TMI Blog2005 (11) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondent No. 1 would be entitled to claim discounts or could exclude the advertisement expenses incurred by the dealers. We therefore allow the appeals and remand the matter back to the Tribunal for the purpose of determining the nature of the alleged relationship between the respondent No. 1 and the other respondents. If it is found that the respondents are not related persons then the earlier decision of the Tribunal will stand. If on the other hand it is found that the respondents are related, the Tribunal will consider the questions of discounts and deductions claimed by the respondents before remanding the matter to the Commissioner for a correct computation of the calculation errors. - 4172-4185 of 2000 - - - Dated:- 21-11-2005 - Ruma Pal and H.K. Sema, JJ. [Judgment per : Ruma Pal, J.]. - The respondent No. 1 processes grey fabric. Sometimes the grey fabrics are processed on its own account and sometimes the grey fabrics are received for processing on job charge basis from others (who are referred to as 'the merchant manufacturers'). For the period 1-9-1985 to 28-2-1989, the respondent No. 1 had paid excise duty on the fabrics processed by it during this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Prints III they were liable to treat the notional sale by the respondent No. 1 to the merchant manufacturers as the relevant point for determining the assessable value. The claim of the respondent No. 1 was that prior to the decision in M/s. Ujagar Prints III it had paid the excise duty by taking the assessable value of the processed fabric at the wholesale price at the time the goods reached the open market. This was followed till the decision of this Court in Ujagar Prints III. It was submitted that in any event the respondent No. 1 was not only entitled to discounts in respect of the excise duty levied for the period 1-9-1985 to 28-2-1989 but there were gross inaccuracies in the computations made by the appellant. The Commissioner of Central Excise, held that the respondents were related persons and upheld the demand for duty to the extent of Rs. 3,82,41,53 for the period 1-9-1985 to 30-9-1989 from the respondent No. 1. The claim for discounts was also rejected. 3.The respondents appealed before the Customs, Excise and Gold (Control) Appellate Tribunal (hereinafter referred to as the 'Tribunal'). The Tribunal held that the respondents had rightly invoked the principles of M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed persons) or where such goods are not sold to such dealers, to dealers (being related persons) who sell such goods in retail; (b) 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. xxxxxxxxxxxxxxx xxxxxxxxxxxxxxx (4) (a) xxxxxxxxxxxxxxx (b) xxxxxxxxxxxxxxx "(c) related person" means a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, and relative and a distributor of the assessee and any sub-distributor of such distributor". 8.Section 4(1)(a) deals with cases where the assessee sells the manufactured goods to a buyer, whereas Section 4(1)(b) deals with cases other than sale. Chapter II of the Central Excise (Valuation) Rules, 1975 (referred to hereafter the Rules), provides for the determination of the value of any excisable goods for the purposes of Section 4(1)(b) of the Act. We may note at the outset that Rule 3 provides for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee would have normally earned on the sale of such goods; Where the assessee so arranges that the(c) excisable goods are generally not sold by him in the course of wholesale trade except to or through a related person and the value cannot be determined under clause (iii) of the proviso to clause (a) of sub-section (1) of Section 4 of the Act, the value of the goods so sold shall be determined - In a case where the assessee sells the(i) goods to a related person who sells such goods in retail, in the manner specified in clause (a) of this rule; In a case where a related person does(ii) not sell the goods but uses or consumes such goods in the production or manufacture of other articles, in the manner specified in clause (b) of this rule : In a case where a related person sells(iii) the goods in the course of wholesale trade to buyers, other than dealers and related persons, and the class to which such buyers belong is known at the time of removal, on the basis of the price at which the goods are ordinarily sold by the related person to such class of buyers". (Emphasis supplied) 9.Rule 7 is the residuary section in the sense that if the value of excisable goods cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... processed fabric could comprise only of the processing charges was rejected in the following words : "The incidence of the levy should be uniform, uninfluenced by fortuitous considerations. The method of determination of the assessable value suggested by the processors would lead to the untenable position that while in one class of grey fabric processed by the same processor on bailment, the assessable value would have to be determined differently dependent upon the consideration that the processing house had carried out of processing operations on job work basis, in the other class of cases, as it not unoften happens, the goods would have to be valued differently only for the reason the same processing house has itself purchased the grey fabric and carried out the processing operations on its own". (pg. 520) 14.Therefore, the assessable value of the processed goods, as far as that processor was concerned, would have to be the same irrespective of the fact that it either manufactures the goods and then process it itself or is given the goods and merely undertakes the processing before returning the same to the manufacturer/owner. That common norm was the wholesale price. 15. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to say : "If the trader, who entrusts cotton or manmade fabric to the processor for processing on job work basis, would give a declaration 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". …. 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". (Emphasis supplied) 18.The actual wholesale price was jettisoned in favour of a deemed sale price by the processor to the merchant manufacturer. 19.The decision in M/s. Ujagar Prints III was construed and followed subsequently by this Court in Pawan Biscuits Company Private Limited v. Collector of Central Excise - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the procedure prescribed in Rule 6(b)(ii). As we have seen Rule 6(b) deals with excisable goods which are not sold by assessee but "are used" or "consumed" by him or on his behalf in the production or manufacture of "other" articles. In such case, the value of the excisable goods is to be based either (i) on the value of the comparable goods produced or manufactured by the assessee or by any other assessee, or if that is not possible under (ii) on the cost of production or manufacture, including profits, if any, which the assessee would have normally earned on the sale of such goods. 22.We do not agree that if Section 4(1)(b) is invoked Rules 4 and 5 do not apply. We have already held that Rule 3 does not make any distinction between the rules which may be invoked even when Section 4(1)(b) is invoked. If none of the rules i.e. 4, 5 or 6, in terms apply, then Rule 7 would. In other words, the sale which is referred to in Rules 4, 5 and 6 may in the circumstances reflect a notional sale and provide a guideline for applying analogous principles mutatis mutandis under Rule 7. 23.Rule 6(b) relied on by the respondent does not in terms apply. As we have noted, Rule 6(b)(ii) envisag ..... 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