Customs, Excise and Gold Tribunal - Bangalore
Universal Transformers vs Cce And C on 5 March, 1997
Equivalent citations: 1997(71)ECR71(TRI.-BANGALORE)
ORDER
V.P. Gulati, Vice-President
1. The prayer in the application is for dispensation of pre-deposit of Rs. 3,34,419/- for the reason that the price declared by the appellants in the price list filed in Part-II was not acceptable and the basis of assessment has to be the sale price of the customers namely M/s. Kirloskar to whose designs and specifications the goods were manufactured.
2. The learned Advocate for the appellants has pleaded that the interpretation placed by the lower authority to Section 4 is not in accordance with law and the sale price of M/s. Kirloskar could not be adopted as the basis for arriving at the assessable value. He has pleaded that the show cause notice was issued to the appellants on four grounds which are reproduced below:
i) having received free of cost technical know-how, design and drawing to manufacture transformers from KEC.
ii) the entire production of KEC branded transformers to have been cleared to KEC only.
iii) that the activity of qualitative manufacture of transformers being controlled by KEC by approval of each raw material.
iv) that no sales tax being attracted at the time of removal of the transformers from the appellants premises, being branded goods.
He has pleaded lot of emphasis has been placed by the authorities below that the goods being branded for sales tax purposes, the same were not chargable to sales tax as the transfer of the branded goods from one person to other is not treated as sale. He has pleaded what is relevant for sales tax purposes would not be relevant for excise purposes. He has pleaded that there is no allegation that the appellants had received extra consideration for the goods and once that decision is accepted then the goods have to be taken to have been sold by the appellants to M/s. Kirloskar. He has pleaded that the Part-II price list reflects the actuality of the transactions and no other consideration has been shown to the appellants. He further accepts the position that the technical know-how, design and drawings were furnished by M/s. Kirloskar to them and they also helped them in identifying the source of supply and the inspection of the materials were also managed by M/s Kirloskar. He has pleaded that there is no finding that the relationship between the appellants and M/s. Kirloskar was not on principal to principal basis. His plea is that unless it could be shown that the relationship between the two were not on principal to principal basis or that the sale was to a related person, the sale price of the customer namely M/s. Kirloskar could not be taken into reckoning for arriving at the assessable value. He has pleaded if the authorities were not satisfied with the price as declared, the only course open to the authorities was to have recourse to the Valuation Rules. This having not been done he has pleaded the learned lower authority's order is not sustainable in law. On prima-facie grounds he has pleaded that the prayer of the appellants has to be allowed.
3. The learned JDR has pleaded that there could not be a sale between the appellants and M/s. Kirloskar. Furthermore Part-II price list was not acceptable at all in cases M/s. Kirloskar could not be considered as the wholesale buyer.
4. We have considered the pleas made by both the sides. We observe that the authorities below have adopted the sale price of M/s. Kirloskar to arrive at the assessable value. This could be done only in law in case the sale was held to be to a related person or the relationship between the two was not on principal to principal basis. There is no findings by the authorities below adverse to the appellants in this regard. The ground on which the show cause notice was issued highlights that the appellants got some assistance from their customers by way of technical know-how, design and drawings and also assistance regarding quality control and in regard to procurement of raw materials. In the normal course the appellants would have incurred the expenses towards these items and activities and therefore the amounts attributable to these factors prima-facie would be includible for arriving at the assessable value. Prima-facie we do not find merit in law to hold that the transaction between the appellants and M/s. Kirloskar was not a sale transactions. The assessment has to be done based on the relevant parameters applicable at the time of clearance of the goods from the factory of the appellants. Nothing has been brought on record to show how the provisions of Section 4(1)(a) were not applicable and how in law the sale price of M/s. Kirloskar could be straightaway adopted for arriving at the assessable value. The learned Advocate has in the same context cited the decision of the Tribunal in the case of Collector of Central Excise v. Naga Detergent Products Ltd. where under similar circumstances the goods have been manufactured by M/s. Naga Detergent Products Ltd. for M/s. TOMCO. In that case the Tribunal held as under:
9. In the present case, it is clear that there is no such control exercised by TOMCO over the manufacturing activity of the respondents. When once this is so, there will not be any justification to invoke Section 4(1)(b) and to apply the Valuation Rules to determine the assessable value. On the other hand, the case will be very akin to the Supreme Court decision in the case of Union of India v. Cibatul Ltd. (supra). The Tribunal in the Pawan Biscuits Co. case (supra) had distinguished that case from the above cited Supreme Court decision by pointing out that in the Pawan Biscuits Co. case (supra), the raw-material belonged to the appellants. The Tribunal, further, pointed out the distinction of the Pawan Biscuits Co. decision from the Cibatul Ltd. decision of the Supreme Court by observing that in the Pawan Biscuit Co. case, under the Agreement, the appellants, therein, cannot destroy the goods which are not up to the specification without meeting the cost of the defective goods. In other words, the appellants, therein, are liable to pay the cost of raw-material supplied for the goods which are found defective which shows that they have no title to the goods manufactured. We have seen that in the present case, the agreement between the respondents and TOMCO is quite different and there is no stipulation binding the respondents in the Agreement of the nature noticed in the Pawan Biscuits Co. case (supra). It may also be relevant to note a decision of the Bombay High Court in the case of Central Industrial Alliance Ltd. v. Union of India and Ors. . That was also a case of manufacture by one party as per the Agreement in this behalf and supply of the finished product to the buyer. Paras 5 & 7 of the High Court decision are reproduced below:
The agreement between the petitioners and the Union Carbide is produced on record at Ex. A to the petition. Clause 7 of this agreement provides that any taxes levied or duties including sales tax and excise duty shall be paid by the Company. Clause 8 of the agreement provides for price adjustment and the price agreed between the parties could be increased if there is any increase in excise duty or in the import duty on stainless steel. Part B of Clause 8 provides that the price of the product will be reviewed every year, while Part C of the clause provides that if any difficulty in obtaining raw-materials within the country arises and the petitioners are required to import the raw-materials, then any premium paid for procuring import entitlement shall be reimbursed by the Company. Clause 12 of the agreement provides for short delivery, rejection and replacement of the product and that indicates that the petitioners were not the agents of the Company but were independent manufacturers. From the terms of this contract, I have no hesitation in holding that the petitioners were not the agents of the Union Carbide but were independent manufacturers. Apart from this consideration, Mr. Taraporewala rightly submitted that the show cause notice issued by the respondents nowhere indicates that the agreement between the parties was not genuine or there was certain material in the custody of the respondents to hold that the petitioners were merely agents of the Union Carbide. The show cause notice merely indicates that there is a variation between the price at which the petitioners sold the blades to the Union Carbide and the sales effected by the Company in open market. The orders of the two authorities do not carry the case any further and the Superintendent of the Central Excise has merely relied upon the letter dated July 23, 1970 to hold that the petitioners were mere agents of the company."
Mr. Dalai relied upon the decision of the Supreme Court in the case of A.K. Roy and Anr. v. Voltas Ltd. and contended that the reading of the entire agreement would leave no doubt that it was not at arms length. The main reliance by the learned Counsel is on the fact that the Union Carbide are selling the blades at a price which is far in excess of what the petitioners are charging them. It is impossible to conclude from this fact that the petitioners are merely the agents of the Company. It is well-known that the products are sold by the Company at a higher rate because of the reputation of their brand and that would not necessarily reflect the true value of the articles. In Voltas case, the Supreme Court observed:
If a manufacturer were not enter into agreements with dealers for wholesale sales of the articles manufactured on certain terms and conditions, it would not follow from that alone that the price for those sales would not be the wholesale cash price for the purpose of Section 4(a) of the Act if the agreements were made at arms length and in the usual course of business."
The agreement in the present case clearly establishes that it is at arms length and is entered into in the usual course of business.
10. In the present case also, it can be reasonably concluded having regard to the nature of the clause in the Agreement that it is at arms length and entered into in the usual course of business. Further, it may also be relevant to consider the definition of wholesale dealer occurring in Section 2(k) of the Central Excises and Salt Act, 1944. This definition is as follows:
Wholesale dealer' means a person who buys or sells excisable goods wholesale for the purpose of trade or manufacture and includes a broker or commission agent who, in addition to making contracts for the sale or purchase of excisable goods for others, stock such goods belonging to other as an agent for the purpose of sale.
11. This definition, which is an inclusive definition, is of wider scope and it will be reasonable to interpret the term 'wholesale trade' occurring in Section 4(4)(e) of the Act alongwith this definition of 'wholesale dealer' and it is to be applied in interpreting Section 4 also because there is nothing to show that this definition would be repugnant to provisions in the determination of assessable value under Section 4. When so viewed, the term 'wholesale dealer' has to be given a wider interpretation to include bulk purchases and in such a view of the matter, the Department's contention that TOMCO in the facts of the present case are not wholesale dealers does not have much force. In the result, on a total consideration of the facts and circumstances of the case and the evidence on record, we see no reason to interfere with the orders passed by the Collector (Appeals). The appeals are, therefore, rejected.
5. We have considered the pleas made by both sides. We observe that in the show cause notice the ground for raising demand was that the appellants had received free of cost the technical know-how, designs and drawings and also assistance in regard to procurement of raw materials and also for quality control purposes. Apart from this it was also mentioned that the appellant's total production had been passed on to M/s. Kirloskar and the sales tax authorities did not recognise the transfer of the branded goods as sale. At the outset we would like to observe that the consideration which might be relevant under the Sales Tax Law may not be relevant for interpreting Central Excise Statute. The Central Excise statute talks about the wholesale price at which the goods are assessed in terms of Section 4 and various parameters in that regard have been set out under the Section. There is nothing in the Central Excise statute to show that where the goods of the branded nature are manufactured by an assessee the transfer of the goods would not constitute sale. The lower authorities were therefore in error in having relied on the provisions of Sales Tax to arrive at their conclusions that there was no sales transactions between the appellants and their customers. We also observe that the learned lower authorities have not based their findings on any terms of the contract etc. nor any finding has been entered and findings that the relationship between the appellants and the customer was not on principal to principal basis or that the sale was to a related person. If that be so, the question of straightaway adopting the sale price of M/s. Kirloskar prima-facie was not correct in law. We therefore on prima-facie grounds hold that the appellants have a good case on merits and therefore allow the prayer for dispensation of pre-deposit. Since the issue lies in a short compass and in view of what we have stated above with the consent of both the parties the appeal itself is taken up for disposal.
6. We observe that the Tribunal in a number of cases has held that before rejecting any price as declared by the appellants it has to be shown that the parameters as set out under Section 4(i)(a) have not been satisfied. If it is seen that the assessment cannot be done under the main provisions of Section 4(1)(a) then the recourse would have to be to the other provisions of Section 4 including the Valuation Rules. The authorities below have not approached the issue in the above light. It has to be first considered whether the relationship between the appellants and the customer is on principal to principal basis, if not, then in that event what are the elements which detract from that position and what are the other extra considerations which would be required to be taken into consideration for the purpose of arriving at the assessable value. In the present case the consideration of supplying design and technical know-how and also the assistance given to the appellants for quality control purposes and procurement of raw materials are relevant considerations. The amount attributable to these would lie includible if not already included. Likewise it has to be discussed whether the sale can be taken to be to a related person. The authorities below have not entered any findings in this regard or considered the issue in that aspect. Furthermore in case the price was shown to be not acceptable, they should have resort to the Valuation Rules. This also we find was not done. We are of the view that the authorities below have not examined the issue in the correct legal perspective and therefore the order of the learned lower authority is not proper and we therefore set aside the same and since the matter will have to be gone into taking into consideration various aspects as discussed above we hold that it will be advantageous to both the sides if the issue is examined by the original authority in the de novo proceedings and we order accordingly. The appeal is therefore allowed by remand in the above terms.
(Pronounced and dictated in the open Court).