Customs, Excise and Gold Tribunal - Mumbai
Commissioner Of Central Excise & ... vs Shri Warana Sahakari Dudh Utpadak ... on 12 March, 2001
Equivalent citations: 2001(131)ELT676(TRI-MUMBAI)
ORDER
Gowri Shankar, Member(Technical)
1. This order disposs of two appeals, one filed by Warana Sahakari Dudh Utpadak Prakriya Sangh Ltd. (Warana for short), and other by the Collector against the order of the Collector (Appeals), Pune.
2. Warana manufactured at its factory at Amritnagar a product, Bournivta. Cadbury India Ltd.(Cadbury for short) is the owner of the trademark for this product, stated to be a malted milk food. Cadbury supplied to Warana the raw material for manufacture of the product as also recipe for its manufacture. The employees of Cadbury were posted at the factory to supervise the receipt and handing over of the raw materials and to test samples of finished product. Warana supplied the entire production of Bournvita to Cadbury, being paid an agreed charge per kilogram as processing charges. Warana paid duty on the product on the cost of manufacture incurred by it.
3. By notice issued to Warana, the department proposed to treat the manufacture of the product to be Cadbury, and to apply as its assessable value the price at which it sold to its dealers the Bournvita that it manufactured at its factory at Thane. Warana replied, resisting the contention in the notice, and claiming that the ratio of the Supreme Court's judgement in Ujagar Prints vs. UOI 1989 (39) ELT 493 would apply. The Asst. Collector did not accept this contention. He passed orders holding its assessable value to be the price at which Cadbury sold the product that it manufacture. Warana appealed this order. The Collector (Appeals)held that the manufacturer of the product was not Cadbury but Warana. He said, however, that in determining the assessable value, various elements should be included. The appeal by the department is against that part ofthe Collector (Appeals holding Warana to be the manufacturer. Warana's appeal is against the part of the order including these elements in the assessable value.
4. We shall first take up the department's appeal. The appeal is partly on the ground that Cadbury is the manufacturer, and also makes submissions which are necessarily based on the view that it is Warana who is the manufacturer. The ground that it is Cadbury who is the manufacturer rests on various clauses of the agreement between the two parties. The Collector has already considered these clauses in his order. He has noted clause 8 which provides that Cadbury will have the right to call for a sample of the product at any stage of the manufacture, as also the raw material and packaging other material used in manufacture. He finds this to be a normal feature cases of job works, particularly so in cases, such as foods, where it is essential to assure the quality of the product. He has cited an affidavit submitted by Warana, and a report by the Asst. Collector that it was the job of the Cadbury personnel at Warana to ensure receipt there of raw material and despatch of finished product. He does not accept that the right of Cadbury as to reject substantive material amounts to control by it, particularly since such material is reprocessed.
5. The appeal does not question any of these conclusions. It contends that is it is probable that Cadbury personnel posted at the Warana factory exercised overall supervisory control over production activities.It also suggests that Cadbury exercised the control over Warana through issued of various ingredients by it. A mere allegation of probable control unsupported by evidence is unacceptable. The appeal does not explain how control over production can be exercised by issue of raw material. The mere fact of supply of raw material has nothing to do with control of production. The appeal also contends that the facts of the case are such that the ratio of the decision of the Tribunal in Pawan Biscuits vs. CCE 1991 (53)ELT 595 would apply. Subsequent to this appeal, the Supreme Court has overturned the finding of the Tribunal in its decision and, in its order reported in 2000(120) ELT 24 found the manufacturer not, as found by the Tribunal to be Britannia Foods, but Pawan Biscuits.
6. The other ground in the appeal relating to valuation is that the value of Bounivita could not be lower than that manufactured by Cadbury. The value at Thane is stated to be Rs. 28 per tin of 500 gms; the value for the clearance from Warana is Rs. 16 for the same quantity. The ratione of the judgment to the Madras High Court in Asia Tabacco Co. Ltd. 1991 (53) ELT 293 and of the decision of the Tribunal in Kandivli Metal Works vs. CCE 1997 (90) ELT 187 militates against this proposition. The Madras High Court has said that the value for assessment of cigarettes manufactured by Asia Toabacco Co. Ltd.for Indian Tobacco Company should be determined on the basis of the judgment of Ujagar Prints, and not accepted that the value of identical cigarettes manufactured by Indian Tobacco Co. at its factory should apply. The Tribunal has also disapproved determination of the value of goods manufactured by a job-worker by applying the value of comparable goods by another manufacturer. It noted that Rule 6B(1) of the Valuation Rules, which directs adoption of value of comparable goods would only apply in a case where the excisable goods are not sold by the assessee but are used or consumed by him or on his behalf in the production or manufacture of another article, and held that this rule will not apply in situation where there is no such captive consumption.
7. The department's appeal is accordingly dismissed.
8.We will now proceed to consider the elements of value that are included by the Collector which are challenged by Warana. The first of these is the cost of technical know how provided by Cadbury to Warana and what is described as cos of goods will. By technical know how is meant the information that governs the process of manufacture -exactly what proportion of what ingredients is to be used, and at what stage in manufacture, and the exact processes to which these are to be subjected. The cost of technical know-how therefore would generally form part of the cost of manufacture. Such cost would however not includable in the cost relating to technical know how would hence not form part of the assessable value.
9. The Collector (Appeals) says that the "valuation is being shown on the basis of deemed sale price which will always include goodwill and technical know how". The "intrinsic value of these will include the cost." We are not concerned with the intrinsic value (whatever that may be)but that value determined by application of the principles laid down in the clarificatory order of the Supreme Court in Ujagar Prints. Further, the cost relating to "goodwill," by which the Collector apparently means the increase in the value of the product as a result of it being packed in containers containing the brand name "Bournivta," has nothing to do with the job worker. Any increase in its price attributable to the use of the brand name would be attributable to Cadbury, its owner.
10. Cadbury maintained a godown outside the Warana factory in which it stored the raw material which was to be supplied to Warana. The Collector had held the rent and other expenses incurred in maintaining this godown to be includable in the value.This is being challenged. It cannot be disputed that the cost of raw material should form part of the assessable value. Such, cost, as the Supreme Court says, should be the cost of the raw material "in the hands of the processor". It is not disputed that godown was being used solely for supply of raw material to warana and for no other purpose. The costs incurred in running this godown are hence part of the cost of raw material supplied to Warana, and includable in the value of the product manufactured by it.
11. The next item for consideration is the salaries of three supervisors and managers of Cadbury, who were posted at Warana, and other expenses incurred in relation o their work. The Collector finds that their presence was required solely for supervising the receipt of the raw material and issuing it to Warana, and therefore included these expenses in the cost of manufacture. The counsel for Warana states that, in addition to supervising the receipt of the raw ,material; and issuing it to Warana, these persons were engaged in testing samples of the finished product. This kind of testing had no necessary relation with the manufacture. It was a function carried out by them of behalf of the buyer. The expenses incurred in this regard would not form part of the assessable value. However that part of the salaries paid to them, the rent for their accommodation people and expenses incurred for their transportation would form part of the raw material cost and therefore of the assessable value. The counsel for Warana suggests that he will be able to give some segregation of these cost, those relating to raw material and testing within two months from the receipt of this order. On receipt of such information, the Deputy/Asst. Commissioner shall determine the assessable value and pass orders within a reasonable period.
12. E/2110/94 dismissed. E/496/95 allowed in part.