Customs, Excise and Gold Tribunal - Mumbai
Garden Cotton Yarns Ltd., Garden Silk ... vs Commissioner Of Central Excise & ... on 13 February, 2001
Equivalent citations: 2001(76)ECC483, 2001(131)ELT653(TRI-MUMBAI)
ORDER
Gowri Shankar, Member (Technical)
1. Garden Silk Mills (appeal 4564) is a processor of textile fabrics, both on its own account, as well as, as a job worker. J. Bhesania (appeal 4565) was, at the relevant time, its director. Garden Cotton Yarn Ltd (appeal 4563) was the owner of fabrics which were processed by Garden Silk Mills and returned to it. Vareli Associates (appeal 4566) and Garden Associates (appeal 4567) purchased between them the entire stock of second quality fabrics manufactured by Garden Silk Mills. These five are in appeal against the order of the Commissioner of Central Excise, Surat. In that order, the Commissioner has held that the expenses towards advertising which Garden Silks Mills and owner of the processed fabrics incurred, but passed on to the dealers of these goods, were includible in the assessable value of the processed fabrics. He has further held that the assessable value of the second quality fabrics sold by Garden Silk Mills to Vareli Associates and Garden Associates should be the price at which these two concerns sold them to their dealers.
2. Three is a lack of clarity both in the show cause notice and the Commissioner's is order with regard to the first issue. Paragraph 15 purports to demand the entire duty of Rs.32.2 lakhs on this amount from Garden Silk Mills. Paragraph 16 breaks up this amount as demandable separately from 18 parties, including the other appellants (other then Bhesania) before us, the amount attributed to Garden Silk Mills now coming down to Rs. 1.32 lakh approximately. In his order, the Commissioner says that this amount is recoverable from Garden Silk Mills for the reason that it has undertaken to comply with all the procedures and formalities under the Act and therefore differential duty is to be recovered from it.
3. As we have noted, the notice proposed to demand duty on all sales promotional expenses "collected" by these firms from the dealers. In other words, the dealers paid to the mills part of the expenses incurred by them The mills) for sales promotion. The burden of the paid so reimbursed thus fell on the dealers. In other words, it is the dealer who bore the advertising expenses to this extent. The expenses under consideration are thus those incurred by the dealers.
4. In its judgment in Phillips India Ltd. vs. CCE 1998 (74) ECR 722, the Supreme Court has held that the expenses incurred by the dealers towards advertising of a manufactured product should not form part of the assessable value of that product. Applying the ratio of this judgment, the expense incurred by the dealers should not form part of the assessable value. Independently of this, the expenses incurred towards advertising by the owner of the fabrics which Garden Silk Mills processed would, in any case, not form part of the assessable value of these goods by application of the Supreme Court's judgment in Ujagar Prints vs. Union of India 1989 (39) ELT 439 laying down in essence that it is the cost of the raw material and the cost incurred by the processor towards its processing that should form the assessable value of the goods. Expenses incurred by the owner of the fabric would thus not form part of the assessable value.
5. The show cause notice does not allege any relationship between Garden Silk Mills on the one hand, and Vareli Associates and Garden Associates, on the other hand. The justification that the Commissioner gives for this finding that the assessable value of the second quality goods, contained in paragraph 27 of his order, reads as follows:
"Though both the firms have not been alleged to the related persons of the Mills and/or merchant manufacturers, they have been alleged to be associates, to whom the Mills and other merchant manufacturers used to give their entire stock of seconds for retail sale in the market, thereby both the units became their sole distributors within the meaning of Section 4 (4) (sic) of the Act. Hence price charged by these two associated firms should be the price for sale consideration under Section 4 of the Act."
6. The Commissioner has, in effect, applied the provisions of clause (iii) of the proviso under Section 4 (1)(a) of the Act. For this proviso to apply, two conditions are required, that the goods are generally sold to or through a person and that person is related to the manufacturer. In the case before us, while the first condition said may satisfied, in that the second quality goods are sold by the manufacturer to or through two persons alone, it has not been shown that the buyers and the seller are related. The fact that these goods were sold to or through these persons does not necessarily make them related to the seller. The Commissioner obviously relies on the definition of "related person" occurring in Section 4 of the Act, which provides that such a related person includes a distributor. The Commissioner has however wrongly read to mean that every distributor is related to the manufacturer. The Supreme Court clarified this in its judgement in Union of India vs. Bombay Tyre International, saying in paragraph 44, "... A relative and a distributor of the assessee should be understood to mean a distributor who is a relative of the assessee." The demand for duty therefore is not sustainable and consequently penalties imposed on the appellants are also not sustainable.
7. All the appeals are allowed and the impugned order set aside.