Customs, Excise and Gold Tribunal - Delhi
Namita Gautam vs Commissioner Of Central Excise, New ... on 12 February, 2002
Equivalent citations: 2002ECR257(TRI.-DELHI), 2002(141)ELT814(TRI-DEL)
ORDER C.N.B. Nair, Member (T)
1. These appeals arise from and are directed against the common adjudication .Order No. CCE (ADJ) VLS/06/2001, dated 30-4-2001/15-5-2002 passed by the Commissioner of Central Excise (Adj.) Delhi. Accordingly, they were heard together and are being disposed of by this common order.
2. The basic issue adjudicated in the impugned order is the valuation of "Sleepwell Flexi-Puff" brand goods manufactured by M/s. Sheela Foam group of Companies and sold to M/s. S.F. Enterprises. The impugned order concluded that "Sleepwell Flexi-Puff brand goods were manufactured exclusively for M/s. S.F. Enterprises and M/s. S.F. Enterprises Pvt. Ltd. being a related person of M/s. Sheela Group of Companies, the goods were required to pay duty at the price at which they were sold by the related person (M/s. S.F. Enterprises Pvt. Ltd.) in terms of Proviso (iii) to Section 4(i)(a) of the Central Excise Act, 1944. Since the manufacturers had paid duty in respect of such goods at their sale price to M/s. S.F. Enterprises (and the sale price of M/s. S.F. Enterprises being higher) it has been that duty evasion of about Rs. 2 crore had taken place. The impugned order, therefore, has demanded payment of the short levied duties along with interest. Penalties have also been imposed on the manufacturing Cos., the marketing Co. and their Directors and Officers.
3. The manufactured goods in question is Industrial Grade P.U. Foam & Articles thereof - Sheets, Mattresses, Cushions, Pillows etc., which are liable to Central Excise duty under Chapter 39 and Chapter 94 of the Schedule to the Central Excise Tariff Act, 1985. The material facts relevant to the dispute are that Companies of M/s. Sheela Group manufacture the aforesaid goods from their three factories located at Ghaziabad (U.P.), Silvasa (Gu-jarat) and Hyderabad (Andhra Pradesh). These goods are affixed with the brand names "Sleepwell/Feather foam" and "Sleepwell Flexi-Puff". The brand name "Sleepwell Flexi-Puff" belongs to the group Marketing company namely M/s. S.F. Enterprises (P) Ltd. and goods affixed with that brand name were exclusively sold by the manufacturing units to the marketing company and the marketing company inturn sold the goods at prices higher than the price paid to the group manufacturing Co. The goods bearing the other brand names, which belonged to the manufacturing units, were sold to unrelated wholesale dealers directly. At the time of removal of the goods from the factories, duty was paid in respect of all the consignments at the price at which sales were made to the buyers by the manufacturing units and all the sales were assessed to Central Excise duty treating the manufacturers' ex-factory sale price as the normal value under Section 4(l)(a) of the Central Excise Act. After detailed investigations, allegations were raised that the "Sleepwell Flex-Puff" branded goods sold to M/s. S.F. Enterprises are required to be assessed at the sale price of the marketing company and not at the sale prices of the manufacturing units. The impugned order upheld this claim, pressing into service Proviso (iii) to Section 4(l)(a) as already mentioned.
'3, The appellants contest reopening of assessments and duty demand mainly on the ground that finding in the impugned order on the question of valuation is contrary to the provisions contained in Section 4(l)(a) of the Central Excise Act and, in particular, Proviso (iii) to that section relied upon in the impugned order. They contend that Proviso (iii) related to an exception and is attracted only in cases "where the assessee so arrange that the goods are generally not sold by trim in the course of wholesale trade except to or through a related person" (emphasis added). According to them, they manufacture taped sheets used for P.U. mattresses, cushions, pillows etc. and sell bulk of the goods so manufactured (70%) to independent wholesale dealers on ex-factory basis and only 30% of the goods are sold to group marketing Co. M/s. S.F. Enterprises. Therefore, they submit that it is not a case where the assessee so arranges that goods are generally not sold in the course of wholesale trade except to or through a related person as contemplated in Proviso (iii) of Section 4(l)(a). They point out that even the impugned order has not doubted the sale of 70% of the goods to wholesale dealers at normal price. They hold that in such circumstances Proviso (iii) has been invoked erroneously by the adjudicating authority. They also submit that the sale prices are entirely commercial and did not show any favour to M/s. S.F. Enterprises. In support of this contention, they have pointed out that the goods were sold to M/s. S.F. Enterprises at slightly higher prices. It is their contention that when the same goods are sold to different buyers after affixing the buyers' brand names, each of those prices would be acceptable as assessable value. Reliance has been placed in support of this submission on the decision of the Supreme Court in the case of M/s. R.O. Industries v. Union of India [2000 (120) E.L.T. 31] where the Apex Court held that when goods are sold to wholesale dealers under different brand names belonging to the wholesale dealers, the assessment would be at the wholesale prices at which the goods were sold to the brand name owners and not the wholesale price at which the brand name owners sold the goods to others. The appellants have pointed out that the impugned order has been passed on the erroneous basis that the goods bearing the brand name "Sleepwell Flexi-Puff" was not the same goods as the goods sold to wholesale dealers in view of the factors mentioned in Para 24(1) of the impugned order i.e. "vital aspects, like valuation, chargeability to duty, goodwill in the market". The appellants have pointed out that sale prices of goods vary depending upon the goodwill enjoyed by different brand names. But that is no ground for treating the same goods manufactured by a manufacturer as different goods. They have also pointed out that it is well settled that the goodwill value of a brand name belongs to the brand name owner and not any other person. The appellants have submitted that affixing brand name is not a manufacturing process and affixing of brand name cannot differentiate the goods. Support has been derived for this contention from the following observations of the Calcutta High Court in Banner & Co. v. Union of India [1994 (70) E.L.T. 181].
"23. It does not need the citation of any authority to hold that excise duty is payable on manufacture and a process is not manufacture if it does not change the character of the goods manufactured. Putting the brand name on specified goods does not change the goods and cannot amount to manufacture. With respect I adopt the reasoning of the Division Bench of the Bombay High Court in Bush India Limited v. Union of India and Ors. [1980 (6) E.L.T. 258] that the manufacture was complete even without the brand name being put on the specified goods and that the marketing of the specified goods under the trade name made no difference as they still remain the same article irrespective of the name under which they may be sold- See also Bata India Ltd. v. Assistant Collector of Central Excise [1978 (2) E.L.T. 211]; Bapalal & Co. v. Government of India [1981 (8) E.L.T. 587]; Carona Sahu & Co. Ltd. v. Superintendent of Central Excise and Ors. [1981 (8) E.L.T. 730]; Union of India v. Cibatul Limited [1985 (22) E.L.T. 302] and the Joint Secretary, Government of India v. Food Specialities Ltd. [1985 (22) E.L.T. 324]".
The learned Sr. Counsel for the appellants pointed out that the above observations are in line with several previous judgments (quoted in the Calcutta High Court judgment) and these have not been interfered with by the Apex Court in U.O.I. v. Paliwal Eiectricals (P) Ltd. [1996 (83) E.L.T. 247 (S.C.)]. They have also pointed out that "chargeability to duty" has no relevance to ascertaining the normal value of goods.
4. As against the aforesaid submissions made on behalf of the appellants, the learned SDK has submitted that the concept of related person in Section 4 has been upheld by the Supreme Court in its judgment in Union of India v. Bombay Tyre International [1983 (14) E.L.T. 1896]. The learned SDR has placed reliance on Paras 42 and 43 of this judgment. He therefore, contended that the assessment of goods in the impugned order was entirely in accordance with the law on valuation laid-down by the Supreme Court Learned SDR has also strongly contended that goods under different brand names have to be treated differently for the purpose of valuation as branded goods enjoy different prices on account of the goodwill (quality assurance) of brand. He has pointed out that the decision of the Supreme Court in R.O. Industries case is not attracted in the present case, inasmuch as the brand names in that case belonged to independent buyers of the goods and not to the marketing arm of the manufacturer. He submitted that in a case where the brand name belongs to the manufacturer or his agent or related person the selling price of the marketing person should be taken for assessable value. He has placed reliance on the decision of the Supreme Court in the case of J.K. Cotton Mills v. CCE [1997 (91) E.L.T. 534] in support of this proposition.
5. It is clear from the records of the case that appellants manufacture and sell taped sheets which are used for making mattresses, cushions, pillows etc. They affix the brand names "Sleepwell/Feather Foam", which are their own brand names, and sell bulk of the goods to wholesale dealers under these brand names. When the manufacture is according to the orders of M/s. S.F. Enterprises (P) Ltd. the brand name of "Sleepwell Flexi-Puff" is affixed on the taped sheets. The labels indicating the brand name and primary packing and branding material including industrial tapes, guarantee/quality assurance/customer registration cards are supplied by M/s. S.F. Enterprises to the manufacturing units for affixing on the goods to be supplied to them. The sale price of taped sheets to wholesale dealers and to M/s. S.F. Enterprises were broadly comparable but slightly higher in the case of sales to M/s. S.F. Enterprises. In these facts and circumstances, it would appear that goods involved in the present dispute i.e. goods sold to M/s. S.F. Enterprises is the same as the goods sold to unrelated wholesale dealers. The goods sold to all the buyers are taped sheets and they are used for the same purposes. It is settled law that affixing of brand name does not change the character of goods manufactured. In these circumstances, the taped sheets sold to M/s. S.F. Enterprises and wholesale dealers have to be treated as same goods. Therefore, we are of the opinion that the appellants are right in their contention that this was not a case where the assessee so arranged that the goods are generally not sold by him in the course of wholesale trade except to or through a related person. Instead goods were being generally sold in the course of wholesale trade. Only a portion of produce was being sold, to related person, if at all. Proviso (iii) to Section 4(l)(a) which relates to valuation of exceptional cases of sale only to or through related person could not justifiably be invoked in this case. Since the goods are the same and they have been sold at comparable prices to various buyers, assessments as originally made under Section 4(l)(a) was correct and no short levy or short payment of duty had taken place. The appellant assessee's case would seem to be within the rule contained in the Apex Court's judgment in the case of R.O. Industries.
6. The judgments of the Apex Court in Bombay Tyre International and J.K. Cotton Spg. and Wvg. Mills Company Limited do not seem to be applicable to the facts of the present case. Paras 42 and 43 of the judgment in Bombay Tyre relate to the validity of Proviso (iii) to Section 4{l)(a) of the Central Excise Act. In the present case, bulk of the goods are being sold to independent wholesale buyers. Proviso (iii) has no application in such cases and goods are required to be assessed under Section 4(l)(a) at their normal wholesale price, which was done originally. The judgment in ].K. Cottons Spg. & Wvg. Mills was rendered in a case where sales through shadow wholesale dealers was adopted as a device to depress wholesale price to evade central excise duty. No such finding is involved in the present case. No dispute has been raised about the genuineness of the wholesale transactions.
7. In view of what has been stated above, the finding contained in the impugned order that the goods sold to M/s. S.F. Enterprises were required to be re-assessed at the price at which the goods were sold by them in terms of Proviso (iii) to Section 4(1 )(a), that there was short levy and that company's Directors and Officers are liable to penalty cannot be upheld. The impugned ordei is, therefore, set aside and all the appeals are allowed, with consequential relief to the appellants. We are not going into the disputes relating to relationship between the manufacturing company and the marketing company and the control of one by the other, as we find that those issues are not relevant for determining the assessable value of the excisable goods in question.