TMI Blog2013 (9) TMI 382X X X X Extracts X X X X X X X X Extracts X X X X ..... urer or by any other person authorized by him - The terms and conditions of the two agreements were undisputedly similar - The parties to the agreement declared that neither of them was an agent of the other, that their relationship was at arm’s length on a principal-to-principal basis, that neither of them had any interest in the other and that they had a buy-and sell relationship of the agreement - It was also declared that TUPPERWARE was the purchaser of the products manufactured by DART – The second conditions was also not satisfied. It was true that stringent quality standards were prescribed by TUPPERWARE to be strictly maintained by the manufacturers at every stage of the manufacture - TUPPERWARE could inspect the process of manufacture to ensure that the specified quality standards for the products were being maintained - They also had the liberty to reject the finished goods which did not conform to the specified standards - The things were part of normal commercial practice in respect of business houses who insist on the quality of their merchandise - These cannot be considerations to hold that the manufacturing activities of the assessees were under extensive control ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he period from April, 2007 to February, 2008. 2. The facts of the case 2.1 INNOCORP and DART were engaged in the business of manufacture of plastic tableware and kitchenware by induction moulding process. Each of them entered into a Contract Manufacturing Agreement with M/s. TUPPERWARE India Pvt. Ltd. (hereinafter referred to as TUPPERWARE) for manufacture and supply of plastic tableware and kitchenware to TUPPERWARE as per the specifications of the latter. The agreement between INNOCORP and TUPPERWARE was entered on 8-1-2001 and the one between DART and TUPPERWARE was entered on 9-5-2003. The terms and conditions of these agreements were similar. In the agreement, INNOCORP/DART was referred to as Manufacturer . A brief account of the relevant terms and conditions of the TUPPERWARE-DART agreement, taken as a specimen, is given below : TUPPERWARE appoints the Manufacturer on a non-exclusive basis to manufacture, assemble and sell the products to TUPPERWARE in accordance with the terms hereof. In its sole discretion, TUPPERWARE may appoint any other manufacturer for the same or similar products [Clause 2]. Products shall mean the finished products of the specifications a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost quotations, the Manufacturer shall at the request of TUPPERWARE provide the basis for such costs and duties and shall also provide photostat copies of invoices and receipts within 15 days of such request. In the event of invoice price of any raw materials/supplies supplied by TUPPERWARE or its associates remains outstanding when a payment is due from TUPPERWARE to the Manufacturer, TUPPERWARE shall be entitled to deduct from such payment the amount invoiced by the supplier and pay such supplier directly [Clause 6]. The Manufacturer undertakes to manufacture/assemble the products to the superior quality standards and specifications of TUPPERWARE as set forth in the Purchase Orders and any manuals made available to the Manufacturer. TUPPERWARE shall at all times possess the right to use design and brand name of the Products to be manufactured by the Manufacturer including the brand name TUPPERWARE . The ability under this agreement is provided to the Manufacturer for the purpose of manufacture of the Products only. Any product that does not match with the quality standards of TUPPERWARE shall be destroyed by the Manufacturer with the prior consent of TUPPERWARE or disposed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jected products, unused raw materials and parts and masterbatch and supplies at the cost of Manufacturer, including overhead expenses, transportation and the costs and duties relating thereto to be billed to TUPPERWARE. Such unfinished products shall become the property of TUPPERWARE upon receipt by TUPPERWARE [Clause 11]. TUPPERWARE shall cover under their marine policy all products or parts thereof manufactured and delivered to, and received by, TUPPERWARE. The Manufacturer shall not bear any risk or loss or damage to parts or products in transit [Clause 12]. The Manufacturer shall indemnify TUPPERWARE against any losses, claims, costs, damages, liabilities or expenses arising from or in connection with, (i) the Manufacturer s negligence or wilful misconduct in manufacturing, assembling, handling, storing or shipping the products or (ii) any breach or non-performance, by the Manufacturer, any obligations or undertakings laid down in this agreement or (iii) any breach of any applicable laws or regulations in force. TUPPERWARE shall indemnify the Manufacturer against any claim arising out of any consumer s use of any product in accordance with TUPPERWARE s instructions [Cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of the finished goods cleared by INNOCORP/DART to various godowns of TUPPERWARE during the period of dispute, INNOCORP/DART ought to have paid duty on the transaction value adopted by TUPPERWARE at the time of sale of the same goods to their distributors. As this transaction value of the goods sold by TUPPERWARE to their distributors was higher than the assessable value on which INNOCORP/DART had paid duty while clearing the goods to TUPPERWARE s godowns, the show-cause notices demanded differential duty from INNOCORP/DART. 2.4 These show-cause notices also alleged that INNOCORP/DART had colluded with TUPPERWARE and undervalued the goods and short-paid duty thereon with intention to evade payment of correct duty. It was alleged that the goods were manufactured on job work basis for TUPPERWARE and this fact was not disclosed to the department by INNOCORP/DART. The show-cause notices also used expressions such as misdeclaration, suppression and fraud against INNOCORP/DART and, on this basis, invoked the proviso to Section 11A(1) of the Central Excise Act for recovery of the duty which was allegedly short-paid. These notices also demanded interest on duty from INNOCORP/DART u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The conditions are that they should be manufacturing the goods on behalf of TUPPERWARE, they should be manufacturing the goods from any inputs or goods supplied by TUPPERWARE or by a person authorized by TUPPERWARE and the goods manufactured by them should be sold for delivery by TUPPERWARE at the time of removal of these goods from their factory. 3.2 His other findings are --- that the assessee and TUPPERWARE operated independently on a principal to principal basis; that there was absolutely no flow of funds from TUPPERWARE to the assessee or vice versa and the price charged by the assessee from TUPPERWARE was at arms length; that the stringent quality control exercised by TUPPERWARE over the activities of the assessee or the usage of TUPPERWARE s trade mark by the assessee would not, by itself, a lead to a conclusion that the manufacturing activity was carried out by the assessee on behalf of TUPPERWARE; that the assessee was neither an employee nor an agent of TUPPERWARE and the sole relationship between them was that of seller and buyer; that there was no mutuality of interest between the assessee and TUPPERWARE; that the suppliers nominated by TUPPERWARE could not be said t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , without even attempting to justify such differentiation. 5. The submissions 5.1 The learned Addl. Commissioner (AR) reiterated the above grounds of the appeals and submitted that the scope of manufacturing activities of each of the assessees was that of job work as envisaged under Rule 10A of the Valuation Rules, 2000. It was not in dispute that the raw materials were supplied by persons nominated by TUPPERWARE and that moulds were supplied directly by TUPPERWARE and that the finished goods cleared by the assessees to the godowns of TUPPERWARE were sold by the latter. On these facts, it was contended that the assessable value of the goods should have been determined under the above rule. In his endeavour to justify the grounds of the appeals, the learned Addl. Commissioner (AR) referred extensively to the various provisions of the agreements. 5.2 The learned counsel for the respondents also elaborately referred to various provisions of the agreements and submitted that the nature of relationship between the assessees and TUPPERWARE was explicit on the relevant terms and conditions of the agreement. That the transactions between them were on principal to principal basis at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y a job-worker, on behalf of a person (hereinafter referred to as principal manufacturer), then, - (i) in a case where the goods are sold by the principal manufacturer for delivery at the time of removal of goods from the factory of job-worker, where the principal manufacturer and the buyer of the goods are not related and the price is the sole consideration for the sale, the value of the excisable goods shall be the transaction value of the said goods sold by the principal manufacturer; (ii) in a case where the goods are not sold by the principal manufacturer at the time of removal of goods from the factory of the job-worker, but are transferred to some other place from where the said goods are to be sold after their clearance from the factory of job-worker and where the principal manufacturer and buyer of the goods are not related and the price is the sole consideration for the sale, the value of the excisable goods shall be the normal transaction value of such goods sold from such other place at or about the same time and, where such goods are not sold at or about the same time, at the time nearest to the time of removal of said goods from the factory of job-worker; (iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incipal basis, that neither of them had any interest in the other and that they had a buy-and sell relationship only vide clause 23 of the agreement. It was also declared that TUPPERWARE was the purchaser of the products manufactured by DART. On a perusal of other clauses of the agreement, we have found these declarations contained in clause 23 to be true. 7.3 It is easily discernible from the agreement (a) that the assessee was appointed by TUPPERWARE, on a principal-to-principal basis, to manufacture the products as per the latter s specifications and to sell the goods to TUPPERWARE, (b) that TUPPERWARE was liable to pay to the assessee the price of the goods invoiced by the latter as per the settled cost quotations for the product, (c) that the raw materials and packing materials required for the manufacture of the goods were to be sourced by the assessee from suppliers named by TUPPERWARE, (d) that none of the suppliers was authorized by TUPPERWARE to supply the raw materials or packing materials to the assessee, (e) that the moulds supplied by TUPPERWARE to the assessee for manufacture of the goods were returned after use (without availing Cenvat credit), (f) that the brand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a] for the assessees to be job workers of TUPPERWARE has also not been satisfied in this case inasmuch as the goods were not manufactured from any inputs supplied by TUPPERWARE or by any other person authorized by them. It is not in dispute that the necessary raw materials and packing materials were procured by the assessees from suppliers named by TUPPERWARE. The cost of these materials were expressly recognized as expense of the assessees. That the suppliers were chosen by the assessees from a panel furnished by TUPPERWARE does not mean that the actual suppliers were authorized by TUPPERWARE to supply the materials to the assessees. Insofar as the moulds are concerned, undisputedly, they were returned by the assessees to TUPPERWARE after use (without availing Cenvat credit) and the amortised value thereof was included in the assessable value of the finished goods. On these facts, it has to be held that the third condition also remains unfulfilled in this case. In the result, the respondents in these appeals were not manufacturing the subject goods as job workers on behalf of TUPPERWARE. Needless to say, therefore, that Rule 10A was not applicable to the assessment of the subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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