Custom, Excise & Service Tax Tribunal
Global Food Specialities vs Bangalore-Ii on 23 September, 2025
E/25655,21769,21770,21771,21768/2017, 21997/2018
E/25660/2013, E/21774,21773,21776,21775/2017
E/21996/2018
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, BANGALORE
REGIONAL BENCH - COURT NO. 1
Central Excise Appeal No.25655 of 2013
[Arising out of Order-in-Original No.46/2012 dated 29.11.2012 passed
by the Commissioner of Central Excise, Bangalore]
M/s. Global Food Specialities,
No.529, IV Phase, 2nd Stage, Appellant(s)
Peenya Industrial Estate,
Bangalore-560 058.
VERSUS
The Commissioner of Central
Excise,
Bangalore II Commissionerate, Respondent(s)
C.R. Building, Queen's Road, Bangalore-560001.
WITH
1. Central Excise Appeal No.21769 of 2017 (M/s. Global Food Specialities.) [Arising out of Order-in-Appeal No.248-251/2017 CT dated 20.09.2017 passed by the Commissioner of Central Tax (Appeals-II), Bangalore]
2. Central Excise Appeal No.21770 of 2017 (M/s. Global Food Specialities.) [Arising out of Order-in-Appeal No.248-251/2017 CT dated 20.09.2017 passed by the Commissioner of Central Tax (Appeals-II), Bangalore]
3. Central Excise Appeal No.21771 of 2017 (M/s. Global Food Specialities.) [Arising out of Order-in-Appeal No.248-251/2017 CT dated 20.09.2017 passed by the Commissioner of Central Tax (Appeals-II), Bangalore]
4. Central Excise Appeal No.21768 of 2017 (M/s. Global Food Specialities.) [Arising out of Order-in-Appeal No.259-264/2017 CT dated 22.09.2017 passed by the Commissioner of Central Tax (Appeals-II), Bangalore]
5. Central Excise Appeal No.21997 of 2018 (M/s. Global Food Specialities) [Arising out of Order-in-Appeal No.395 & 396/2018 CT dated 01.10.2018 passed by the Commissioner of Central Tax (Appeals- II), Bangalore] Page 1 of 19 E/25655,21769,21770,21771,21768/2017, 21997/2018 E/25660/2013, E/21774,21773,21776,21775/2017 E/21996/2018
6. Central Excise Appeal No.25660 of 2013 (M/s. International Flavours & Fragrances India Pvt. Ltd.) [Arising out of Order-in-Original No.46/2012 dated 29.11.2012 passed by the Commissioner of Central Excise, Bangalore]
7. Central Excise Appeal No.21774 of 2017 (M/s. International Flavours & Fragrances India Pvt. Ltd.) [Arising out of Order-in-Appeal No.259-264/2017 CT dated 22.09.2017 passed by the Commissioner of Central Tax (Appeals-II), Bangalore]
8. Central Excise Appeal No.21773 of 2017 (M/s. International Flavours & Fragrances India Pvt. Ltd.) [Arising out of Order-in-Appeal No.248-251/2017 CT dated 20.09.2017 passed by the Commissioner of Central Tax (Appeals-II), Bangalore]
9. Central Excise Appeal No.21776 of 2017 (M/s. International Flavours & Fragrances India Pvt. Ltd.) [Arising out of Order-in-Appeal No.248-251/2017 CT dated 20.09.2017 passed by the Commissioner of Central Tax (Appeals-II), Bangalore]
10. Central Excise Appeal No.21775 of 2017 (M/s. International Flavours & Fragrances India Pvt. Ltd.) [Arising out of Order-in-Appeal No.259-264/2017 CT dated 22.09.2017 passed by the Commissioner of Central Tax (Appeals-II), Bangalore]
11. Central Excise Appeal No.21996 of 2018 (M/s. International Flavours & Fragrances India Pvt. Ltd.) [Arising out of Order-in-Appeal No.395 & 396/2018 CT dated 01.10.2018 passed by the Commissioner of Central Tax (Appeals-II), Bangalore] APPEARANCE:
Mr. Syed Peeran with Mr. Mohammed Ibrahim and Mr. Tushar Sharma, Advocates for the Appellant.
Mr. M.A. Jithendra, Assistant Commissioner (AR) for the Respondent Page 2 of 19 E/25655,21769,21770,21771,21768/2017, 21997/2018 E/25660/2013, E/21774,21773,21776,21775/2017 E/21996/2018 CORAM: HON'BLE DR. D.M. MISRA, MEMBER (JUDICIAL) HON'BLE MR. PULLELA NAGESWARA RAO, MEMBER (TECHNICAL) Final Order No. 21518 - 21529 /2025 DATE OF HEARING: 25.03.2025 DATE OF DECISION: 23.09.2025 DR. D.M. MISRA These appeals are filed against respective Orders-in- Original / Orders-in-Appeal passed by the Commissioner of Central Excise / Commissioner of Central Excise (Appeals), Bangalore, since involve common issues, are taken up together for hearing and disposal.
2. Briefly stated the facts of the case are that the main appellant are engaged in the manufacture of Vanilla Powder Flavour (VPF), other flavouring essences / concentrates generally represented 'Trusil Concentrates' falling under Chapter sub- heading 33021010 of Central Excise Tariff Act, 1985. During the course of audit, it was noticed that the appellant have been manufacturing VPF and supplying the same under an agreement dated 11.12.2003 between them and M/s. International Flavours & Fragrances India Private Limited, Chennai (IFFL, for short) in accordance with the terms and conditions of the said agreement. The said agreement has been extended from time to time and last extension was in force till 31.12.2011. Under the said agreement, the appellant is required to procure/purchase raw materials and packing materials on its own and to manufacture VPF and supply the same to IFFL at the price arrived at under Section 4 of the Central Excise Act, 1944. Alleging that there has been no sale or purchase between the appellant and the IFFL, the determination of value of VPF by the appellant are not in consonance with Section 4 of the Central Excise Act, 1944 which is proposed to be determined in terms of Rule 11 of the Page 3 of 19 E/25655,21769,21770,21771,21768/2017, 21997/2018 E/25660/2013, E/21774,21773,21776,21775/2017 E/21996/2018 Central Excise (Determination of price of excisable goods) Rules, 2000, show-cause notice was issued on 25.01.2012 demanding differential duty of Rs.51,90,636/- along with interest and penalty. On adjudication, the demand was confirmed with interest and penalty. Periodical show-cause notices have been issued thereafter involving the period from June 2011 to March 2017. All these notices have been adjudicated and demands were confirmed with interest and penalties; also, penalty has been imposed on IFFL under Rule 26 of the Central Excise Rules, 2002. Aggrieve by the said Orders the appellants filed appeals before the learned Commissioner(Appeals), who in turn rejected the same. Hence, these appeals.
3.1. At the outset, the learned advocate for the appellant has submitted that the Appellant, a proprietorship concern and engaged in manufacturing of two products viz. Vanilla Powder and Trusil Powder. These products are supplied only to IFFL, Chennai. IFFL, initially, incorporated as a public limited company and later converted into a private limited company in the year 2008. IFFL is mainly engaged in the manufacture/business of liquid and powder, preservatives, aromatic compounds, mixed seasoning powders etc. Out of the total turn-over of IFFL, 90% is towards manufacturing / business of fragrances and flavours and the balance 10% is from trading of food colouring preparations / VPF purchased from M/s. Mallya Fine Chem and the appellant. By virtue of agreement dated 11.12.2003 with the IFFL, the appellant commenced manufacturing of VPFF from January 2004 and supplied the same to IFFL. In terms of the agreement, the VPF is to be manufactured according to the formulations, specifications and quality furnished by IFFL. The appellant was required to purchase all the raw materials including the concentrates, packing materials etc. and use the same in the manufacture of VPF which is sold only to IFFL. Also, the appellant is required to discharge all taxes of State and Page 4 of 19 E/25655,21769,21770,21771,21768/2017, 21997/2018 E/25660/2013, E/21774,21773,21776,21775/2017 E/21996/2018 Central including Central Excise duty. The price for the product is mutually agreed on outright sale basis which is inclusive of excise duty but exclusive of Sales Tax. For manufacture of VPF, they purchased concentrates, Dextrose Monohydrate, food grade starch and packing materials. After manufacture of VPF, they packed it in different various quantities and sold to IFFL, after discharging excise duty on the basis of the sale price at which it is sold to IFFL. Also, an agreement dated 19.12.2003 was entered with IFFL for supply of Trusil powder on job work basis. The appellant discharged the excise duty on the price at which IFFL sold the Trusil powder to their customers in accordance with Rule 10A of the Central Excise Rules, 2000 after 01.04.2007 and before that, they were discharging duty on the basis of cost of production + job work charges, in terms of the principles laid down by the Hon'ble Supreme Court in the case of Ujjagar Prints. No dispute with regard to the valuation of the Trusil powder cleared by them on job work basis.
3.2. After the insertion of Rule 10A into the Valuation Rules w.e.f. 01.04.2007, they sought a clarification about the applicability of the said rule through their letter dated 23.04.2007. In response, the Department vide letter dated 04.05.2007 informed to the appellant that being an independent manufacturer the definition of 'job worker' mentioned in Rule 10A cannot be applicable to them and the value of the VPF will be the purchase order value of IFFL at which the appellant sells the goods to them.
3.3. The Appellant submits that the issue in the present case relates to valuation of Vanila Powder Flavour (VPF) manufactured & cleared by the Appellants to M/s International Flavours & Fragrances India Pvt Ltd (IFFL) in terms of Section 4(1)(b) of the Central Excise Act, 1944 read with Rule 11 of the Central Excise Valuation Rules, 2000. It is submitted that on identical facts Page 5 of 19 E/25655,21769,21770,21771,21768/2017, 21997/2018 E/25660/2013, E/21774,21773,21776,21775/2017 E/21996/2018 and issue based on similar agreement with IFFL, Chennai with regard to manufacture and clearance of Food Colour Preparations by M/s. Mallya Fine Chem Ltd, Bangalore, this Hon'ble Tribunal vide Final Order Nos. 20829-20854, 20855- 20858/2024 dated 10.09.2024 held that the transaction being on principal to principal basis, the transaction value entered between MFCL and IFFL be accepted for assessment of FCPs cleared to IFFL and not the value computed under Rule 11 read with Rule 9 of CEVR, 2000.
3.4. It is submitted that the impugned Orders has confirmed the differential duty demand in terms of Section 4(1)(b) of the CEA, 1944 read with Rules 11, 9 and 10A of the Central Excise Valuation Rules, 2000, whereas, the Show Cause Notice had proposed to re-determine the Assessable Value based on the sale price of the VPF in the hands of IFFL in terms of Rule 11 of Valuation Rules. The show cause notices had vaguely proposed to demand differential duty based on the sale price of IFFL without even specifying that which rule of the Central Excise Valuation Rules is violated and under which provisions of law the impugned demand was proposed and quantified. However, the impugned Orders have confirmed the demand in terms of Section 4(1)(b) of the Central Excise Act, 1944 read with Rule 11 read with Rule 9 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. Also, the impugned orders have come to the conclusion that the appellants and IFFL are related persons by virtue of the clauses in the agreement, which is not alleged in the show-cause notice. Thus the impugned orders have travelled beyond the allegations in the show cause notice while confirming the demand. It is contended that in case the department in the show cause notice alleged that the appellants and IFFL were related persons, then there was no requirement of invoking the provisions of Rule 11 of Valuation Rules,2000. In such a situation, the department could Page 6 of 19 E/25655,21769,21770,21771,21768/2017, 21997/2018 E/25660/2013, E/21774,21773,21776,21775/2017 E/21996/2018 have directly invoked the provisions of rule 9 of the Valuation Rules. The fact that the show cause notices does not directly invoke rule 9 also clearly supports the contention of the appellants that the notice did not allege that the appellants and IFFL are related persons. In such a situation the impugned order of the Commissioner confirming the demand on the basis of the finding that the appellants and IFFL are related persons and consequently, the value at which IFFL sold the goods from its depot is to be adopted is ex-facie perverse and clearly shows that the impugned order has travelled beyond the allegations in the show cause notice. The Appellants submit that it is settled principle of law that confirmation of demand by going beyond the allegations in the show cause notice is clearly beyond the scope of the show cause notice and hence, cannot be sustained in the eye of law. In support they relied on the following case laws: (i) CCE, Nagpur Vs. Ballarpur Industries Ltd - 2007 (215) ELT 489 (SC) (ii)CCE Vs. Gas Authority of India Ltd - 2008 (232) ELT 7 (SC).
3.5. Assailing the impugned Orders where demands have been confirmed on the ground that the transaction between the appellants and IFFL cannot be recognized as sale in the ordinary course of business or trade and the appellants and IFFL have interest in the business of each other by virtue of the terms and conditions of the agreement it is submitted referring to Section 4(1)(a) of CEA,1944 that in the present case, the Appellants have undertaken the activity of manufacture of VPF on their own account and have sold the VPF based on the agreement entered into with IFFL. In terms of the agreement, the appellants have procured all the raw materials and packing materials on their own and sold the manufactured VPF to IFFL on payment of appropriate sales tax. The sale was as per the agreed price, from time to time. IFFL was providing product formulations, specifications, brand, logo etc. to the appellants. The appellants are manufacturing the VPF based on the product specifications of Page 7 of 19 E/25655,21769,21770,21771,21768/2017, 21997/2018 E/25660/2013, E/21774,21773,21776,21775/2017 E/21996/2018 IFFL. The products manufactured by the appellants are sold to IFFL at prices mutually agreed upon. The unit price is determined taking into account the cost of raw materials, packing materials, manufacturing overheads added with a reasonable profit margin of 2.5 to 3 percent. As the Appellants were buying all the requisite inputs on their own and selling the goods on outright sale basis to IFFL, at mutually agreed rates, the assessable value for the purpose of payment of Central Excise Duty is determined based on the Transaction Value in terms of Section 4(1)(a) of the Act.
3.6. The Appellants submit that the department has demanded duty mainly on the ground that the Appellants are selling the entire quantity to IFFL only and hence, the product manufactured by the Appellants is the property of IFFL and the entire transaction undertaken through the agreement with various terms and conditions proves that the Appellants and IFFL have an interest in the business of each other and hence related person. Rule 9 of the Valuation Rules deals with the valuation of goods sold through related persons. It is submitted that in the present case, the fact of mere selling of the entire quantity of VPF by the Appellants to IFFL only cannot be the reason to invoke Rule 9; the Department has to further prove that the seller and the buyer are related in terms of clauses (ii), (iii) and
(iv) of Section 4(4)(b) of the Act. The demands have been confirmed mainly on the ground that the Appellants have an intricate business relationship with IFFL and both of them have an interest in the business of each other and one influences the other and hence, the Appellants and IFFL are to be treated as related persons in terms of Section 4(3)(b)(iv) of the Central Excise Act, 1944. The Appellants submit that M/s IFFL is a private limited company and the Appellant is proprietorship firm and none of the Directors of IFFL have any interest in the firm of the Appellants. There is also no common share holding between the companies or any of the individuals. Consequently, the Page 8 of 19 E/25655,21769,21770,21771,21768/2017, 21997/2018 E/25660/2013, E/21774,21773,21776,21775/2017 E/21996/2018 extent of interest as far as the transaction relating to manufacture and sale by the Appellants to IFFL is purely commercial and this does not ipso facto render the Appellants interested in the business of IFFL. In support, they have referred to the judgment of the Hon'ble Supreme Court in the cases of i. Union of India & Others vs. Atic Industries, reported in 1984 (17) ELT 323 (SC) ii. CCE, Chandigarh vs. Kwality Ice Cream Co - 2010 (260) E.L.T. 327 (S.C.) iii. CCE., Aurangabad vs. Goodyear South Asia Tyres Pvt.
Ltd. - 2015 (322) ELT 389 (SC) iv. CCE., Bangalore vs. CAMPCO - 2015 (324) ELT 27 (SC) and the Tribunal in the cases of i. TTK Health Care Ltd vs. CCE, Guntur - 2007 (207) E.L.T. 453 (Tri. - Bang.) ii. Kanchan Industries vs. CC, Mumbai - 2005 (186) E.L.T. 302 (Tri. - Del.) iii. Onida Saka Ltd. vs. CCE., Indore - 2016 (331) ELT 496 (Tri-Del) iv. Eastern Bakeries Pvt. Ltd. vs. CCE, Kolkata - 2013 (293) E.L.T. 593 (Tri. - Kolkata) 3.7. Further, they have submitted that the demand is barred by limitation as the entire transaction is transparent and under a written agreement which has been duly informed to the Department and duty has been discharged on the transaction value since beginning i.e. from the year 2004. Further in the year 2007, after insertion of Rule 10A to the Valuation Rules, 2000 the Department has verified the records and informed vide letter dated 04.05.2007 that excise duty is not payable on the price at which IFFL sells, but the price at which the appellant sells the goods to IFFL. Further, they have been filing periodical returns showing separately the products viz. VPF and also Trusil flavour. Also, their records were subjected to periodical audit by the Department. Hence, allegation of suppression cannot be sustained. In support, they referred to the judgment in the case of Pragathi Concrete Products Pvt. Ltd. Vs. Commissioner [2005(183) ELT 487 (Tri.) which was later upheld by the Hon'ble Page 9 of 19 E/25655,21769,21770,21771,21768/2017, 21997/2018 E/25660/2013, E/21774,21773,21776,21775/2017 E/21996/2018 Supreme Court reported as 2015(322) ELT 819 (SC). On the same reasoning, they submitted that penalty is not imposable on the appellant.
4.1. Per contra, the learned AR for the Revenue has submitted that the core issue for consideration in the present appeals is whether the learned Commissioner (Appeals) was correct in holding that the Vanilla Powder Flavour (VPF) cleared by the appellant to IFFL during the period from January 2997 to March 2017 to be assessed for excise duty at the selling price of IFFL or the price at which the appellant sells the product to IFFL under 2007 agreement.
4.2. The learned AR for the Revenue has submitted that the issue decided by this Tribunal in the case of M/s. Mallya Fine Chem is on different set of facts and the same is not applicable to the present case inasmuch as in that case, M/s. Mallya Fine Chem has changed the contract they had with IFFL from job work basis to transaction value and the same was done to avoid mischief of Rule 10A of Central Excise Valuation Rules, 2000 which was introduced w.e.f. 01.03.2007. Though the contract was revised to make it like principal to principal basis but in essence, the contract continued to be on job work basis, hence the transaction value adopted was discarded and sought to be assessed under Rule 9 of the Central Excise Valuation Rules, 2000; whereas in the instant case, the transaction was never under job-work and was only of purported transaction value which found to be tainted, hence the present case is distinguishable.
4.3. Rebutting the contention of the appellant that the learned Commissioner has travelled beyond the scope of the show-cause notices, it is submitted by the learned AR that the assessable value was determined in terms of Rule 11 of Central Excise Page 10 of 19 E/25655,21769,21770,21771,21768/2017, 21997/2018 E/25660/2013, E/21774,21773,21776,21775/2017 E/21996/2018 Valuation Rules, 2000 which is based on general principles of valuation enunciated in the rules foregoing to Rule 11 and Section 4(1) of the Central Excise Act, 1944. Therefore, the determination of assessable value in terms of Section 4(1)(b) of Central Excise Act, 1944 read with Rule 11 and Rule 9 of Central Excise Valuation Rules, 2000 is in order. Further, supporting the impugned order, the learned AR for the Revenue has submitted that the learned Commissioner has discussed at length various factors including the restrictions placed on the appellant by IFFL and a conclusion was reached that the transaction between the appellant and IFFL was not on principal to principal basis; accordingly Section 4(1)(a) of the Central Excise Act, 1944 held to be not applicable and the assessable value was determined under Rule 11, applying the principles of Rule 9. Further, he has submitted that the arrangement under the agreement clearly indicate that the appellant had no freedom of action even for purchase of raw materials etc. which were to be specified by IFFL; the specifications, quality and standards were as per the requirement of IFFL. Thus, the transaction is not on principal-to- principal basis.
4.4. On invocation of extended period, the learned AR has submitted that the letter addressed by the appellant to the Department is only to cover up their fabricated relations and the opinion was given on the basis of information received through their letter; hence the plea of the appellant they have not suppressed the facts from the knowledge of the Department is not acceptable.
5. Heard both sides and perused the records.
6. The principal issue for determination in the present set of appeals is, whether the determination of assessable value of Vanilla Powder Flavour (VPF) manufactured and sold by Page 11 of 19 E/25655,21769,21770,21771,21768/2017, 21997/2018 E/25660/2013, E/21774,21773,21776,21775/2017 E/21996/2018 appellant to IFFL under an agreement dated 11.12.2003 in the impugned Order is correct or otherwise.
7. The Revenue's contention is that the sale and purchase between the appellant and the IFFL cannot be considered as the transaction value; accordingly Section 4(1)(a) of Central Excise Act, 1944 is not applicable and the value needs to be determined under Section 4(1)(b) read with Rule 11 of the Central Excise Valuation (Determination of price of excisable goods) Rules, 2000.
8. In the show-cause notice, it is proposed to determine the value in terms of Rule 11 of Central Excise Rules based on general principles of valuation and Section 4(1) of Central Excise Act, 1944. In the impugned order, the learned Commissioner after analysing the agreement and facts of the case held that the value of VPF adopted by the appellant cannot be treated as the transaction value; therefore, the value to be determined by taking recourse to Section 4(1)(b) of the Central Excise Act read with provisions of Valuation Rules. Later analysing various rules mentioned under the Valuation Rules sequentially, the learned Commissioner held that principles of Rule 9 and Rule 10A are more than applicable and finally held that the assessable value of the VPF be re-determined on the basis of sale price of the goods adopted by the IFFL in terms of Rule 11 read with Rule 9 of the Central Excise Valuation (Determination of Price of excisable goods) Rules, 2000 for the period January 2007 to March 2007. For the period from 01.04.2007 onwards, the assessable value be determined on the sale price of the said goods adopted by IFFL in terms of Rule 11 read with Rule 10A read with Rule 9 of the Central Excise Valuation (Determination of Price of excisable goods) Rules, 2000. The appellant vehemently opposed to the said method of determination of assessable value submitting that the learned Commissioner has Page 12 of 19 E/25655,21769,21770,21771,21768/2017, 21997/2018 E/25660/2013, E/21774,21773,21776,21775/2017 E/21996/2018 travelled beyond the scope of the show-cause notices; also, it is not clear from the observation of the learned Commissioner as to which particular method of valuation under relevant rule has been followed in directing determination of the assessable value of the VPF sold by the appellant to the IFFL. It is argued that the learned Commissioner at one place held that the transaction between the appellant and the IFFL are in the nature of related person; therefore Rule 9 of the Central Excise Valuation (Determination of Price of excisable goods) Rules, 2000 be adopted and also referring to inserted Rule 10A observed that Rule 10(a)(iii) is applicable for determination of the value of VPF. Therefore, the approach of the learned Commissioner is ambivalent and not sustainable.
9. Before proceeding to analyse the rival submissions, it is necessary to extract the relevant clauses of the agreement to understand the transaction between the appellant and IFFL.
1. Manufacture and Supply 1.1 The Manufacturer shall manufacture and supply Vanilla Powder according to formulations, specifications and quality furnished by the Company from time to time (hereinafter called "the Product"). The quantity to be supplied shall be determined by mutual agreement in writing every month. The Company will give the despatch schedule for the monthly production to the Manufacturer.
2. Raw Materials 2.1 The Manufacturer shall purchase all the raw materials including Concentrates and Vanillin, and packing materials in accordance with the specifications and quality prescribed by the Company from time to time.
2.2 The Manufacturer shall maintain necessary records of analytical data of raw materials inputs of every consignment purchased / received by the Manufacturer and such records shall be made available to the Company's personnel as and when required.
3... .... ....
4. Replacement Page 13 of 19 E/25655,21769,21770,21771,21768/2017, 21997/2018 E/25660/2013, E/21774,21773,21776,21775/2017 E/21996/2018 4:1 The Company, shall have absolute right to reject the batch or quantity of the Product manufactured by the Manufacturer if the samples relating there to are not according to the specifications of the Company.
4.2 The Manufacturer shall take back at its own cost and risk the Product which is not found to be in accordance with the Company's specifications and shall forthwith replace the rejected Product with equivalent quantity of proper quality at no extra cost or charge whatsoever to the Company. It is clearly understood that all charges, duties, taxes, cesses and any other expenses for return and replacement of the rejected Product shall be borne by the Manufacturer alone and the Company shall not bear any expense of whatsoever nature in this connection.
4.3 The Manufacturer shall not sell to anyone else the Product whether packed or otherwise rejected by the Company, bearing the Company's trademark, copyright and/or design: The Manufacturer may however sell the Product to a third party. with the prior consent of the Company, after the same has been reprocessed to an extent that it cannot be identified as the Company's Product.
5... ....
6... ....
7. Prices 7.1 The Company shall pay to the Manufacturer, on commencement of the Agreement, the prices mutually agreed for the Products duly packed and supplied or an outright sale basis. The prices shall be recorded by way of letter(s) that shall form part of and be attached to this Agreement.
7.2 The aforesaid prices, are exclusive of Sales Tax as applicable, but inclusive of Central Excise Duty and all other costs, charges, other taxes, duties, cesses, levies, whatsoever payable to the Government State/Central/Municipal / Local Authority.
7.3 Sales Tax as applicable on sale of the goods shall be paid by the Manufacturer and charged to the Company.
7.4 If any other Product is required to be manufactured and supplied hereunder, the price of such other Product shall be mutually agreed in writing and shall form part of this Agreement.
7.5 Provided that, in case of an increase or decrease of over 2% in the price of key raw materials inputs due to change in formulations or due to change in the Central Excite Duty rates or structure or manner of levying Central Excise Duty, the price of the Product hereinabove may be reviewed by mutual agreement. Prices of the aforesaid raw materials, on commencement of this Agreement, shall be recorded Page 14 of 19 E/25655,21769,21770,21771,21768/2017, 21997/2018 E/25660/2013, E/21774,21773,21776,21775/2017 E/21996/2018 by way of letter(s) that shall form part of and be attached to this Agreement.
8. .... ....
9. .... ....
10. ... ...
11. Basis of Agreement 11.1. This Agreement will be on a Principal-to-Principal basis and does not debar the parties from entering into similar Agreements with any other person.
10. A similar type of agreement has been considered by this Tribunal in the case of Mallya Fine Chem Pvt. Ltd. and others Vs. CCE, Bangalore [Final Order No.20829 - 20854/2024 dated 10.09.2024]. After analysing the case laws on the subject, this Tribunal held as follows:-
31. We do not find any unusual condition in the aforesaid agreement dated 18.05.2007 which would lead to an inference that it is not on principal to principal basis but that of a Principal and an agent. In an usual course of business transaction both seller and buyer come together, negotiate the price and if acceptable, translate their conditions to a written contract and later executes the contract, in its letter and spirit. Therefore, existence of a mutual agreement in the sale and purchase of goods cannot be considered that the agreed price is a tainted one since the goods are not sold in force wholesale market. If such an interpretation is adopted, all the tailor made goods will fail the test of transaction value as the goods would not be purchased by any one else except the person who ordered for such goods.
32. In the above agreement, under Clause 1 it is stipulated that MFCPL shall manufacture and supply the product according to formulations, specifications and quality furnished by IFFL from time to time and the quantity of the products to be supplied shall be determined by mutual agreement in writing. Clause 2 stipulates that all the raw materials and packing materials would be purchased in accordance with specifications and quality by IFFL and MFCPL and shall maintain necessary record of analytical data of raw materials.
Clause 3 of the said agreement stipulates that MFCPL shall test samples of all products supplied to IFFL and ensure it is conformed to the specifications prescribed by IFFL. In Clause 4.3, it is stipulated that MFCPL shall not sell the products whether packed or otherwise which has been rejected the IFFL, bearing the company's trademark, copyright and / or design. However, MFCPL may sell the products to third party with the prior consent of IFFL. Under Clause 7, it is stipulated that IFFL shall pay MFCPL the prices listed in Appendix 2 for the product duly packed and supplied on outright sale basis and the price is exclusive of excise duty and sales / VAT and other costs, charges, taxes duties etc. Central Excise duty and Page 15 of 19 E/25655,21769,21770,21771,21768/2017, 21997/2018 E/25660/2013, E/21774,21773,21776,21775/2017 E/21996/2018 Sales /VAT as applicable shall be paid by MFCPL and charged to IFFL. It is mentioned at Clause 11 that the agreement will be on principal to principal basis and does not bar parties from entering into similar agreements with any other persons. Under Clause 12, it is further mentioned that either part can terminate the contract without assigning any reason after giving 3 months prior notice in writing to other part. This agreement has been interpreted by the Revenue being an agreement influenced by the purchaser on the seller whereby MFCPL could not sell the products to others and the right to sell the rejected goods also not vested with MFCPL. The Commissioner in the impugned Order concluded that the stringent conditions of the agreement indicates that MFCPL was prevented from putting up FCP in the ordinary course of business or trade which is of critical importance to ascertain whether sale is not in ordinary course of trade or business in the light of definition of 'sale and 'purchase' under section 2(h) of CEA,1944; hence the price cannot be considered to be at arm's length. In our opinion, the meaning of 'sale' and 'purchase' as prescribed under section 2(h) has been provided a very narrow and pedantic meaning in the context of determination of assessable value under section 4 of CEA,1944 which has been amended from time to time to encompass more than one wholesale transaction based on the circumstances and commercial expediency. The Hon'ble Supreme Court in the case of CCE, Nagpur Vs. Universal Ferro & Allied Chemicals Ltd. [2020(372) ELT SC (14)] held that a liberal meaning of the definition of 'sale' and 'purchase' be given in the context of Central Excise Act,1944 observed as:
"18. We shall first deal with the submission of Shri K. Radhakrishnan, Learned Senior Counsel appearing for the Revenue, to the effect that since in the transaction between UFAC and TISCO there is no transfer of property in goods, the same cannot be termed as 'sale' and therefore would not be covered under paragraph 9.9(b) of the EXIM Policy. Shri Radhakrishnan, in that respect, would rely on the provisions of the Sale of Goods Act, 1930.
19. We do not find any merit in the submission of Shri Radhakrishnan in this regard. It will be relevant to note that clause
(h) of Section 2 of the Central Excise Act, 1944 specifically defines the terms 'sale' and 'purchase'. Section 2(h) of the Act reads thus :
"2(h) "sale" and "purchase", with their grammatical variations and cognate expressions, mean any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration;"
... .. ..
23. It is also equally well-settled that the first principle of interpretation of plain and literal interpretation has to be adhered to. We are therefore of the considered view, that the narrower scope of the term 'sale' as found in the Sale of Goods Act, 1930 cannot be applied in the present case. The term 'sale' and 'purchase' under the Central Excise Act, 1944, if construed literally, it would give a wider scope and also include transfer of Page 16 of 19 E/25655,21769,21770,21771,21768/2017, 21997/2018 E/25660/2013, E/21774,21773,21776,21775/2017 E/21996/2018 possession for valuable consideration under the definition of the term"
33. The Ld. Commissioner observed that the price at which MFCPL sells the products to IFFL is ultimately sold by IFFL to wholesale dealers at a price ranging from 1.89 to 2.74 times of their purchase price; the photographs of labels affixed on FCP filled containers demonstrate to the general public that FCP is manufactured and packed by MFCPL for IFFL as all indications or relationship such as brand, logo, trade mark, design etc.; also the customers were notified to contact IFFL for consumer complaints, which clearly showed that the products were made for and on behalf of IFFL by MFCPL. Consequently, she has concluded that the intricate business relationship between IFFL and MFCPL reflects interest in each other's business and one influences the other and hence there is existence of mutuality of business interest between MFCPL and IFFL and accordingly the sale by MFCPL to IFFL is not a true sale. Consequently, MFCPL and IFFL are to be treated as related persons in terms of Section 4(3)(b)(iv) of CEA, 1944.
34. We do not find merit in the reasoning of the Commissioner and also the argument advanced by the Revenue during the course of hearing that the conditions stipulated mutually by MFCPL and IFFL indicate that the agreement is not entered into free market business scenario. It is a settled principle of law that selling the entire manufactured goods to IFFL under a commercial contract after packing and affixing the brand name of IFFL as per the conditions of the contract would not make MFCPL a related person of IFFL nor it could be construed that there is mutuality of business beyond the precinct of commercial relation other than that of buyer and seller. This principle has been laid down by the Tribunal in Eastern Bakeries Pvt. Ltd's case & TTK Health care Ltd.'s case(supra). In this premises, rejection of the agreement considering the MFPCL and IFFL not on principal to principal, in absence of any evidence to show that the relationship between appellant MFCPL and IFFL is tainted with extra commercial relationship like free flow of finance, control through share holding, etc. influence the price mutually agreed alleging that price is not the commercial price and hence the price at which the goods sold by IFFL be relevant for determination of value is not sustainable.
35. In the show cause Notice, it is alleged comparing both the Agreements dated 07.1.2004 and 18.5.2007 that the conditions continued to be more or less the same and hence the relation between MFPCL and IFFL continued to be Principal and Job worker; however, the learned Commissioner in her finding held that Rule 10A of the CEVR, 2000 is not applicable to the present case and confirmed the differential demand of duty short paid adopting the sale price of IFFL resorting to Rule 11 read with Rule 9 considering the relationship between MFCPL and IFFL as that of 'related person'. In our view, the said approach of the adjudicating authority cannot be sustained as there is no evidence brought on record to establish mutuality of relation or satisfaction of any of the ingredients of the definition of related person under Section 4 (3)(b) Page 17 of 19 E/25655,21769,21770,21771,21768/2017, 21997/2018 E/25660/2013, E/21774,21773,21776,21775/2017 E/21996/2018 of the CEA, 1944. Also, the present proceeding has been initiated after insertion of Rule 10A of CEVR and there has been no allegation under earlier Agreement dated 07.1.2004 that the transaction between MFPCL and IFFL was influenced by their relationship as defined under Section 4(3)(b)(iv) of CEA,1944, hence the price at which FCP supplied by MFPCL to IFFL to be ignored and the assessment of FCP be made at the price at which IFFL sold the goods in the market be adopted. Therefore, in absence of any additional evidence indicating the transaction between MFPCL and IFFL under the agreement 18.5.2007 fall within the definition of 'related person', rejecting the 'Transaction Value between MFPCL and IFFL is contrary to the settled principles of valuation of goods; hence cannot be sustained.
11. The learned AR for the Revenue made an attempt to distinguish the judgment in Mallya Fine Chem Pvt. Ltd. & others (supra) case submitting that in the said case, the agreement between Mallya Fine Chem Pvt. Ltd. and IFFL was revised after introduction of Rule 10A into the Central Excise Valuation Rules, 2000; whereas in the present case no such circumstance exist, hence the principle laid down in the said case is not appliable.
12. We do not find merit in the contention of the learned AR for the Revenue inasmuch as in the present case the appellant manufactured VPF since 2004 and the same has been assessed on the basis of transaction value between the appellant and IFFL considering the latter as unrelated buyer and the transaction between the Appellant and IFFL on principal to principal basis on the terms and conditions of the agreement entered; hence supplies made after 01.04.2007 on the basis of same agreement cannot be considered to be not on principal to principal basis and the transaction between appellant and IFFL is that of related person. On the other hand, in our view, the judgment in Mallya Fine Chem Pvt. Ltd.'s case is applicable to the facts of the present case even though in the said case the job work agreement was discontinued and a fresh agreement on principal-
to-principal basis entered from May 2007 after insertion of Rule 10A to the Central Excise Valuation Rules, 2000. Applying the principle laid down in the said judgment, we are of the view that Page 18 of 19 E/25655,21769,21770,21771,21768/2017, 21997/2018 E/25660/2013, E/21774,21773,21776,21775/2017 E/21996/2018 the transaction value of VPF between the Appellant and IFFL being on principal-to-principal basis and at arm's length, the assessable value be determined under Section 4(1)(a) instead of under Section 4(1)(b) of the Central Excise Act, 1944 read with the Central Excise Valuation Rules, 2000 as held in the impugned orders. Consequently, the impugned orders are set aside and the appeals are allowed with consequential relief, if any, as per law.
(Order pronounced in open court on 23.09.2025) (D.M. MISRA) MEMBER (JUDICIAL) (PULLELA NAGESWARA RAO) MEMBER (TECHNICAL) Raja...
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