TMI Blog1997 (3) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... ble value of the biscuits with the brand name HORLICKS and sold to HMM. Ltd. 3. The manufacture of biscuits with the brand name of HORLICKS was being done in accordance with the terms of the agreement dated 24-1-1986 entered into between the parties. Appellant was filing price lists in respect of the biscuits manufactured. Price List in Part II was being filed in respect of special blend horlicks biscuit containing the brand name and manufactured by the appellant and sold to HMM Ltd. and the same was approved. Goods were being cleared on payment of appropriate duty. Show cause notice dated 16-6-1989 was issued by the Superintendent to the appellant demanding differential duty for the period 1-12-1988 to 30-4-1989 on the basis of assessable value proposed to be determined not on the basis of prices declared by the appellant but on the sale price of HMM Ltd. to their wholesale dealers. The Collector issued show cause notice dated 7-12-1990 demanding differential duty for the period April 1988 to March 1989 proposing to discard the value declared by the appellant and to adopt wholesale price of HMM Ltd. to their wholesale dealers and also proposing imposition of penalty and confisca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out that the advantage on account of the receipt of deposit of Rs. 5 lacs would be only to the extent of Rs. 35,000 per year compared to the volume of sales of the particular product which was about Rs. 47 lacs in 1986-87, about Rs. 51 lacs in 1987-88 and about Rs. 97 lacs in 1988-89 and the total sales during the three years being Rs. 1.3 crores, Rs. 1.64 crores and Rs. 5.72 crores approximately. Learned Counsel also contended that since the impugned order is based entirely on the terms of the agreement and since copies of the Agreement were made available to the Department on 21-4-1986 and 13-5-1986, show cause notice dated 7-12-1990 would be barred by time. Shri T.R. Malik, SDR rebutted the above contentions and contended that the notices were not barred by time and terms of the Agreement clearly point to the conclusion that the transactions between the parties were not on principal to principal basis and that appellant was functioning as an agent of HMM Ltd. and therefore, assessable value should be based on the wholesale price charged by HMM Ltd. 6. The decisions of the Supreme Court in Union of India v. Cibatul Limited, 1985 (22) E.L.T. 302 and Govt. of India v. Food Sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capacity at a price of Rs. 31.30 per Kg. The Collector ignored two important circumstances in this connection. Purchase by the appellant was in huge quantities as can be seen from the copy of Invoice produced which shows the quantity covered by the invoice as 16 packs each of 182 Kgs. i.e., 2,912 Kg. While the purchase by other buyers was in smaller quantities. The appellant was receiving these raw materials in bulk in metal containers each with capacity of 182 Kg. but the raw material was packed in small glass bottles with caps when supplied to other buyers. Expenses by way of cost of glass bottles and caps and related packing materials and the expenses of bottling and packing would be considerable. These two important differences in the sale pattern of Horlicks malted food could cover a substantial part of the price difference. In these circumstances the difference in price, if at all, does not appear to have any significance. The Collector committed a serious error in not examining the question in all its aspects. 8. According to the Collector the terms and conditions of the agreement dated 2-4-1986 entered into between HMM Ltd. (Purchaser) and the appellant (Manufacturer) est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the processes laid down by HMM Ltd. Packing material rejected by the appellant shall be destroyed by the appellant. HMM Ltd. shall supply malted milkfood in powder and in bulk containers in adequate quantity at prices mutually fixed by them and the price shall be payable in cash unless required to be adjusted out of the money which may be due to the appellant. No raw material of an obnoxious nature shall be stored by the appellant so as to cause any contamination of the biscuits or to reduce the quality, test or flavour of the biscuits. The factory shall be periodically fumigated. Title of the malted milkfood sold by HMM Ltd. to the appellant and of the biscuits sold by the appellant to HMM Ltd. shall respectively pass in favour of the vendee at such stage or places as may be decided mutually. Appellant shall maintain proper records relating to receipt and use of Malted Milkfood and the stock shall be open to inspection by agents of HMM Ltd. On termination of the agreement, the appellant shall return to HMM Ltd. the stock of Malted Milkfood, Horlicks biscuits and packing materials for which the latter shall pay reasonable price. Clause 15 of the Agreement reads thus :- 15. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e staff to carry out inspection to determine the state of manufacturing process or operation only with a view to ensure quality control. The staff so deputed could shut down or restart the plant and machinery. This right is not the same as control over plant and machinery. 11. The various circumstances present in the case do not spell out a case of manufacturing activity being carried out by the appellant on behalf of HMM Ltd. HMM Ltd., having agreed to purchase 500 M.Ts. of biscuits with Horlicks brand name would be naturally concerned with ensuring quality control. The provisions of the agreement had only such an end on view. The agreement made it clear that manufacturing activity be carried out by appellant on their own account and at their own risk, as in the case of any other manufacturer and at no risk for the buyer as in the case of any other buyer. There are no circumstances justifying the conclusion that the transactions were not on principal to principal basis or not at arms length. 12. In the circumstances, the Collector was in error in directing assessable value of goods cleared by the appellant by way of sale to HMM Ltd. be valued not at the appellant s declared pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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