Customs, Excise and Gold Tribunal - Delhi
Pawan Biscuit Company (P) Ltd. vs Collector Of Central Excise on 8 January, 1991
Equivalent citations: 1991ECR315(TRI.-DELHI), 1991(53)ELT595(TRI-DEL)
ORDER S.V. Maruthi, J.
1. The case of the appellants is as follows :-
The appellant carries on business of manufacturing and sale of biscuits. They obtained a licence No. FP/BIS/85 from the Central Excise authorities. They manufacture biscuits on their own behalf and also on job work basis. They entered into a job work agreement with Britania Inds. Ltd. (hereinafter called as BIL) and the said agreement is renewed from time to time. The agreement dated 15th December, 1986 is the agreement relevant for the purpose of deciding the dispute in this case. Under the agreement BIL supplies raw materials for the manufacture of branded biscuits. The appellants have to convert the raw material into biscuits bearing such brand names belonging to BIL. The appellants will be paid job work charges at a fixed rate per kg. which covers the cost and profit of the appellants. The appellants shall be responsible for compliance with the provision of the Central Excise Act and Rules framed thereunder and shall maintain separate accounts and records regarding the payment of central excise duty including price of all raw materials, received, consumed, wasted and manufactured. The BIL are also independent manufacturers having their own factory and possessing central excise licence issued under the Act. They were submitting classification lists and pricelists from time to time on the basis of the price at which the BIL was selling biscuits in the wholesale market and they were being approved by the central excise authorities from time to time.
2. After the Supreme Court delivered the judgment in Ujagar Prints and Ors. v. UOI [1987 (27) ELT page 567 (SC)] the appellants submitted the price-lists No. 6/87, 7/87, and 8/87 on the basis of cost of raw material and conversion charges.
3. The Asstt. Collector issued a show cause notice dated 16th November, 1987 proposing to disapprove the price-lists. The appellant replied on 15th December, 1987 stating that the assessable value has to be arrived at as per the ratio laid down in the Supreme Court's judgment in the case of Ujagar Prints and as such price lists should be approved and submitted. The Asstt. Collector rejected the contention of the appellant and held that "in the instant case the matter relates to manufacture of biscuits by BIL through labour and machinery of the assessee and Britania Inds. Ltd. are the manufacturers of the biscuits, at their factory as well." Distinguishing the Ujagar Prints' case he directed them to pay duty at the wholesale price at which BIL sells. On appeal the Collector confirmed the order of the Asstt. Collector against which the present appeal is filed.
4. The Collector on a consideration of the terms of the agreement dated 15th December, 1986 held that "from the kind of transaction and relation determined by the agreement, the appellant company would in effect appear more to be an extended arm of BIL over all manufacturing activities with regard to manufacture of BIL brands of biscuits. He also held that removal of biscuits from the appellants' factory to various destinations under instructions from BIL cannot be said to be sale of such biscuits by the appellant company to BIL. In other words, the relationship between the two cannot be of independent seller and buyer of excisable goods. He further pointed out that under paragraph 19 of the agreement between appellant company and the BIL immediately on completion of the process of manufacture the title to property in the said brands manufactured belonged to and vested in BIL, if the title to such biscuits belongs to and vests in BIL immediately there cannot be any sale subsequently at that title to the goods has already vested in BIL. According to him Section 4(l)(a) defines an assessee as a person who is liable to pay duty and includes his agents and from the relationship that exists between the appellants and BIL the conclusion that is to be drawn is that the appellant is an agent of BIL. Further if the arguments of the appellants are to be accepted then it would result in highly incongruous and anomalous situation in that where the biscuits of the same brand one manufactured by BIL in its own factory and another manufactured by the appellant company for and on behalf of the BIL and both sold in the market as products of BIL would be charged to duty on different assessable value since biscuits of identical brand manufactured by BIL in its own factory they will be assessed to duty on wholesale price including his manufacturing cost and manufacturing profit less admissible deductions. The assessable value of biscuits cleared by BIL from its own factory thus would be higher than the value of biscuits of the same brand cleared from the appellants' factory.
If the appellants' contention for the purpose of duty should consist of the cost of raw material and the job charges alone certain elements representing the cost would escape assessment.
Holding as above the Collector dismissed their appeal.
5. Challenging the order of the Collector (Appeals) Shri R.N. Das, learned counsel for the appellants made the following submissions :-
The agreement between the appellants and the BIL is nothing but job work agreement. The relationship between the appellants and BIL is that of principal to principal and not that of principal and agent. The transaction between the appellants and BIL is at arm's length. The assessable value, therefore, in view of the judgment of the Supreme Court in Ujagar Prints is the cost of raw material plus job work charges plus manufacturing profit (where job charges do not include manufacturing profit). He submitted that the Collector has gone beyond the show cause notice to the agreement whereas the order is entirely based on the agreement between the appellants and the BIL. He took us through the agreement extensively and submitted that it is nothing but job work agreement and the Collector construed it wrongly as an agreement of agency. Relying on the definition of word 'Sale & Purchase' under Section 2(h) of Central Excises and Salt Act he submitted that clause 19 of the agreement dated 15th December, 86 declares that title and profit in Britania brand biscuits will vest in BIL immediately on completion of manufacture of goods. Clause 22 of the agreement also provides that the appellants will receive from BIL a consideration namely conversion charges for the manufacture and supply of Britania brand of biscuits. The transaction, therefore, amounts to sale in the eye of law. He relied on the following observations of the Supreme Court in Ujagar Prints case:
"The factory gate here means 'deemed' factory gate as if the processed factory fabric was sold by the processor."
and submitted that under the Sale of Goods Act the title to the goods can pass at any time as agreed between the parties. Thus in law it is permissible that title to the goods may pass to the buyer even before the actual delivery of goods. Para 19 of the agreement dated 15th December, 86 'reconcilable' with the definition of sale and purchase as given in Section 2(h) of the Act. He also relied on the following passage of the Supreme Court judgment in Ujagar Prints v. UOI [1989 (39) ELT page 493] :-
"If the trader, who entrusts cotton or man-made fabric to the processor as to what would be the price at which he would be selling the processed goods in the market, that would be taken by the Excise authorities as the assessable value of the processed fabric and excise duty would be charged to the processor on that basis provided that the declaration as to the price at which he would be selling the processed goods in the market, would include only the price or deemed price at which the processed fabric would leave the processor's factory plus his profit. Rule 174 of the Central Excise Rules, 1944 enjoins that when goods owned by one person are manufactured by another the information is required relating to the price at which the said manufacturer is selling the said goods and the person so authorised agrees to discharge all the liabilities under the said Act and the rules made thereunder. The price at which he is selling the goods must be the value of the grey cloth or fabric plus the value of the job work done plus the manufacturing profit and the manufacturing expenses but not any other subsequent profit or expenses. It is necessary to include the processor's expenses, costs and charges plus profit, but it is not necessary to include the trader's profits who gets the fabrics processed, because those would be post-manufacturing profits."
6. Challenging the findings of the Collector that there is no sale between the appellants and the BIL at the factory gate he submitted that the term the wholesale trade in Section 4(4)e means sales to dealers or other buyers etc. otherwise than in retail. Since the appellants' delivery of Britania biscuits to BIL is a deemed sale as per Supreme Court judgment in Ujagar Prints and since such sale is not retail sale it is deemed to be a wholesale sale within the meaning of Section 4(4)e. He relied on the following judgments in support of his various contentions :
(i) Jai Engineering Works v. CCE, Calcutta [1985 (21) ELT page 299];
(ii) Ujagar Prints v. UOI [1989 (39) ELT page 493 SC];
(iii) UOI v. Cibatul [1985 (22) ELT page 302 SC];
(iv) Jt. Secty. to Govt. of India v. Food Spelts. Ltd. [1985 (22) ELT page 324 SC];
(v) Siddho Sons v. UOI [1986 (26) ELT page 881 SC];
(vi) UOI v. Playworld Electronics Pvt. Ltd. [1989 (41) ELT page 368];
(vii) Andhra Re-rolling Works, Hyderabad & Ors. v. CCE [1979 (4) ELT (J600)];
(viii) Surat Bottling Co. Ltd. v. CCE [1980 (6) ELT page 353 (GOI)];
(ix) Puna Bottling Co. v. UOI [1981 (8) ELT page 389 Delhi];
(x) Ceramic & Electrical Inds. (P) Ltd. v. UOI [1981 (8) ELT 358 Bombay];
(xi) Lucas India Services Ltd. v. CCE, Madras [1984 (16) ELT page 415];
(xii) Harison Synthetic Bristles Co. v. CCE [1989 (44) ELT page 582];
(xiii) East India Inds. v. CCE, Madras [CEGAT order No. 73/89-A dated 20-2-1989];
(xiv) Sagar Corporation v. CCE, Hyderabad [1990 (49) ELT 310 (Tri.) - Cegat order No. 211/90-A dated 19-3-1990];
and the following unreported orders of CEGAT in :
(i) Hershal Rubber (P) Ltd. v. CCE, Calcutta [CEGAT order No. 217/89 dated 15-5-1989];
(ii) The Atul Products Ltd. v. CCE, Baroda [CEGAT order No. 266/89-A dated 5th June, 1989];
(iii) National Rubber Mfgrs. Ltd. v. CCE, Calcutta [CEGAT order No. 760/89-A dated 1st December, 1989]
7. In the conclusion he submitted that the assessable value of the biscuits manufactured by the appellant should be on the basis of the ratio of Ujagar Prints. In other words the assessable value should be on the basis of the cost of material, processing charges and profit of processor but trader's profit not includible being post manufacturing profit.
8. Shri Asthana appearing on behalf of the department submitted that the show cause notice alleges that the goods are manufactured by the appellants on behalf of the BIL. It is also alleged that the goods are manufactured according to the specification and quality of Britania and that the goods are only delivered to BIL who sells the goods in wholesale. It is also alleged that BIL are not buyers and they are getting the goods manufactured as per their own conditions and specification out of their own raw material with the help of labour and the machinery of the appellants. The appellants were requested to produce documents relating to overhead administrative charges and margin of profit. It is alleged that since the goods are manufactured by Pawan Biscuits on behalf of the BIL and since goods are not sold by Pawan Biscuits to BIL the assessable value should be the wholesale price of Britania. In reply to the show cause notice Mr. Asthana submitted, that the appellants did not furnish any documents as required. However, they invited attention to their so called conversion agreement and claimed determination of the value on the basis of Supreme Court's decision in the case of Ujagar Prints. The Asstt. Collector on the basis of the terms of the agreement namely that the raw material is provided by BIL is kept in godown inside the premises of the factory of the assessee but the material remains under the charge of an officer of BIL who is posted within the factory premises of the appellants, whenever the assessee requires the material they gave a daily requisition slip to the said officer of the BIL who issued raw material; BIL exercised quality control over raw material and products and end products; the assessee does not procure any raw material from outside; BIL has supervisory control over the manufacturing process; appellants are solely engaged in the manufacture of BIL products which are delivered on the instructions of the BIL; product plan devised by BIL; materials are received in the factory of the assessee on the challan, gate-passes etc. consigned to BIL; the appellants have no discretion to alter any of the process or programme of the manufacture decided by BIL; BIL incurs insurance expenses on raw material and products and end products; the documents on which raw materials are recieved remain in the custody of BIL etc., held that the judgment of the Supreme Court in Ujagar Prints is not applicable.
9. He also pointed out relying on the judgment of the Delhi High Court in Gillanders Arborthnot & Co. Ltd. v. UOI [1989 (43) ELT page 418] that the question as to who is manufacturer of the goods has to be decided taking all aspects into consideration. It would not be legally correct to take any one or two factors and then seek similarity with other cases. He further submitted that in none of the cases relied on by the appellants all factors mentioned in various cases are present. He pointed out that in the case of Ujagar Prints the only factor present was supply of raw material. In cases of Food Spits., Siddho Sons, Playworld, and Cibatid, National Rubber & Playworld, the only factor present was the use of brand name, sale of entire production to the buyer and detailed quality specification. In the later cases the raw material was not supplied by the buyers. In these circumstances he submitted that much reliance cannot be placed on these decisions.
10. He further submitted that the present case involves a number of factors such as :-
(i) Supply of raw material,
(ii) Use of brand name,
(iii) Title control over operations by the buyers,
(iv) Supply of equipments by the buyers for manufacture of goods such as cutters etc.
(v) Vesting of profit in the buyer immediately on manufacture,
(vi) Number of restrictions and specifications subject to which the goods were manufactured, and
(vii) Obligation to BIL all accounts, records and other documents maintained by Pawan Biscuits.
11. Therefore, taking into all these factors it would not be unreasonable to hold that the goods were manufactured for and on behalf of the BIL.
12. He distinguished the judgment of Ujagar Prints on the ground that whether goods were manufactured on behalf of the buyers was not raised specifically and considered in the said judgments.
13. He further submitted that assuming for the sake of arguments that the decision of the Supreme Court in Ujagar Prints applies to this case, the value declared in the price-list is not ascertainable for the reason that it does not include manufacturing profit of the appellants. In this connection he pointed out that even according to the formula indicated by the Supreme Court the assessable value has to include all those elements which have been specifically held to be includible in the assessable value by the Supreme Court in the case of Bombay Tyre International. The conversion charges can never include the full manufacturing profit because a manufacturer who himself buys his raw material would like to calculate his profit with reference to his total investment and not merely conversion charges. The Supreme Court reference to manufacturing charges, does not imply the manufacturing profit in relation to conversion charges but it covers the entire profit which a manufacturer who is performing all manufacturing functions would like to have on the sale of goods for delivery from the factory gate.
14. In support of his contentions he relied on the following judgments :-
(a) Sree Agencies v. S.K. Bhatacharyajee - [1977 (1) ELT J 168 (SC)],
(b) Bajrang Gopilal Gajapi v. MNB & Ors. - [1986 (25) ELT 609 (SC)],
(c) Guru Instruments v. CCE - [1987 (27) ELT 269 (T)].
(d) Gillander Arborthnot & Co. Ltd. - [1989 (43) ELT 480],
(e) Quality Steel bids. v. CCE - [1989 (43) ELT 775],
(f) S.F. India Ltd. v. CCE, Calcutta - [1988 (33) ELT 636 (T)],
(g) Empire Inds. v. CCE - [1985 (20) ELT 179],
(h) Ujagar Prints - [1988 (38) ELT 535, 1989 (39) ELT 493 (SC)],
(i) Cegat's Order No. 205 to 207 - Britania Biscuits Co. Ltd. v. CCE, Madras and
(j) Cegat's Order No. 431 & 431/84-D in Suresh Inds. v. CCE, Madias.
In conclusion Mr. Asthana submitted the order of the Collector and the Asstt. Collector is in accordance with law.
15. Two questions arise for consideration :
(i) nature and scope of agreement under which the appellants manufacture the biscuits, and
(ii) what should be the assessable value?
16. The basis for determining the character of the appellants i.e. whether they are independent manufacturers/agents/labour contractors in the agreement. Therefore, it is necessary to extract certain relevant terms of the agreement under which the appellants agreed to manufacture biscuits :
"(c) The Manufacturing Concern has expressed its willingness on the terms and conditions hereinafter contained to manufacture biscuits for BIL for such brand/s and in such quantities and under such trademarks as BIL may require.
(9) All materials supplied by BIL to the Manufacturing Concern as stated above shall be stored in accordance with the requirements as specified by BIL. Any material so supplied by BIL lying unused with or otherwise held in stock by the Manufacturing Concern on the expiry or sooner determination of this agreement shall be returned by the Manufacturing Concern at its cost to BIL save and except biscuit waste and other waste.
(10) All materials supplied by BIL and stored by the Manufacturing Concern for the purpose of this Agreement shall be insured by BIL and the Manufacturing Concern shall not do or cause or suffer to be done any act of omission or commission which may in any manner adversely affect the relative insurance.
(11) The Manufacturing Concern shall, to the satisfaction of BIL, provide adequate security arrangements to protect against loss by theft or otherwise the materials and equipment supplied by BIL and the manufactured brand/s held on behalf of BIL.
(13) The said brand/s to be manufactured by the Manufacturing Concern on the order/s placed by BIL shall be strictly in accordance with BIL's standards, specifications and stipulations hereinbefore contained and shall be of same standard and specifications as the said brand/s manufactured by BIL or as may be laid down by BIL from time to time. If in the opinion of BIL there is any default by the Manufacturing Concern in compliance with BIL's standards, specifications and stipulations hereinbefore contained, BIL shall have the right to reject any of the said brand/s and on such rejection and in addition to what is slated in Clause (4) hereinabove the same shall be destroyed by the Manufacturing Concern without BIL having any liability for any charges, damages or compensation to the Manufacturing Concern and further on such rejection BIL shall have the right to deduct and/or adjust and/or recover from the manufacturing concern the cost of the entire ingredients and packing materials used by the Manufacturing Concern for the manufacture of the said brands which has been rejected as aforesaid.
(14) If in the manufacture by the Manufacturing Concern of the said brand/s there is usage or wastage of materials beyond the input/output ratio as may be stipulated by BIL and communicated to the Manufacturing Concern from time to time, BIL shall have the right to deduct and/or adjust and/or recover from the conversion charges payable to the Manufacturing Concern as hereinafter contained the cost of the excess material used or as aforesaid provided that the Manufacturing Concern shall be entitled to dispose of the excess material used or wasted as aforesaid after suitably powdering/mutilating the same. The sale proceeds therefrom will be retained by the Manufacturing Concern it self.
(15) All materials belonging to BIL which is to be disposed of or scrapped shall be sold by the Manufacturing Concern on account of BIL at such rate as may from time to time be communicated to the Manufacturing Concern by BIL provided that the Manufacturing Concern shall take sufficient precautions to powder/mutilate defective biscuits/packaging stationery before disposal. The sale proceeds of the scrap so disposed of shall be remitted to BIL by cheque/demand draft every month.
(16) BIL shall have the right at any stage of manufacture to select samples and to test the same in order to ensure BIL's quality standards and specifications. The Manufacturing Concern shall at all reasonable times permit BIL's representative authorised in this behalf to visit and inspect the premises of the Manufacturing Concern and if so required shall produce to BIL all accounts, records and other documents maintained by it in connection with the manufacture of the said brand/s.
(19) Immediately on completion of the process of manufacture the title to any property in the said brand/s manufactured under these presents will belong to and vest in BIL.
(20) The Manufacturing Concern shall on completion of manufacture and after payment of levies and duties consign the said brand/s by road/rail to any place that BIL may advise from time to time strictly in accordance with BIL's directions. Freight and transport charges and transit insurance shall be paid by BIL in respect of such consignments.
17. A reading of the above clauses shows that the appellants agreed to manufacture biscuits for BIL. It is manifest from the clauses of the agreement that in the manufacture of the goods by the appellants BIL has exercised control, direction and supervision and the raw material belongs to BIL. BIL has to make available to the appellant free of charge such information and technical assistance as it considers necessary which includes packing specifications and wrapping and packing material to enable the appellants to manufacture the goods. The goods have to be manufactured strictly in accordance with the processing details, formula, recipe and packing specification provided by BIL. BIL under the agreement has to supply at its own cost to the appellant the biscuit cutters, moulders, ingredients and packing material required for the manufacture of the said brands, and the appellants are prohibited from using the said material for any other purpose other than the manufacture of branded biscuits of BIL. The material thus supplied shall be returned by the appellant at its cost to BIL. It is the BIL which is responsible for insuring the goods which are under custody of the appellant. The appellant has to provide adequate security arrangement to protect the goods against any loss. If the goods manufactured by the appellant are not to the specification prescribed by BIL, BIL shall have the right to reject any of the said brands and on such rejection the goods shall be destroyed by the appellant without BIL having any liability for any charge, damages or compensation and on such rejection BIL shall have the right to deduct/adjust/recover from the manufacturing concern the cost of the entire ingredients and packing material used by the appellant. BIL also has a right to deduct/adjust/recover from the conversion charges payable to the appellant the cost of the excess material used or wasted. However, the appellant is entitled to dispose of the excess material used or wasted after suitably powdering/mutilating the same and retain the sale proceeds. All materials belonging to BIL which is to be disposed of or scrapped by the appellant should be on account of BIL as approved by the BIL. The sale proceeds of the scrap shall be remitted to BIL by cheque/demand draft every month. The BIL have the right to select samples and to test the same in order to ensure the quality standards and specification. It is obligatory on the appellant to permit BIL's authorised representative to visit and inspect the premises of the appellant and if he requires, the appellant has to produce all accounts, records and other documents maintained by it in connection with the manufacture of the biscuits. BIL under the agreement has to pay the freight, transport charges in respect of consignments delivered to the places on the advice of BIL. Under the agreement the BIL is liable to pay central excise duty.
18. From the clauses of the agreement referred to above it is clear that the BIL exercises not only the quality control, but having control over the manufacture of goods by the appellant. BIL also supervises the manufacture of goods by posting their own man in the factory premises. Further BIL has the right to adjust/recover from the conversion charges payable to the appellant in respect of goods which were defective, or not upto the specification of BIL. The appellant does not have any ownership right in the manufactured goods. In the case of biscuits manufactured using excess material or in the case of wastage BIL has the right to deduct and adjust or recover from the conversion charges the cost of the excess material used or wasted. It is only after the recovery of the cost of excess material by BIL the appellant can dispose of the same by powdering/mutilating and is entitled to retain the sale proceeds. The very fact that the appellant cannot dispose of the manufactured product in case where the product is not to the specification prescribed by BIL and in other circumstances shows that the appellant has no title to the goods manufactured by them. Secondly, the appellant has to account for the goods which were defective to BIL. From these circumstances it is clear that the relationship between the appellant and BIL is of agent and principal. Further the appellant has to act with reasonable diligence and use such skill as they possess and they have to pay compensation to BIL in respect of the direct consequences of their act for want of skill etc. In other words where there is a failure on the part of the appellant to comply with the specification prescribed by BIL or where there is a defect in the manufacture of goods the appellant does not get title to those goods unless they make good the loss by permitting BIL either to deduct the loss from the remuneration payable to them or recovered the same from them. Further, the appellant has to deal with the goods on account of BIL. The sale proceeds of powdered or mutilated defective biscuits shall be remitted to BIL and the disposal of the above will be after communicating to the BIL, and after obtaining their approval.
19. From clauses of the agreement referred to above the only conclusion that can be drawn is that the appellants are agents of BIL.
20. The next question for consideration is what should be the assessable value of the goods.
21. If the appellants are agents of BIL then there is no sale of goods by the appellants to the BIL. Further, in Section 4(4) (a) the expression assessee is defined as the person who is liable to pay the duty of excise under this Act and includes his agents, therefore, the appellant is liable to pay duty as he is the assessee under the Act.
22. However the main contention of the learned counsel for the appellant is that in view of the judgment of Supreme Court in Ujagar Prints there is a deemed sale at the factory gate of the appellant, and therefore, the price at which the appellant is selling to BIL should be the assessable value. In this context we may refer to the definition of assessable value under Section 4 of the Central Excises and Salt Act, 1944 which reads as follows :-
"4. Valuation of excisable goods for purposes of charging of duty of excise. - (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value shall, subject to the other provisions of this Section be deemed to be -
(a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale:"
23. From the above it follows that the normal price is the price at which such goods are ordinarily sold in the course of wholesale trade.
24. The expression wholesale trade is defined under Section 4(4) (e):
"'Wholesale trade' means sales to dealers, industrial consumers, government, local authorities, and other buyers, who or which purchase their requirements otherwise than in retail."
25. Therefore, the wholesale trade contemplates the existence of a wholesale dealer. BIL is not a wholesale dealer. Further interpreting the expression 'price' under Section 4 the Supreme Court in Atic Industries Limited v. H.H. Dave 1978 (2) ELT (J 444) (SC) held as follows :-
"The only relevant price for assessment of value of the goods for the purpose of excise in such a case would be the wholesale cash price which the manufacturer receives from sale to the first wholesale dealer i.e. when the goods enter the stream of trade.... It is first immediate contact between the manufacturer and the trade that is made decesive for determining the wholesale cash price which is to be the measure of the value of the goods for the purpose of excise.
There can be, therefore, no doubt that whether a manufacturer sells the goods manufactured by him in wholesale to a wholesale dealer at arm's length and in the usual course of business, the wholesale cash price charged by him to the wholesale dealer less trade discount would represent the value of the goods for the purpose of assessment. That would be the wholesale cash price for which goods are sold within the meaning of Section 4(1)(a)."
The above observations were reiterated by the Supreme Court in Bombay Tyre International.
26. As pointed out earlier BIL is not a wholesale dealer within the meaning of Section 4(4)(e) as the goods do not enter the stream of trade when the appellant delivers the goods as per the directions of BIL to their depots. It is not the first immediate contact between the appellant and the trade. The first immediate contact with the trade is by the BIL. Further the delivery of goods to the depots of BIL is on the instructions of BIL. Further the delivery of goods to the depots of BIL on the instructions of BIL is not sale in the usual course of business as the goods are not available to any other wholesale dealer wishing to purchase them at the factory gate of the appellants. In this context we may refer to the definition of sale under Section 2(h) which reads as follows :-
"'Sale' and 'Purchase' with their grammatical variation 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."
In other words the seller transfers the property in goods to the buyer for a consideration. As pointed out in the earlier paragraphs the title in property i.e. in the raw materials as well as in the manufactured goods continued to vest in the BIL. Therefore, the question of transfer of the property in goods by the seller to the buyer does not arise. Clause 19 of the agreement providing for vesting the title to the manufactured goods immediately after the completion of the process of manufacture in BIL is superfluous. The agreement is to be construed as a whole. A particular clause of the agreement cannot be taken out of context and given interpretation.
26.1 As stated earlier transfer of property in goods is for consideration. Here the consideration is the price. If the delivery of goods by the appellants to the depots of BIL is to be treated as a sale the price at which they are selling it to the BIL does not represent the consideration at all. As submitted by Shri Asthana, if the appellants are selling the goods, the price at which they would have sold the goods in the wholesale market would take into account so many other elements which were not there in the present case. Therefore, it cannot be that the delivery of goods by the appellants to the depots of BIL is a sale.
26.2 Further it is time and again held that the valuation must be on the basis of wholesale cash price at the time when the manufactured goods entered into the 'open market' (Late Shri S. Mukherjee, CJ in Ujagar Prints [1988 (38) ELT page 535] when the goods are delivered on the instructions of BIL to their depots there is no open market in existence. The goods are not available for purchase to anyone except to BIL. In other words they are not freely available to all wholesale dealers. Therefore, it is not a sale at arm's length. Therefore, the job charges and the intrinsic value of the raw material supplied by BIL and the appellant's profit does not represent the wholesale cash price in the usual course of business, and therefore, does not represent the normal price within the meaning of Section 4(l)(a). Therefore, the contention of the learned counsel that the issue is squarely covered by the judgment in Ujagar Prints cannot be accepted.
27. It follows from the above, that the normal price under Section 4(l)(a) is not ascertainable on the facts of the case. The next provision that is applicable is Section 4(l)(b) which reads as follows :-
"Where the normal price of such goods is not ascertainable for the reason, that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in such manner as may be prescribed".
The Central Excise (Valuation) Rules 1975 prescribed for the purpose of this. In our view Rule 6(b)(i) is relevant in the context of this case. According to which the value can be determined on the value of comparable goods purchased or manufactured by the assessee or any other assessee. In the instant case the price at which BIL is selling in the wholesale market is available. Therefore, the assessable value shall be determined on the basis of the comparable sale namely the price at which the BIL is selling in the wholesale market.
28. We may now consider the scope of the judgment of the Supreme Court in Ujagar Prints. The question that arose for consideration in the said case is whether processing of goods by a job worker amounts to manufacture, if so, what should be the assessable value? Before the Court it was not disputed that processing is done by job workers. The Supreme Court held that processing of grey fabrics amounts to manufacture and the assessable value should be the value of material supplied to the processor plus the value of job work done plus manufacturing profit and manufacturing expenses. The Supreme Court having held that processing of grey fabrics amounts to manufacture has to find the assessable value of the processed cloth. In that context it was held that the price at the factory gate is deemed to be the price at the factory gate for the processed fabrics. The factory gate, according to the learned judges, means deemed factory gate as if the processed cloth was sold by the processor. In our view the judgment of the Supreme Court in Ujagar Prints is not applicable to the facts of the case. In the said case job worker is an independent manufacturer. He is not under the control of the supplier of raw material. Further, the job worker has returned the article which was supplied to him by processing it. In fact he has returned that article namely the same article which was supplied to him by submitting it to the processing, whereas on the facts of this case the raw material transformed into a complete new article and has no relation to the raw material supplied. It is not that article which is returned by the appellant to BIL after subjecting it to a particular process. Therefore, in our view the judgment of the Supreme Court referred to above is not applicable to the facts of the case.
29. The learned counsel relied upon a number of judgments/decisions for the purpose of deciding the issue. The first decision relied upon by the learned counsel is the judgment of the Supreme Court in the case of UOI v. Cibatul Ltd. [1985 (22) ELT page 302 SC). The facts of the said case are as follows :
"Ciba Geigey of India Ltd. was a registered or the licenced user of the trade mark. The respondent in the said case Cibatul Ltd. entered into an agreement with Ciba Geigy of India Ltd. for the manufacture of goods mentioned in the agreement. While construing the agreement the Supreme Court observed that the manufacturing programme is drawn up jointly by the Ciba Geigy of India Ltd. and not merely by the buyer. It was also observed that "it is significant to note that the buyer is not obliged to purchase the goods manufactured by the seller, regardless of their quality and in the event of rejection by the buyer the alternatives present before the seller extend to the sale of the manufactured goods to others or to the very destruction of the goods. It is apparent that the seller cannot be said to manufacture the goods on behalf of the buyer."
In other words Cibatul has not manufactured the goods on behalf of Ciba Geigy which were allowed to use a brand name on the goods manufactured by the seller under the agreement. The above conclusion was arrived at on the basis that the ownership in the manufacture of goods is with the seller and not with the buyer. Similarly, the Supreme Court found that the trade mark was affixed only to those goods which conform to the specification or standards stipulated by the buyers. Others are destroyed or sold without affixing the trade mark and drew conclusion that it cannot be said that the goods are manufactured by Cibatul on behalf of the Ciba Geigy Ltd. Whereas in the present case under the agreement the appellants cannot destroy the goods which are not upto the specification without making good the cost of the defective goods. In other words the appellants are liable to pay the cost of the raw material supplied if the goods are found defective which shows that they have no title to the goods manufactured.
30. The next decision relied upon by the learned counsel is the decision of the Supreme Court in Jt. Secy, to the Govt. of India v. Food Spits. Ltd. [1985 (22) ELT page 329]. In our view it has no relevance to the facts of the case as the issue involved is whether the value of trade mark should be added to the assessable value.
30A. Similary, in Siddho Sons v. UOI [1986 (26) ELT page 881 SC]. The goods manufactured by Siddho Sons which were accepted by the buyers and to which the brand name label 'Bajaj' is applied and sold by the manufacturers to the buyers at the stipulated price and to none else. They are not all sold in the open market by the manufacturer. However, the question whether there existed a wholesale trade within the meaning of Section 4(4) (e) was not before the court, and therefore, it was not considered. The court followed the judgment in Cibatul and Food Spits. In our view it has no relevance to the facts of the case.
31. In UOI v. Playworld Electronics [1989 (41) ELT page 368 SC] the issue is whether the customer whose brand name affixed to the goods and when the entire production is sold to the said customer - whether the said customer is a related person. The Supreme Court following its earlier judgment in Cibatul, Food Spits., Siddho Sons held that sales cannot be treated to a related person. In Harshell Rubber (P) Ltd. [order No. 217/89-A] the appellants were manufacturer of Suction Hoses with the trade name of Goodyear under the contract. The contention was that the goods were embossed with the trade name of Goodyear indicated that the goods were not of the same kind/quality manufactured by the factory and the goodwill associated with the brand name also cost into the value of goods. The department also contended that the price is depressed on account of, i) free technical services of Goodyear, ii) financial help, and iii) price of the goods cannot be increased unilaterally by the appellants and it has to be done in consultation with Goodyear. The argument of the appellants was that the department did not base its case on the agreement and for the first time they were setting up a new case. The Tribunal following three judgments in Cibatul, Food Spltn. and Siddho Sons held that the assessable value should be the value at which the appellants sold the goods to the Goodyear. This case has no relevance as the raw material belonged to the appellant. The only significant feature is that they only emboss the name Goodyear to the goods manufactured by them.
32. In Atul Products Ltd. the issue involved is whether the buyer whose brand name is affixed to the goods is a related person. It was held in the negative. Same is the case with National Rubber Mfgr. Ltd. v. CCE.
33. In Andhra Rerolling Works [1979 (4) ELT J 600] the issue is whether a customer who supplies raw material is a manufacturer within the meaning of Section 2(f). The facts of the case are - 5th respondent supplied the rails to the petitioner. The petitioner rerolled the said second-class untested rails into M.S. rounds and delivered the same to the 5th respondent for which the petitioner received the requisite re-rolling charges. In that context it was held that 5th respondent customer who supplied the raw material is not the manufacturer within the meaning of Section 2(f).
34. In Poona Bottling Co. v. UOI [1981 (8) ELT page 389] on a construsion of an agreement it was held that Poona Bottling Co. was not the agent of Parle Modern Bakeries whose brand name was used by the Poona Bottling Co.
35. The learned counsel placed reliance on the order of this Tribunal in Sagar Corporation v. CCE to which one of us is a party [Ms. S.V. Maruthi, Member (J)]. The facts of Sugar are distinguishable from the facts of this case. The issue in the said case was whether the clearance from the appellants could be clubbed with the clearance of the supplier of the raw materials. In that context it was held that the clearances of the appellants cannot be clubbed.
36. We are not referring to the other decisions relied upon by the learned counsel, and also by Shri Asthana as we are of the view that they are not necessary.
37. We, therefore, hold that the appellant is an agent of M/s. BIL under the agreement and he being the assessee liable to pay duty on the price at which BIL sells the goods in the open market. We, therefore, see no merit in the appeal, and is accordingly dismissed.