TMI Blog2014 (2) TMI 211X X X X Extracts X X X X X X X X Extracts X X X X ..... e manufacture final products, independently procuring inputs, paying for the same, utilizing his own manpower and sells the finished products to a purchaser based upon the price agreed between them, the said transaction will be covered by Section 4(1)(a) of the Central Excise Act, 1944. Trying to bring such type of transactions under provisions of Rule 10A of Valuation Rules, is not in consonance with the settled law, even if the finished products are sold at higher price by the buyer - Valuation of goods has been correctly determined by the appellants - Following decision of COMMISSIONER OF CENTRAL EXCISE, HYDERABAD Versus INNOCORP LTD. [2013 (9) TMI 382 - CESTAT BANGALORE] - Decided in favour of assessee. - Appeal No. : E/860,907,910,911,944,945,947,970,1009,1013/2011 - Final Order Nos. A/10112-10121/2014-WZB/AHD - Dated:- 3-2-2014 - Mr. M.V. Ravindran and Mr. H.K. Thakur, JJ. For the Appellant : Shri Ramesh Nair, Shri Uday Joshi, and Shri S.R. Dixit, Advocates. For the Respondent : Shri S.K. Mall, Shri K. Shivakumar, Shri Manoj Kutty, ARs. JUDGEMENT Per : Mr. H.K. Thakur; Following appeals have been filed by the appellants with respect to Orders-in-Origina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Price on Excisable Goods) Rules, 2000 and not under Section 4 (1)(a) of the Central Excise Act, 1944. It was agreed by both sides that the agreements and documents relied upon in all these appeals are identical. 3. Shri Ramesh Nair, Shri S.R. Dixit and Shri Uday Joshi (Advocates) appeared on behalf of the appellants. Shri S.R. Dixit argued that Revenue s stand is that Symphony brand coolers manufactured by OEMs for M/s. Symphony is not in ordinary course of trade or business and the transactions between the OEMs for M/s. Symphony cannot be considered as sale as the entire supply of raw materials, moulds, assembly lines etc. used in the manufacturing activities, are supplied directly and minutely controlled/ supervised by M/s. Symphony. It was his case that OEMs have purchased various inputs etc. independently on their own account and used the same in the manufacture of Symphony brand Coolers . That final product was sold by OEMs under proper sales documents by observing proper Sales Tax procedures. That all these transactions are on principal to principal basis and there is nothing specified in Section 4(1)(a) of the Central Excise Act, 1944 as to what is a sale not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appearing on behalf of his appellant argued that their appeals are covered by the judgment of this Bench in the case of M/s. Abhishri Packaging Pvt. Limited Ors vs. CCE, Vapi (supra). That the orders passed by the Adjudicating authority does not indicate anywhere as to why this is not a case of sale and purchase and as to why price is not the sole consideration. It was his case that when any moulds/ assembly lines are provided by M/s. Symphony then amortised cost of such supplies can be added to the assessable value as per Rule 6 of the Central Excise Valuation Rules, 2000 and appellant will not have any grievance against such additions. It was his case that even if there is certain influence by M/s. Symphony regarding negotiations of prices of raw materials and identification of vendors then also it does not make M/s. Symphony as the suppliers of raw materials. That such an intervention/ influence is only to reduce the price cost of their final product and to maintain quality. Regarding receipt of certain cash discounts from the vendors by M/s. Symphony, it was argued that this fact has nothing to do with the valuation of the goods because actual cost of raw materials paid is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atements of some responsible persons of M/s. Symphony, it has been admitted that supply of all materials and price negotiations are done by M/s. Symphony and only payments are made to the vendors through OEMs. (f) That as per the evidences recovered from the vendors supplying inputs, the meetings of price negotiations of raw materials and their supply are held between M/s. Symphony and the vendors without the presence of OEMs. That as per the contracts in case of non supply of raw materials in time to OEMs also any penalty payable by vendors, is required to be paid to M/s. Symphony and not to the OEMs. (g) That evidences recovered from the OEMs, along with the statements of employees of OEMs, also suggest that raw material cost were being reimbursed to OEMs by M/s. Symphony and that OEMs status was that of job-worker mentioned in Rule 10A of the Valuation Rules. (h) That moulds and certain assembly lines were given to OEMs free of cost by M/s. Symphony and certain employees of M/s. Symphony were always posted to the factory premises of the OEMs to look after the production, inspection and quality control of the Symphony brand coolers. (i) That in the present appeals the to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contracts were different and the earlier judgment in the case of Abhishri Packaging vs. CCE Vapi (supra) cannot be made applicable to the present appeals in view of the following case laws:- (i) CCE, Calcutta vs. Alnoori Tobacco Products [2004 (170) ELT 135 (SC) (ii) CCE, Bangalore vs. Srikumar Agencies [2008 (232) ELT 577 (SC)] (o) That in view of the above manipulations done by the appellants, penalties and confiscation of goods have been correctly made by the Adjudicating authority. 7. Heard both sides and perused the case records and the written submissions made by either sides in these appeals. The issue involved in the present appeals is whether valuation of the goods manufactured by the appellants needs to be made under Rule 10A of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 or under Section 4(1)(a) of the Central Excise Act, 1944 read with Rule 6 of these Rules. It is the case of the appellants that the present assessment of the OEM s is a case of Sale of goods manufactured by the OEMs under the brand name Symphony and are sold to the brand owner M/s. Symphony where price is the sole consideration and the buyer and selle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar items used in the production of such goods, (iii) value of material consumed, including packaging material, in the production of such goods; (iv) value of engineering, development, art work, design work and plans and sketches undertaken elsewhere than in the factory of production and necessary for the production of such goods. RULE 10A. - Where the excisable goods are produced or manufactured by 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the OEMs. It is observed that paragraph 6 and 7 of the contracts entered between OEMs and M/s. Symphony read as follows:- 6. The bought-out cost for the parts other than the plastic parts shall be added at actual in final cost. The bought out cost includes that of packaging and any other item that goes in the final product other than the moulded parts (i.e. other than the parts for which SCSL has provided moulding tools to EPPL). 7. RPPL shall give 60 days credit terms for supply of Air Cooler. This would be calculated from the date of dispatch to various godowns/ stock points. SCSL factory. Interest will be charged @ 1.5% per month if payment is not made on due date. Further, as per paragraph 4.1.2.7(g) of the Order-in-Original dated 19.04.2011, in the case of Ravi Kiran Plastics Pvt. Limited, M/s. Symphony has placed purchase order for Symphony Kaizen JR. Coolers . At the bottom of this purchase order there is a clause for acceptance of the above order placed by M/s. Symphony. In Para 4.1.2.7(h) of the same Order-in-Original dated 19.4.2011 the same model of the Air Cooler has been cleared by appellant M/s. Ravi Kiran Plastics Pvt. Limited on payment of Central Excise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Brand owner to sustain its business, profitability and also to maintain quality and timely supply of finished goods to the market to fulfil its sales commitments. 11. In the light of the observations made above, the transactions between the appellants and M/s. Symphony are held to be Sales transactions. Under Section 4(1) of the Central Excise Act, 1944 even if the price is not the sole consideration but still certain additions are required to be made then also Section 4(1)(b) of the Central Excise Act, 1944 read with Rule 6 of the Valuation Rules, 2000 has to be pressed into service when the transactions are one of Sales and parties are not related persons or inter connected undertakings. In all the situations where price is not the sole considerations, it does not mean that invariably valuation has to be done as per Rule 10A of the Central Excise Valuation Rules. The first distinction in the valuation of excisable goods required to be made is whether under Section 4 of the Central Excise Act, 1944, the transaction is one of sale or a case of manufacture of goods from inputs and goods supplied by principal manufacturer. In the latter option, the manufacturer should get ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edominantly supplied by the brand name owner free of charge. It is not disputed by the appellants that additional value consideration with respect to moulds and assembly lines is not required to be added to the assessable value under Section 4(1)(b) read with Rule 6 of the Valuation Rules, 2000. Under Rule 6 money value of any additional consideration flowing directly or indirectly from the buyer; in the form of materials, components, parts, tools, dies, moulds, drawings, blue prints, technical maps, charts, engineering work, development, art work, design work, plans and sketches etc; is required to be quantified and added to the assessable value. In the present appeals no doubt the effective control exercised by M/s. Symphony could raise suspicion regarding dummy nature of the OEMs but Revenue is not pressing into service the grounds that both OEMs and M/s. Symphony are related persons for valuation as per Rule 9 of the Central Excise Valuation Rules, 2000 or that the OEMs are actually dummy concerns. Further option of redemption fine is given by the adjudicating authority only to the OEMs which means that status of ownership of goods lying with the OEMs and elsewhere has been acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... require redetermination of value, read with provisions of Rule 6 of Valuation Rules, which talks about determination of correct value, even for the transaction falling under the ambit of Section 4(1)(a) of Central Excise Act, 1944. When we apply the said rules, we find that the provisions of Rule 6 would apply in this case as the said provisions very clearly indicate that the cost of the free supply of moulds needs to be included in the transaction value, for the discharge of duty liability. The said cost of moulds has to be amortized and included in the value of goods manufactured and cleared by M/s. Abhishri. We find that the application of Valuation Rules, 2000 need to be done in sequential manner and specific Rule needs to be applied. We find that by applying such norm, rule 6 of the Valuation Rules should the correct Rule, as it is more specific rule than the Rule 10A, for the purpose of valuation of the goods manufactured and cleared by M/s. Abhishri. This ratio is laid down by the Larger Bench Decision in the case of ISPAT Industries Limited - 2007 (209) ELT 185 - (2007-TIOL-245-CESTAT-MUM-LB). Applying the said ratio, since Rule 6 covers the issue more specifically, invoki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner held that the assessee was manufacturing the goods 'for' TUPPERWARE and not 'on behalf of' TUPPERWARE, without even attempting to justify such differentiation." It is can be from the above reading of the grounds of appeal before the Tribunal, the very same findings are recorded by the adjudicating authority in the case in hand. The Bench, after considering the grounds of appeal and submissions made by the Revenue and also analyzing the agreement made by M/s. Innocorp Limited with M/s. Tupperware recorded the following findings. "7. Our findings. 7.1. We have given careful consideration to the submission of both sides. For the above rule to apply, the subject goods should be shown to have been produced or manufactured by the assesses qua job workers on behalf of TUPPERWARE. According to the appellant, the manufacturing activities carried out by the assesses under the relevant agreements constituted job work for TUPPERWARE who is sought to be presented as principal manufacturer. The appellant considers the assesses as job workers of TUPPEERWARE. As per Explanation to Rule 10 A, job worker means a person engaged in the manufacture or production of goods on behalf of a pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee indemnified TUPPERWARE against any losses, damages, liabilities etc. which might arise from the former's negligence or willful misconduct in manufacturing, assembling, handling, storing or shipping the products, and TUPPERWARE indemnified the assessed against any claim arising out of consumer's use of the products in accordance with TUPPERWARE's instructions, (h) that the assessee had of use their own equipments, labour and know how to manufacture. Assemble the products, to carry out quality control tests on the products and to pack and sip the products in terms of the Purchase Orders of TUPPERWARE, (i) that the agreement left the assessee free to manufacture goods not similar to the products for third parties and (j) that TUPPERWARE was free to source that products from other manufacturers. All these features of the contract would clearly indicate that the assessee was manufacturing the goods or TUPPERWARE and selling the goods to them for a price at arms length on principal-to-principal basis. Therefore, the contention of the appellant that the respondents were manufacturing the goods as job workers "on behalf of" TUPPERWARE cannot be accepted. The second requirement not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd. (Supra). The assessee in that case was engaged in the manufacture of paints, varnishes and thinners. They entered into an agreement with M/s. Sigmakalon India Pvt Ltd. (SIPL) for manufacture and supply of paints to SIPL. COROMANDEL accordingly manufactured paints and sold the same to SIPL. They paid duty on the transaction value (the value shown in the invoice raised on SIPL by COROMANDEL) of the goods under Section 4 (1) (a) of the Central Excise Act, 1944. The invoice amounts were adjusted against the advances paid by SIPL. The work undertaken by COROMANDEL appeared, to the Department, to be a job work and therefore show-cause notices were issued to them demanding differential duty on the basis of Rule 10 A o the valuation Rules, 2000. The assessee resisted this demand mainly on the ground that they were not job workers and that the transaction between them and SIPL was on principal-to-principal basis. This contention of the assessee was rejected by the adjudicating authority which held that the assessee was job worker of SIPL and hence liable to pay the differential duty on the basis of Rule 10 A. the orders of the adjudicating authority came to be upheld by the Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , inasmuch as the Tupperware had strict quality control procedure set up, were also controlling and directing M/s. Innocorp Limited for control of the cost of the production, M/s. Innocorp Limited were also required to return the balance goods back to M/s. Tupperware immediately. We find that despite such terms and conditions, Tribunal had held in favour of assessee M/s. Innocorp as per the reasoning reproduced herein above, which would squarely apply in the case in hand. In our considered view, the ratio of the order of the Tribunal is that, if any assessee manufacture final products, independently procuring inputs, paying for the same, utilizing his own manpower and sells the finished products to a purchaser based upon the price agreed between them, the said transaction will be covered by Section 4(1)(a) of the Central Excise Act, 1944. Trying to bring such type of transactions under provisions of Rule 10A of Valuation Rules, is not in consonance with the settled law, even if the finished products are sold at higher price by the buyer. 14. In view of the above, it is held that Valuation of goods has been correctly determined by the appellants. On the other issue of limitations, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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