Customs, Excise and Gold Tribunal - Delhi
Makson Healthcare Pvt. Ltd. vs Cce on 27 June, 2007
Equivalent citations: 2007(218)ELT286(TRI-DEL)
ORDER P.K. Das, Member (J)
1. The issue involved in these appeals is the valuation of Vicks Cough Drops manufactured on job work basis by the appellants and supplied to M/s Procter and Gamble India Ltd i.e. PGIL. It may be noted here that the appellants are also engaged in the manufacture of other goods on job work basis for M/s Dabur India Ltd. (Hajmola, Funtoo, Honeytex), M/s Cadbury India Ltd (Halls, Eclairs) and Nestle India (Polo).
2. The appellant entered into an agreement with PGIL wherein PGIL shall supply the raw materials, manufacturing technology, packing materials etc. to the appellant on job work basis. It has been alleged that the transaction is not on principal to principal basis and the appellant is not an independent job worker and therefore, the appellant is liable to pay duty on the price charged by the depots of PGIL. The Commissioner confirmed the demand of duty and imposed penalty along with interest.
3. The learned Advocate on behalf of the appellant, submits that the appellant is a job worker of PGIL and therefore, they are paying duty on the value as determined as per the decision of the Hon'ble Supreme Court in the case of Ujagar Prints v. Union of India reported in 1989 (39) ELT 493 (SC). They are submitting the Chartered Accountant Certificate in support of job work value. He also cited several decisions of the Tribunal. He submits that the Commissioner erroneously proceeded on the basis that there is sale of goods between the appellant and the PGIL. He submits that as revealed from the agreement between the parties, PGIL shall supply the raw materials, packing materials and manufacturing technology for manufacturing the said goods on job work basis. It is his submission that the appellant has been manufacturing the goods on their own, with their own machinery, capital investment, labour, license, etc and therefore, the appellant is an independent manufacturer. He further submits that Commissioner is in error in adopting the price of the buyer for assessment (PGIL) since the Tribunal in the case of Cosme Remedies Ltd v. CCE Goa held that depot price is relevant only when the goods are removed by a manufacturer to his own depot
4. The learned DR submits that it is clear from the agreement between the parties that the appellant is not an independent job worker. He reiterates the findings of the order of Commissioner. He relied upon the decision of the Hon'ble Supreme Court in the case of CCE Indore v. S. Kumars Ltd. .
5. After hearing both the sides and on perusal of the record, it is seen that the appellant entered into agreement with PGIL for job work. The relevant portion of the agreement is reproduced below.
Whereas the manufacturer has the facilities necessary to manufacture the product.
And whereas the manufacturer has offered to manufacture the product for the company and the company has agreed to have the products manufactured by the manufacturer, in accordance with the specifications given by the company from time to time, on the terms and conditions mentioned hereinafter.
Article 1 - Processing of Products
a) Products: The manufacturer undertakes pursuant to the terms of this Agreement to manufacture and package in its own plant, products of such specifications and ingredients as may from time to time he agreed by and between the parties (hereinafter referred to as the product.) XXX XXX XXX Article 2 - Supply of raw and packaging materials a.) The company shall supply all of the manufacturer's requirements of the raw packaging materials necessary for the processing and packaging of the product and shall retain title in all such materials.
XXX XXX XXX Article 6 Processing Charge: The manufacturing charges of the product shall from time to time, be mutually determined and charges so determined shall be governed by the provisions of this agreement.
XXX XXX XXX Article 11 - Competing Products:
Manufacturer shall take prior written consent of the company for manufacture or process of any other product similar to the product presently manufactured by the manufacturer.
XXX XXX XXX Article 17 - Processing Rights Nothing herein shall be construed to prohibit the Company from manufacturing the product or getting the same manufactured or processed by other parties.
XXX XXX XXX Article 18- Creation of right or interest Nothing herein contained and no course of dealing between the parties shall create or be deemed to create any agency, partnership, joint venture or any other relationship, fiduciary or otherwise between the parties hereto. Except as otherwise expressly indicated herein, manufacturers not granted any right or authority to assume or to create an obligation or responsibility, express or implied, on behalf of or in the name of the company or bind the company in any manner whatsoever.
6. On perusal of the agreement, we find that the PGIL shall supply only raw material, packing material and technology necessary for the processing of the goods and appellant shall undertake the manufacture at its factory with its own machines and other resources. It is seen that the appellant undertakes the job work of various companies namely Dabur India Ltd, M/s Cadbury India Ltd and M/s. Nestle India Ltd as well as PGIL herein. The parties reserved the right, immediately to cancel and terminate this agreement at any time by notice to the other party. In this case, there is no dispute that the appellant is using own machine, labour force, capital investment and their own license for the purpose of job work. So, the findings of the Commissioner that the appellant is not an independent manufacturer, is not sustainable. It is apparent on the face of the agreement that the appellant is an independent job worker. So, there is no question of adopting the sale price of the buyer (PGIL) for assessment. There is a termination clause in the agreement. Therefore, the finding of the Commissioner that the appellant is not free to manufacture or process similar products is not sustainable.
7. Further, we find that the Revenue failed to show any evidence that the transaction between the parties are influenced by any extra commercial consideration. However, an attempt was made to establish extra commercial consideration on the ground that advertisement cost was borne by PGIL. Further, it has been alleged that the appellant has been provided an interest-free working capital. The learned advocate on behalf of the appellant clarified that this was in view of special circumstances. It is being clarified that there was a classification and valuation dispute of the said goods and therefore, PGIL furnished the bank guarantee on behalf of the appellant to the Central Excise Department as the appellant was undertaking job work on their goods. Further, incurring of advertisement expenses by PGIL has no relevancy to the valuation of goods produced on job work basis.
8. The learned DR strongly relied upon the decision of Hon'ble Supreme Court in the case of S. Kumars Ltd (supra). In that case, the basis of the demand against the respondent was that they were having a common management and control with some of them selling fabrics to the respondent No. 1, which, after processing the fabrics, sold the same to some other respondents. The relevant portion of the same decision is reproduced below:
We therefore, do not agree that Ujagar Prints III would apply even to a processor who is not independent and, as is alleged in this case, the merchant manufacturers and the purchasing traders are merely extensions of the processor. In the latter case, the processor is not a mere processor but also a merchant manufacturer who purchases/manufacturers the raw material, processes it and sells it himself in the wholesale marker. In such a situation, the profit is not of a processor but of a merchant manufacturer and a trader. If the transaction is between related persons, the profit would not be 'normally earned' within the meaning of Rule 6(b)(ii). If it is established that the dealings were with related persons of the manufacturer the sale of the processed fabrics would not be limited to the formula prescribed by Ujagar Prints III but would be subject to excise duty under the principles enunciated in Empire Industries as affirmed in Ujagar Prints II, incorporating the arms length principle.
9. It is seen that in the case of S. Kumars Ltd supra, traders are merely extensions of the processors. But, in the present appeal before us, there is no material placed by the Revenue that the appellant/manufacturer is a related person of the raw material supplier PGIL. We have already discussed at length that the appellant is an independent manufacturer and they were undertaking the job work of various companies. Further, it is evident from the agreement that PGIL are not merely extensions of job worker and therefore, the decision of S. Kumars Ltd (supra) is not applicable herein. It is established that the appellants are independent job workers and therefore, the ratio of the decision of M/s Ujagar Prints Ltd (supra) would apply in this case. Hence the valuation and payment of duty originally made were correct and the present demand of duty and penalty are not sustainable.
Accordingly, we set aside the impugned order and allow the appeal with consequential relief to the appellant.
(Order dictated and pronounced in the Open Court)