2015 (7) TMI 432 - AT - Central Excise

Tribunal rules FHS & Heinz not related, values Glucon-D for excise duty per Ujagar Prints

M/s. Food & Health Care Specialities, M/s. Heinz India Private Ltd. Versus CCE, Delhi-IV

The Tribunal determined that FHS and Heinz were not related persons, leading to the valuation of Glucon-D for excise duty purposes based on the cost of ... Valuation of Glucon-D - Job work - whether job worker can be treated as related person and Job work charges are not at arm's length price - Clearance of Glucon-D on the basis of cost of raw-material received plus job charges plus the profit margin - revenue sought the duty on sales price of the goods - Held that:- A job worker and the principal manufacturer can be treated as related persons only when the terms of the job work are such that the job worker is not free to charge the job charges as per the market rate and the job charges are dictated by the principal manufacturer or that the terms of the agreement give unfair advantage to the principal manufacturer over the job worker which would indicate existence of extra commercial consideration and financial interest in the business of each other. On going through the terms of the agreement between the FHS & Heinz we do not find any such clause in the agreement. FHS & Heinz cannot be treated as related persons and accordingly the assessable value of the goods manufactured by FHS would have to be determined in accordance with the Apex Court’s Judgment in the case of Ujagar Prints and Ors. vs UOI [1989 (1) TMI 124 - SUPREME COURT OF INDIA] i.e. aggregate the cost of the raw material, job charges and job worker s profit and not the price at which the goods were being sold by Heinz form their depots and as such the judgments in the case of S. Kumars vs CCE [2005 (11) TMI 71 - SUPREME COURT OF INDIA] would not be applicable to the facts of this case. The impugned order is, therefore, set aside - Decided in favour of assessee. Issues Involved:1. Valuation of Glucon-D for excise duty purposes.2. Determination of whether FHS and Heinz are related persons.3. Applicability of the Apex Court's judgment in the case of Ujagar Prints vs. Union of India.4. Applicability of the Apex Court's judgment in the case of S. Kumars vs. Commissioner of Central Excise.Issue-wise Detailed Analysis:1. Valuation of Glucon-D for Excise Duty Purposes:The primary issue was the valuation of Glucon-D blended and packed by FHS for Heinz. The period of dispute was from October 2000 to February 2002. Initially, FHS paid duty based on Heinz's sale price from their depots. From October 2000, FHS started paying duty based on the cost of raw material, packing material, job charges, and profit, following the Apex Court's judgment in Ujagar Prints vs. Union of India. The Department contended that the transactions were not on a principal-to-principal basis, suggesting that the assessable value should be the sale price at which Heinz sold the goods.2. Determination of Whether FHS and Heinz are Related Persons:The Tribunal examined whether FHS and Heinz were related persons as defined under section 4(3)(b) of the Central Excise Act, 1944. The Department argued that the terms of the agreement between FHS and Heinz indicated excessive control by Heinz over FHS, suggesting a relationship beyond principal-to-principal. The Tribunal analyzed various clauses of the agreement, including the provision of technical know-how, manufacturing schedule, quality control, and financial independence. It was concluded that the conditions in the agreement did not curtail the financial independence of FHS, and there was no evidence of mutual financial interest or control.3. Applicability of the Apex Court's Judgment in the Case of Ujagar Prints vs. Union of India:The Tribunal held that since FHS and Heinz were not related persons, the valuation of the goods should be determined as per the Apex Court's judgment in Ujagar Prints vs. Union of India. This involves aggregating the cost of raw material, packing material, job charges, and job worker's profit.4. Applicability of the Apex Court's Judgment in the Case of S. Kumars vs. Commissioner of Central Excise:The Apex Court in S. Kumars vs. Commissioner of Central Excise held that if the job worker and principal manufacturer are related persons, the valuation should follow section 4(1)(b) of the Act read with the relevant valuation rules. However, since the Tribunal found that FHS and Heinz were not related persons, the judgment in S. Kumars was deemed inapplicable.Conclusion:The Tribunal concluded that FHS and Heinz were not related persons. Therefore, the assessable value of the goods should be determined based on the cost of raw material, packing material, job charges, and profit, as per the Ujagar Prints judgment. The impugned order was set aside, and the appeals were allowed.Pronouncement:The judgment was dictated and pronounced in the open court.