Customs, Excise and Gold Tribunal - Delhi
Indian Shaving Products Ltd. And Ors. vs Cce on 11 July, 2000
Equivalent citations: 2001(74)ECC386
ORDER Sidharath S. Sekhon, Member (T)
1. The impugned proceedings in this case were taken on the ground that the appellants had under-valued the goods at the job worker's end resulting in short payment of duty and was charged for having wilfully mis-stated and suppressed the facts with intent to evade payment of duty. This resulting in under-valuation of the goods manufactured by the appellants through alleged hired labour. The facts in brief are:
(a) M/s. Indian Shaving Products Ltd. (hereinafter referred to ISP) has its own manufacturing facilities for certain types of shaving products and also engages job workers for assembling, sealing and packaging of certain other shaving products. They supplied all necessary components and packaging material for manufacture of final products by job workers. Amongst the job workers are M/s. G.M. Enterprises (GME), Bhiwadi, Rajasthan, M/s. Krishnan & Associated Engineers (KAE), New Delhi and M/s. G.S. Enterprises (GSE) Bhiwadi Rajasthan. M/s. KAE had been in the manufacturing business even before the Appellant commenced its activities in India. M/s. GME is a part of Ruchika group of companies specializing in Plastic products, M/s. GSE is a sole proprietary concern of one Mr. Govind Singh who used to manufacture shaving brushes before this. These job works (sic) [workers] are independent firms with their own investment, sales-tax, income-tax, excise and ES1/PF registrations and are not in any way related or connected with ISP In terms of the agreement entered into the job workers were required to assemble and pack shaving products like razors, cartridges containing blades etc. in their factories, conforming strictly to the drawings/specifications and instructions provided by ISP For this purpose ISP was required to supply packaging and materials like labels, cartons, boxes etc. It was specified in the agreement that ownership of these materials given to the job workers would remain with ISP and the job workers were required to submit to them inventory statements relating to stock of materials regularly. ISP were entitled to inspect the factory premises of the job workers at any time to verify the stocks of materials supplied by them and also to check the quality and specification of the final products manufactured by the job workers. In consideration of the job work done by the job workers, ISP paid job charges worked out on the basis of 1000 units of the product manufactured by the job workers and the Central Excise duty payable on them by the job workers. The finished products after completion of the job work were delivered to ISP according to the schedule mutually agreed upon between them. In terms of the agreement, ISP had the right to reject products assembled and packed which did not meet their quality specifications. In case of such rejections the job workers were not entitled to any job charges. The said agreement also laid down the maximum for the wastage of material during the manufacturing process which was to be determined mutually between the job workers and ISP and any wastage beyond that limit was to be borne by the job workers. The final products manufactured by the job workers was required to be under the brand name/trade marks and package graphics specified by ISP from time to time. The job workers were specifically barred from claiming any title or interest in such brand names/trade marks etc. They were required to affix such trade marks only to product which were assembled or packed pursuant to the agreement and supply the same only to the ISP.
(b) Components and parts which are supplied to the job workers are manufactured by ISP and cleared on payment of appropriate Central Excise duty. Certain other components and parts as also packing material procured by ISP from various vendors and deliveries are made to the job workers directly by these Vendors. These items are also Central Excise duty paid. ISP evolved the system of marketing of the finished goods taking into account commercial and administrative convenience, whereby finished goods, are taken to their Central Stock Point where the goods are then stock transferred to various clearing and forwarding agents (CFAs) for sale to various distributors. The CFAs are located at various cities and towns in the country for convenient distribution of the finished goods.
(c) At the time of clearance of the finished goods the job workers pay Central Excise Duty at a price based on the value of the components parts and packings materials supplied by the ISP/vendors plus job charges including profit margin of the job workers.
(d) M/s. GSE has been doing job work for the Appellant from July 1995 and still continues to be a job worker. All the assessments till date with respect to the clearances made by M/s. GSE are provisional Show Cause Notices dated 4.9.97, 4.11.97 and 1.5.98 were issued to M/s GSE seeking to revise the values and demand differential duty alleged to be payable on the basis of such revision. The show cause notices also sought to invoke the penal provisions of the Rules for the alleged violations of Section 4 of the Act relating to value. The show cause notices dated 4.9.97 and 4.11.97 covered the period from February 1997 to March 1997 and April 1997 to June 1997 and sought to demand sum of Rs. 3,71,111 and Rs. 27,77,227 respectively. These two show cause notices, while acknowledging the fact that M/s. GSE was a job worker, sought to include Central Excise Duty, Sales Tax, freight forwarding charges etc. to the cost of raw material for working out the assessable value in terms of Rule 6(b)(ii) of the Central Excise Valuation Rules, since no value was available of comparable goods.
(e) M/s. KAE was ISP's job worker from February 1991 to October 1996. Initially two show cause notices dated 13.8.93 and 27.9.93 were issued answerable to the Deputy Collector of Central Excise, New Delhi covering the clearances during the period February 1993 to August 1993. These two show cause notices took note of the agreement between the Appellant and M/s KAE and alleged that the advertising expenses incurred by the Appellant should be included in the assessable value of the goods manufactured on job work basis by M/s. KAE and that as per the normal trade practice 10% of the value has to be added as the cost of advertising and the assessable value revised accordingly. Subsequently, series of show cause notices dated 4.11.93, 26.11.93, 20.12.93, 3.3.94, 2.5.94, 23.9.94, 16.1.95, 10.3.95, 1.6.95, 18.7.95, 3.11.95, 16.1.96, 22.4.96, 117.96, 24.10.96 and 20.1.97 were issued to M/s. KAE covering the clearances for the period April 1993 to October 1996 seeking to demand Central Excise duty amounting to Rs. 4,50,55,544. The main thrust of the allegations in all these show cause notices was that the prices declared in the price lists were not the prices at which the goods were sold or capable of being sold in the course of wholesale trade. It was also alleged that since the assessable value cannot be determined at the factory gate as there was no sale by the job worker at the factory gate, the assessable value should be arrived at based on the price of the products at which they were sold to the consumers after allowing permissible deductions on account of Excise Duty Sale Tax etc. The Assistant Commissioner of Central Excise, New Delhi held that the duty payable was Rs. 6,95,27,973 and after giving adjustment to the duty already paid by M/s KAE to the sum of Rs. 3,03,72,704, the differential duty worked out to Rs. 3,92,55,269. The Assistant Commissioner of Central Excise, New Delhi also held in his Order that the ruling of the Appellate Tribunal in the case of Pawan Biscuits 1991 (53) ELT 595 was applicable to the facts of this case and that it will be the intrinsic value of the products that will be relevant for the purpose of determination of assessable value at the hands of M/s. KAE, even though he is a job worker.
(f) Apart from the above show cause notices issued to M/s. GME, M/s. KAE and M/s. GSE, two further show cause notices were issued to ISP on 2.1.98 and 3.4.98 respectively by the Superintendent of Central Excise Bhiwadi, Rajasthan alleging that the components and parts cleared by the Appellant to the job workers have the essential character of complete or finished goods and hence such components and parts should be assessed at the prices at which these complete/finished products are being sold by the Appellant in the wholesale trade. These two show cause notices cover the clearances made during the period June 1997 to October 1997 and they seek to demand differential duty of Rs. 1,31,78,978. These two show cause notices also cover the same goods which are the subject matter of the impugned order.
(g) While this issue of determination of assessable value of the finished goods manufactured on job basis by M/s. GME, M/s. KAE and M/s. GSE was pending adjudication and appeal before various statutory authorities, it appears that an investigation was commenced by the Officers of the Directorate General of Anti-Evasion, New Delhi. A number of statements were taken from the Officers of the Appellant as also the job workers. As a fall out of this investigation, a show cause notice dated 4.5.98 was issued to the ISP its Managing Director, three of its job workers and their proprietors/partners.
2. The main thrust of the allegations made against them in this show cause notice is:
(i) The goods manufactured at ISP's factory were never offered for sale and were only moved on stock transfer basis to CSP.
(ii) The job workers do the assembling, blister packing and sealing of different parts and components received from ISP and manufacture the finished goods according to the specification quality and other standards prescribed by the Appellant.
(iii) The duty liability is discharged by the job workers on the basis of cost plus job charges without including the Modvat credit taken on the inputs. Further the cost of production also does not include certain elements like providing equipment free of charge, interest free advances etc.
(iv) The title in the goods remains with the Appellant till the goods were ultimately sold to distributors by the Appellant's Clearing and Forwarding Agents (CFAs).
(v) The job workers were bound by the agreement and other restrictions imposed by the company and hence their status was called as hired labour only. They cannot be treated as independent job workers but only as conduit manufacturers to evade Central Excise duty.
(vi) There is no principle to principle sale of material between ISPI and the job workers at both the stages, goods moved under stock transfer invoices which does not amount to sale.
(vii) The assessable value at the hands of the job workers has been worked out on cost plus job work charges basis and not on the basis of prevailing market price.
(viii) The packing material is provided by the Appellant through their vendors against the invoices showing as the buyers and job workers as consignees. Hence ownership of the goods is with the Appellant.
(ix) The job worker is not permitted to effect factory gate sale of the goods and are provided with the costing of the goods and directed to despatch the goods only to the CSP.
(x) In some cases machinery/technical know-how has been provided ISP free of charge to the job workers.
(xi) The goods are sold in the wholesale market for the first time only when they are cleared by the CFA's to the distributor when the title of the goods is transferred from ISP to the distributors.
(xii) The CFA's are also an extended arm of the ISP as they are maintaining records on behalf of the ISP but are neither producing nor selling the goods.
(xiii) The goods are sold by the CFA's as per the directions of ISP.
(xiv) ISP has permitted the job workers to hire additional premises for storage of raw materials finished goods and expenses incurred thereon were reimbursed by ISP apart from the job charges.
(xv) ISP had provided finances to the job workers to enable them to effect necessary changes in the infrastructure and these amounts have not been adjusted against job charges and no interest has been charged by ISP Hence the job worker is only hired labour.
(xvi) ISP was always aware that duty was payable at the price at which they are sold from the depot/CFAs to distributors since they were paying duty in respect of goods cleared by Neel Kamal Enterprises (NKE), Cosmic Shave Pack Pvt. Ltd. (CSPPL) to CSP on the basis of price charged at the depot/CFS's claiming admissible deductions during the period covered by the present show cause notice.
(xvii) ISP had incurred expenses of Rs. 46 Crores on advertisement, sale promotion, etc. to facilitate marketability of the products and this had not been included in the cost to arrive at the assessable value, as seen from the costing provided to the job workers. The job workers were created as a facade to camouflage the extended manufacturing activities for evading payment of duty on the goods manufactured on behalf of the Appellant by the job workers. There was no justification for adopting the method of valuation provided under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975 because the goods were not consumed captively.
(xviii) The price of the goods when it first entered the market stream, that is, when sold by CFA's to wholesale dealer/distributors, was well known and the same represented the intrinsic value of the goods in which all the considerations had entered.
3. We have heard S/Shri Anil Dewan, Ashok Sagar, R. Sasidharan, L. Mathew Advocates for the Appellants and Shri P.K. Jain, SDR and Shri Sanjeev Srivastava, JDR for the respondents and after considering the submissions made, find:
(a) The Commissioner of Central Excise after considering the reply of the party and the hearings came to conclusions that the Hon'ble Supreme Court constitutional Bench decision in the case of Ujagar Prints and 1989 (39) ELT 493 (SC) (The clarificatory order) could not be applied in this case for the reasons that the fact of that case were quite different and considering these facts and thereafter he found the subject case to be on all fours with the facts in case of Pawan Biscuits Company (P) Ltd. . In this reported case, Britania Industries Ltd. (hereinafter referred to as BIL) had entered into an exclusive agreement with Pawan Biscuits Company (hereinafter referred to PBC) whereby they exercised complete control over PBC, supplied the entire raw material and packing material to PBC, controlled directed and supervised the manufacturing activities of PBC, provided the schedule of manufacture despatch of goods and maintained strict quality control BIL, like Noticee No. 1, had fixed the wastage norm and any excess wastage was covered from the conversion charges due to PBC. Throughout the entire process, the title of goods--raw material/finished articles, waste/ defective material--rested with BIL, PBC was not permitted to dispose of any defective goods or waste on their own and were entitled to only the labour charges. It thus easily be said that the facts and circumstances of the Pawan Biscuits case and the subject case were almost identical. Thereafter he concluded that as in the case of Pawan Biscuits the relationship between the appellants and other noticee to the show cause notice was not on principal to principal basis made in the usual course of business and the above job workers were created as a facade to camouflage, the extended manufacturing activities of ISP Therefore he did not apply the ratio of the Supreme Court decision in the case of Ujagar Prints (supra) and or the other case relied upon by the appellants and proceeded to determine the valuation and calculated the duty differential at the values and the sale prices of ISP and confirmed duty demand of Rs. 5,56,54,032 and appropriated amount of Rs. 2.5 Crores paid by the appellants and demanded the remaining net amount payable Rs. 3,06,54,032 and imposed penalties under Rule 173Q read with Section 11AC and under Rules 9(2) and 52A(8) and 226 and ordered the recovery of interest at 20% per Annum under Section 11AB and imposed a penalty of Rs. 15 lakhs each on Shri Puneet Mahajan, Partner of M/s. G.M. Enterprises and Shri Govind Singh, Proprietor of M/s. G.S. Enterprises and Rs. 50 lakhs on Shri Radhakrishnan, Proprietor of M/s. Krishnan Associates Engineers and Rs. 1 Crore on Shri Pradeep Pant, Managing Director of M/s. Indian Shaving Products Ltd.
(b) We find that Hon'ble Supreme Court in appeal from the Pawan Biscuits Company as reported at have considered the facts of the case in Pawan Biscuits case and have come to the conclusions, that the Pawan Biscuits case were further held:
... Despite repeated attempts made by the Ld. Counsel for the respondents, we are unable to distinguish this case from the ratio laid down by this Court in the afore said two decisions of the Ujagar Prints case.
Therefore, we find that the very basis of the Commissioner finding that the present case is similar to the case in the Pawan Biscuits case and Ujagar Prints decision of the Supreme Court will not be applicable cannot be upheld. Since Supreme Court itself has found that the Pawan Biscuits case is similar to Ujagar Prints case and the ratio of the Ujagar Prints case will be squarely applicable to the facts of this case as it is the Revenue's case and Commissioner's finding that the facts in this case and Pawan Biscuits are the same; any attempt by the Revenue to interpret otherwise cannot be upheld and need not be considered by us. The order of Commissioner is required to be set aside.
(c) We find that certain assessments are provisional and the Commissioner has taken a view to overcome the decision of Godrej & Boyce 1989 (44) ELT 3 (SC) and apply Delhi High Court decision in Duncan Agro Ind. Ltd. cannot be upheld. These provisional assessments have to be remanded back to the jurisdictional proper officer for determination as per law.
(d) In view of our findings we find no reason for upholding any duty as confirmed by the Ld. Commissioner and do not approve appropriation made of amounts paid voluntary or otherwise. We cannot find any reason or cause to invoke penalty clauses as are being determined in this impugned order before us. The same was therefore, required to be set aside.
4. In view of our findings we would set aside the order of demand of duty and or appropriation of the amounts and penalties as imposed, and would remit the cases of provisional assessments to the jurisdictional proper officer for determination and finalisation as provided by law. The appeals are allowed as above.