs were provided by the principal manufactures therefore, the activity was not job-work.
2.
Abhishri Packaging Pvt. Ltd. [2013- TIOL-772-
* The purchaser had employed its own employees at the factory of Appellant
* Inasmuch as final products were manufactured by procuring raw material
CESTAT- AHM
for supervision and monitoring.
* Moulds used for the manufacture, which were essential to the manufacture were supplied by the Purchaser.
independently, the Appellant was an independent manufacturer.
* There was no dispute that moulds were being supplied, and
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14
(304) ELT 711 (T)
* Prices were mutually agreed.
* Specifications for manufacture were provided.
Held that monitoring of inputs used etc. were all irrelevant considerations, since it was undisputed that the seller/
manufacturer paid for the raw material.
23. It is submitted that under the agreement dated 15.2.2011, APL had right to reject the goods, if found to be of inferior grade. It is humbly submitted that such a right exposes the fallacy in the contention of the Department that the Appellant was undertaking job work manufacture. The said stance is pressed because, had the APL supplied raw material for the manufacture of the final product, then it would naturally not have any right to reject the final products since the Appellants were only applying their labour / skill to manufacture from the raw material received by APL. In other words, if APL were supplying the raw material free of cost, then they would to accept all the goods manufactured by the Appellant
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upposes 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 appearing for the appellant that the impugned order-in-original is founded on assumptions and presumptions and is self contradictory. The impugned order has confirmed all the allegations made by the SCN, without proper application of mind. The learned Commissioner has held that the relationship between APL and the appellants is that of a principal manufacture and job worker. It appears from the finding of the ld. Commissioner, that the transaction shall be termed as principal-to-principal basis if the seller decides supplies of inputs, quantity of inputs, take responsibility of payment to suppliers, plan its own production, etc. It is submitted that, all these activities in the present case are being undertaken by the Appellant only and are in consonance with the finding of the Commissioner himself, therefore, the issue stands covered in
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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” as contained in Explanation to Rule 10A provides that the job-worker manufactures goods 'on behalf of the principal manufacturer, from any inputs or goods supplied by the said principal manufacturer or by any other person authorized by him'.
28. It is more than perspicuous from the above definition that only those manufacturing activities which are undertaken 'on behalf of' the principal manufacturer are covered within the definition of 'job- work'. It is to be noted that the definition does not cover within its ambit those manufactures which are undertaken 'for' the principal manufacturer. It is extremely pertinent to note that the Ld. Commissioner in the impugned OIO agreed with the same proposition and observed as under:
“44. I also find that the assessee manufactured the finished goods from the raw materials procure
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phasis 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 such an observation, the Ld. Commissioner went on to hold that the manufacturing activities were in the nature 'job-work' and thus, is contradictory.
30. It is further submitted that extended period is not invokable; Penalty not imposable and interest not recoverable. Without prejudice to the above, it is also submitted that the Appellant had no intention to act dishonestly and had acted in accordance with the legislative provisions inasmuch as every relevant fact on record and has not engaged into any suppression, willful mis-statement etc. with intent to evade duty. Further, the audit of the appellant's unit took place in December 2012 and December 2013, for the period upto September 2013. All the documents and records pertaining to the unit were before the departmental auditors. Inasmuch as the A
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e, 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 confiscation. Thus, the penalties imposed on the aforesaid individuals/ personnel is also not legally sustainable.
34. In view of above, the Appellant humbly prays that the impugned order is liable to be set aside and present appeal be allowed.
35. The learned Counsel for the appellant have also relied on the ruling of this Tribunal in the case of Pawan Biscuit Company (P) Ltd. vs collector of Central Excise [1991 (53) ELT 595 Tribunal) as regards the relationship of principal and agent, and further relied on the rulings in the case of Siddho Sons vs. Union of India and others 1986 (26) ELT 881 (SC).
36. The learned AR for Revenue Mr. R K Mishra has supported the findings in the impugned order. He states that the supply of goods by the principal to the job worker can be both tangible and /or intangibl
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dia 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 quality control and supervision of the M/s. Zydus Wellness Ltd. and goods were to be cleared exclusively, bearing the trade name of M/s. Zydus Wellness Ltd. Further, as per the agreement, the raw materials were to be procured by Hershey India only from the suppliers identified by M/s. Zydus Wellness Ltd. The sale price of the goods was agreed to between the two parties, as specified in the agreement. The goods were cleared to the said M/s. Zydus Wellness Ltd. on payment of excise duty on the transaction value. The Department was of the view that the inputs were manufactured by the appellant on job work basis for M/s. Zydus Wellness Ltd. and hence, the valuation of the goods for the purposes of charging duty was to be done in terms of Rule 10 A of the Valuation Rules, 2000. This Tribunal taking note of the terms
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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 Valuation Rules becomes applicable and the goods are required to be valued on the basis of price at which M/s. Zydus Wellness Ltd. sell the product/goods from the deport.
37. Accordingly, the learned AR for the Revenue prays for dismissing the appeal and confirming the impugned order.
38. In rejoinder, Shri V Lakshmikumaran states that this Tribunal should treat the preceding judgment in the case of Hershey India Ltd as per incuriam, firstly because Rule 6, which is applicable Rule, has not been considered. Secondly, in the final order of Hershey India Private Ltd. (supra), it has not considered the precedent judgements of this Tribunal in the case of CCE Hyderabad vs Innocorp Ltd. (supra), Prestige Engineereing (India) Ltd. versus CCE Meerut 1994 (73) ELE 497 (SC) and other judgements as noticed herein ab
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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 the latter as per the settled cost quotations for the product, (c) that the raw materials and packing materials required for the manufacture of the goods were to be sourced by the assessee from suppliers named by TUPPERWARE, (d) that none of the suppliers was authorized by TUPPERWARE to supply the raw materials or packing materials to the assessee, (e) that the moulds supplied by TUPPERWARE to the assessee for manufacture of the goods were returned after use (without availing Cenvat credit), (f) that the brand name of TUPPERWARE was affixed on the products by the assessee as required by the buyer, (g) that the assessee indemnified TUPPERWARE against any losses, damages, liabilities etc. which might arise from the former's negligence or wilful misconduct in manufacturing, assembling, handling, storing or
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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 at every stage of the manufacture. TUPPERWARE could inspect the process of manufacture to ensure that the specified quality standards for the products were being maintained. They also had the liberty to reject the finished goods which did not conform to the specified standards. These things are part of normal commercial practice in respect of business houses who insist on the quality of their merchandise. These cannot be considerations to hold that the manufacturing activities of the assessees were under extensive control of TUPPERWARE reducing the status of the manufacturers to job workers. That the brand name of TUPPERWARE was affixed on the finished goods by the assessees is also immaterial. In this context, in our view, the learned Commissioner is justified in having claimed support from the de
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