Customs, Excise and Gold Tribunal - Mumbai
Parag Industries Pvt. Ltd. vs Commissioner Of C. Ex. on 24 July, 2000
Equivalent citations: 2000(121)ELT540(TRI-MUMBAI)
ORDER Gowri Shankar, Member (T)
1. M/s. Parag Industries Private Limited, the appellant in E/2593/99-Bom. is engaged in processing of textile fabrics. The processing is undertaken by it exclusively as a job worker, the grey fabrics being supplied by other persons to whom it returns the fabrics after processing. Among the persons who supplied grey fabrics for processing is M/s. Parag Prints Private Limited and Parag Fabrics.
2. The department was of the view that these three firms Parag Industries Limited, Parag Prints Private Limited and Parag Fabrics are related by reason of the fact of common office and directors, and the fact that brand name 'Parag' which belong to Parag Prints Private Limited is also being used by the job worker. Notice was issued proposing to adopt as the assessable value of the fabrics processed by Parag Industries Limited, price at which these fabrics are sold by Parag Prints Private Limited and Parag Fabrics. In the order impugned in these appeals the Commissioner has confirmed the proposal in the notice and demanded duty, which found to be short paid, from Parag Industries Limited. He imposed penalty on all the three firms and also on H. S. Vir-mani and R. S. Virmani, directors of Parag Industries Limited and Parag Prints Private Limited respectively.
3. It is contented before us by common advocate for these appellants that assessable value is to be determined in the case of job worker on the cost of manufacture (including cost of raw material) and the profit that the job worker earns. It is contended that the Supreme Court judgement in Ujagar Prints v. UOI - 1989 (39) E.L.T. 493 deems by a fiction that factory gate of the processor is the market for sale of goods. Therefore it is the cost of manufacture by the processor that should be taken the basis for assessable value and not the price of the subsequent trader. In this view, the fact of relationship between the job worker and the supplier of raw material is irrelevant. It is also submitted that of the total fabrics processed by Parag Industries Limited, it was only about 35% or so which was processed on the orders of these two other firms, the remaining 65% of the fabrics were processed for others, entirely unconnected persons. The cost of processing in all those cases is identical. This further establishes that the fact of relationship if assumes does not affect the value.
4. The departmental representative adopts the reasoning in the order impugned.
5. The question of sales being made of excisable goods by a manufacturer to a related persons assumes significance in a case where the price to be determined under clause (a), of Sub-section (1) of Section 4 of the Act. Paragraph 3 of the proviso under this clause stipulates that where an assessee sells the goods to or through a related person it is the sale price of that person which is deemed to be the price. The question of relationship therefore would arise in a case where the value to be determined under clause (a) of Sub-section (1) of Section 4. When this Sub-section does not apply for the reason that the goods are not sold, we have to turn to the Valuation Rules, more specifically Rule 6 in cases where the goods are not sold by the manufacturer and the price of comparable goods is not known. The price of such goods is to be determined on the cost of raw material, manufacture, including the profits as provided in Sub-rule (1). In effect this is the price that is held to be applicable by the Supreme Court in Ujagar Prints. The cost of manufacture would ordinarily not change irrespective of whether there is a relationship between manufacturer and the buyer. It is possible that where the goods are supplied by the job worker to a related person the cost of manufacture may be artificially depressed, the difference between the price paid and price payable being returned to the job worker by some other means. In that situation, however, it would have to be shown that the cost of manufacture declared by the manufacturer is false or has been artificially depressed. In the facts before us there is no such allegation. Nor there is any allegation that there has been any flow of finance from Parag Prints Private Limited and Parag Fabrics to the manufacturer representing any part of such cost of manufacture of fabrics. Unless it can be shown that the cost of manufacture itself as declared by the assessee is incorrect or is not acceptable for the reason that the manufacturing cost was depressed that would be no reason to addingit on the value. The decisions of the Tribunal in S.Kumars Ltd. v. CCE - 2000 (117) E.L.T. 439 which has been followed in Praful Industries Ltd. v. CCE - 2000 (118) E.L.T. 97 although this line of reasoning has not been expressed, takes the view that the ratio of the Supreme Court judgement in Ujagar Prints v. UOI -1989 (39) E.L.T. 493 will apply irrespective of whether there is any relationship or not for the reason that we have indicated. We therefore respectfully follow these decisions and apply this ratio to the facts before us, adding the caveat that the situation would be different in cases where as a result of the relationship the cost of manufacture declared by the manufacturer is not the true cost.
6. The fact that the appellant cleared only about 35% or so of the production to the allegedly related persons is also of great significance. The appellant had urged before the Commissioner that the cost of processing of the fabrics which it cleared to other persons was the same as the cost which it incurred on the processing of the fabrics supplied by Parag Fabrics and Parag Prints. This, therefore shows that the relationship, if assumed, does not influence the cost of manufacture. The Commissioner dismisses this claim on a hypothesis which we are not able to accept. He says that in effect the cost of processing of two pieces of fabrics can never be identical. We are not able to see the validity of these arguments. If a processor processes identical pieces of fabrics for two buyers, all other circumstances being same, the process and other costs incurred, and profit remains the same there is no reason whatsoever, why the cost of processing of such fabrics should not be identical. This claim is therefore unacceptable.
7. We have come to our conclusion on an assumption that the three firms are related. We have therefore not dealt with arguments that they were not in fact related, within the meaning of Section 4(4)(c) of the Act. We have also not recorded or dealt with the argument that the demand is barred by limitation.
8. The appeals are accordingly allowed and impugned order set aside.