2005 (8) TMI 219 - AT - Central Excise

Tribunal rules in favor of Rallis and FMC, excludes commission from valuation

The Tribunal allowed the appeals by Rallis and FMC, rejecting Revenue's appeals. It held that the valuation of pesticides should follow the Ujagar Prints ... Valuation (Central Excise) - Related person - Job work Issues Involved:1. Valuation of pesticides manufactured on a job work basis.2. Application of Rule 7 of the Central Excise Valuation Rules, 2000.3. Inclusion of commission received by Rallis in the assessable value.4. Validity of job work arrangement between Rallis and FMC.5. Penalties imposed under various sections and rules.Detailed Analysis:1. Valuation of Pesticides Manufactured on a Job Work Basis:The primary dispute revolves around the valuation of pesticides (Marshal 25EC & Bestox 10E) manufactured by Rallis India Ltd. (Rallis) on behalf of FMC India Pvt. Ltd. (FMC) under a Master Processing Agreement (MPA) dated 15-1-2001. Rallis valued the goods based on the cost of raw materials provided by FMC plus processing charges, following the principles laid down by the Apex Court in Ujagar Prints and Pawan Biscuits cases. Revenue, however, sought to value the goods under Rule 7 of the Central Excise Valuation Rules, 2000, which pertains to the price at which the goods are sold from Rallis' depots as consignment stockists of FMC.2. Application of Rule 7 of the Central Excise Valuation Rules, 2000:Revenue argued that since the goods were sold from Rallis' depots, Rule 7 should apply. However, the Tribunal found that Rule 7 is not applicable in cases where the assessee is not the owner of the goods. Since Rallis was only a job worker and not the owner, Rule 7 could not be applied. The Tribunal emphasized that the valuation should be based on the landed cost of raw materials plus processing charges as per the Ujagar Prints formula.3. Inclusion of Commission Received by Rallis in the Assessable Value:In some appeals, Revenue accepted the valuation method based on Ujagar Prints but contended that the commission received by Rallis under the Consignment Agency Agreement (CAA) should be included in the assessable value. The Tribunal rejected this argument, stating that the commission was for selling efforts and had no nexus with the manufacture of goods. Therefore, it could not be included in the assessable value.4. Validity of Job Work Arrangement Between Rallis and FMC:The Tribunal examined the job work arrangement and found it to be a valid and lawful agreement between two independent entities. The agreements (MPA and CAA) were executed on a principal-to-principal basis and at arm's length. The Tribunal noted that there was no mutuality of interest or flowback of sale proceeds between Rallis and FMC. The reduction in assessable value was deemed incidental and in accordance with the law.5. Penalties Imposed Under Various Sections and Rules:The Tribunal found no justification for the penalties imposed on Rallis and FMC. It was concluded that Rallis had acted lawfully with full disclosure to the Department and there was no evidence of deliberate violation of statutory provisions. Consequently, penalties under Section 11AC, Rule 25, and Rule 26 were not upheld. The Tribunal also noted that simultaneous penalties under Section 11AC and Rule 25 were not permissible.Conclusion:The appeals filed by Rallis and FMC were allowed, and the appeals by Revenue were rejected. The Tribunal ordered that the valuation of goods should be based on the principles laid down in Ujagar Prints and that the commission earned by Rallis should not be included in the assessable value. All penalties imposed were set aside. The judgment was pronounced in court on 5-8-2005.