Custom, Excise & Service Tax Tribunal
Miraj Drymix P Ltd vs Alwar on 19 July, 2018
IN THE CUSTOMS, EXCISE AND SERVICE TAX
APPELLATE TRIBUNAL, NEW DELHI
PRINCIPAL BENCH, COURT NO. I
Excise Appeal No. 51653 - 51656 of 2017
[ Arising out of the Order-in-Appeal No. ALW-EXCUS-000-COM-
011-17-18 dated 21.07.2017, passed by Commissioner of Central
Excise & Service Tax, Alwar]
M/s. Miraj Drymix (P) Ltd. Appellants
Shri Ashok N Mehta, Director
Shri Sanjay Mahagaonkar, AVP (Tech)
Shri Raj Kumar Yadav
Vs.
Commissioner of CGST Respondent
CC & CE, Alwar Appearance:
Shri V Lakshmikumaran, Shri Rahul Tangri, Consultant for the Appellants Shri R K Mishra, AR for the Respondent CORAM:
Hon'ble Mr. Anil Choudhary, Member (Judicial) Hon'ble Mr. C L Mahar, Member (Technical) Date of Hearing : 04.07. 2018 Date of Decision : 19.07.2018 FINAL ORDER No. 52571-52574/2018 E/51653 -51656/2017 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 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 Asian Paints Ltd.
3. The appellant have its own plant & machinery and undertook the manufacture of wall putty as a completely independent entity. According to the appellants, they are independent manufacturers and 2 E/51653 -51656/2017 not a job worker. Whereas Revenue opined that under the terms 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 Kg. The following illustrative table is given in para 3 of the impugned order: -
S. Bag MRP Assessable Duty Duty
No. having shown Abatement value payable payable
Qty. on Bag per bag per kg
1 20 Rs.620/ 35% Rs.403/- Rs.49.81 Rs.2.49
Kgs -
3
E/51653 -51656/2017
2 30 Rs.810/ NA Rs.266.61 Rs.32.95 Rs.1.01
Kgs -
3 40 Rs.1095 NA Rs.344.55 Rs.42.59 Rs.1.06
Kgs. /-
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 investigation. During the course of investigation, statement of Shri Raj Kumar Yadav was recorded, who inter-alia stated that he was holding the post of Factory-incharge and looks after the work related to purchase 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 4 E/51653 -51656/2017 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 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 Rs. 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 costing of the finished goods as to how the same is arrived, he stated that they purchased materials from the approved vendor of Asian Paints Ltd. which is passed on actual basis by adding cost of conversion on actual basis. The only 5 E/51653 -51656/2017 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 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 6 E/51653 -51656/2017 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 the sale, the value of the excisable goods shall be the normal transaction value of such goods sold from such other place at or about the same time and where such goods are not sold at or about the same time, at the 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."7
E/51653 -51656/2017
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 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 standards.
Clause 8(a):
Cancellation for default : Time is the essence under this Agreement. The Purchaser may cancel any order under this 8 E/51653 -51656/2017 Agreement in whole or in part if the Seller do not deliver 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 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 9 E/51653 -51656/2017 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 communicated by the Purchaser and / or do not meet the requirements of applicable Indian laws.
Clause 3(f) of the agreement dated 15.2.2011 The Seller agrees to use raw and packing 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 10 E/51653 -51656/2017 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 ownership of the formulation. Thus, Asian Paints Ltd. is the principal manufacturer by virtue of being the supplier of formulation and also defining exact ratio of 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 11 E/51653 -51656/2017 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 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 Differential value C. Excise duty cleared to various of goods as per payable on the depots of M/s. Rule 10A of differential Asian Paints Ltd. Valuation Rules, value.
Mumbai on which 2000 (as per
duty was paid. Annexure A)
1 1.1.2012 to 42720651 61667350 6522984
31.3.2012
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
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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 with interest. Further, penalty on the other appellant, Mr Ashok N Mehta, Chairman and 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 following conditions are duly specified: -
there is sale of excisable goods, the sale is for delivery at the time and place of removal, 13 E/51653 -51656/2017 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 of „job worker‟ as contained in the definition quoted herein above, the law purposes satisfaction of the two 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 14 E/51653 -51656/2017 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 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 judicatures, where the 15 E/51653 -51656/2017 Department sought to affirm that there was job works contract because of presence 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 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 16 E/51653 -51656/2017 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. Case Key contractual Held
No obligaton
1. Coromandel Explicit prohibition Receiving advance
Paints vs. on use of raw money for payment
CCE, material and towards the purchases
2010(260) packing material for of raw materials is
ELT any other purpose within normal
440(T) than the commercial terms.
manufacture on The fact that the
behalf of the compensation was
Purchaser. based on the material
No input or raw cost along with
material was specific profits cannot
supplied by the be used alone to
purchaser. uphold that there was
Compensation was job work manufacture.
given on the basis of Since no inputs were
actual material cost provided by the
and additional principal manufactures
specific profits. therefore, the activity
Advance money was not job-work.
paid for
procurement of raw
material from the
specified vendor,
can it be held that
the activities were
carried on job-work
basis.
2. Abhishri The purchaser had Inasmuch as final
Packaging employed its own products were
Pvt. Ltd. employees at the manufactured by
[2013- factory of Appellant procuring raw material
TIOL-772-
17
E/51653 -51656/2017
CESTAT- for supervision and independently, the
AHM monitoring. Appellant was an
Moulds used for independent
the manufacture, manufacturer.
which were There was no dispute
essential to the that moulds were
manufacture were being supplied, and at
supplied by the most required
Purchaser. redetermination of
value under Rule 6.
Rule 10A shall not
apply in such case.
3 Ravi Kiran Negotiation of Activities of
Plastics Pvt. prices of the raw monitoring, assistance,
Ltd. vs. material with the supervision and
CCE 2014 vendors by done payments to vendors
(303) ELT by the buyer. on Appellant‟s behalf
144 (T)
Payment made to as advance to
be vendors by the Appellant, in the
buyer, as advance nature of assistance for
to the Appellant. timely supply of raw
The Appellant material, were purely
cannot professional and
manufacture air commercial in nature.
coolers for These do not suggest
anybody else that the contract was
during the one of job-work.
existence of the The transaction was
said contract. 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 Prices were Held that monitoring of
Ruparel vs. mutually agreed. inputs used etc. were all
CCE, 2014 Specifications for irrelevant considerations,
(304) ELT manufacture were since it was undisputed
711 (T) provided. that the seller/
manufacturer paid for the
raw material.
18
E/51653 -51656/2017
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 regardless of the standard / quality considerations arising out of the quality of raw materials /inputs and the job-worker would be responsible only for the 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 19 E/51653 -51656/2017 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 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 Appellant‟s favour. The impugned order has placed reliance on the statements recorded during the investigation, which do not suggest that the Appellant was undertaking job-work manufacture. Further, the agreement dated 20 E/51653 -51656/2017 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" 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 21 E/51653 -51656/2017 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 procured from the suppliers who were provided such supplies only as per specification and approval of Asian Paints. From the various clauses of the agreement between M/s Mirajdrymix 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 such an observation, the Ld. 22 E/51653 -51656/2017 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 Appellant manufactures the goods only for APL, thus, the said fact was very much in the knowledge of the Department during the audit. Therefore, the demand raised by the SCN is substantially time 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 23 E/51653 -51656/2017 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 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 24 E/51653 -51656/2017 intangible. In the facts of the present case, Asian Paints Ltd. have supplied and/or shared their formula for manufacture of premix compound which is further required for manufacture of the Wall putty by the 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 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 25 E/51653 -51656/2017 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 and conditions held - it is evident from the agreement that the goods are to be manufactured from inputs supplied by suppliers identified by M/s. Zydus Wellness Ltd, which clearly satisfies 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 26 E/51653 -51656/2017 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 above by this Tribunal. Accordingly, he prays that the said judgment in the case of Hershey India Pvt. Does not hold a good law and, therefore, has no precedential value.
39. Having considered 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 27 E/51653 -51656/2017 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 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 shipping the products, and TUPPERWARE indemnified the assessee against any claim arising out of consumer's use of the products in accordance 28 E/51653 -51656/2017 with TUPPERWARE's instructions, (h) that the 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 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 29 E/51653 -51656/2017 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 decisions in the cases of Poona Bottling Co. Ltd. etc. 7.5 The third requirement [vide para (7.1) supra] for the assessees to be job workers of TUPPERWARE has also not been satisfied in this case 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 of" TUPPERWARE. Needless to say, therefore, that Rule 10A was not applicable to the assessment of the subject goods.
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40. Accordingly, in view of our findings, we allow this appeal and set aside the impugned order. We also allow the appeals of the other appellants Shri Ashok N Mehta, Shri Sanjay Mahagaonkar and Shri Rajkumar Yadav by setting aside the penalties imposed under Rule 26 of Central Excise Rules, 2002.
(pronounced in the open Court on 19.07.2018) ( C L Mahar ) ( Anil Choudhary ) Member (Technical) Member ( Judicial) ss 31