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Issues: (i) Whether the goods manufactured by the appellant for the brand owner were assessable under the declared cost-based valuation or under the wholesale price of the brand owner on the footing that the relationship was that of principal and agent; (ii) Whether the penalty could survive if the demand of differential duty was not sustainable.
Issue (i): Whether the goods manufactured by the appellant for the brand owner were assessable under the declared cost-based valuation or under the wholesale price of the brand owner on the footing that the relationship was that of principal and agent.
Analysis: The valuation adopted by the Commissioner proceeded on the assumption that the arrangement between the manufacturer and the brand owner was one of principal and agent, and that the wholesale price of the brand owner could be substituted for the declared assessable value. The Tribunal held that the facts were covered by the line of authority treating the manufacture as job work on behalf of the brand owner, and that the Supreme Court had already set aside the contrary view taken in the earlier comparable matter by holding it indistinguishable from the Ujagar Prints principle. Once the manufactured goods were produced from raw material and packing material supplied under the brand owner's control, the assessable value could not be displaced merely because the brand owner had access to pricing or supervisory arrangements.
Conclusion: The valuation based on the wholesale price of the brand owner was unsustainable and the demand of differential duty failed.
Issue (ii): Whether the penalty could survive if the demand of differential duty was not sustainable.
Analysis: The penalty was dependent on the duty demand. After the foundation for differential duty was rejected, there remained no independent basis for imposing penalty.
Conclusion: The penalty was not sustainable.
Final Conclusion: The impugned order was set aside and the appeals were allowed because the assessable value could not be redetermined on the basis adopted by the Commissioner and no penalty could be retained once the duty demand was rejected.
Ratio Decidendi: In a job-work manufacture for a brand owner, assessable value must be determined on the legally applicable valuation basis for the manufactured goods and cannot be substituted by the brand owner's wholesale price merely because the brand owner exercises supervision or commercial control; a penalty cannot survive when the duty demand itself is unsustainable.
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