Principal-agent valuation in job work: brand-owner control justified market-price assessable value, not conversion cost

A biscuit-manufacturing arrangement was treated as agency, not a pure job work contract, because the brand owner supplied materials, controlled specifications, quality, inspection, rejection, disposal of defective goods and scrap, and retained effective ownership and supervision throughout production. On that basis, the manufacture was not an arm's length factory-gate sale, so normal price under section 4 was not truly ascertainable. The assessable value was therefore to be determined by reference to the brand owner's market selling price under the valuation rules, rather than the job worker's cost plus conversion charges. The discussion distinguishes Ujagar Prints on the ground that it involved an independent job worker without comparable control by the brand owner.

---

---

Issues: (i) Whether the agreement between the biscuit manufacturer and the brand owner created a principal-agent relationship or only a job work arrangement; (ii) whether the assessable value of the goods was to be determined on the basis of the price at which the brand owner sold the goods in the market or on the basis of the job worker's cost and charges.

Issue (i): Whether the agreement between the biscuit manufacturer and the brand owner created a principal-agent relationship or only a job work arrangement.

Analysis: The agreement showed that the brand owner supplied the raw materials, controlled specifications, quality, inspection, rejection, disposal of defective goods and scrap, and retained control over the manufactured goods throughout the process. The manufacturer had to act under the brand owner's directions, account for goods and records, and had no real ownership or independent dealing in the goods. The clauses of the agreement, read as a whole, indicated control and supervision by the brand owner rather than an arm's length sale arrangement.

Conclusion: The relationship was one of principal and agent, not an independent seller-buyer or pure job work arrangement.

Issue (ii): Whether the assessable value of the goods was to be determined on the basis of the price at which the brand owner sold the goods in the market or on the basis of the job worker's cost and charges.

Analysis: Since the manufacturer acted as agent of the brand owner, there was no sale by the manufacturer to the brand owner at the factory gate in the course of wholesale trade. The normal price under section 4 had therefore not been truly ascertainable on the facts. The valuation had to proceed on the basis of comparable goods under the valuation rules, and the brand owner's wholesale selling price was the proper benchmark. The decision in Ujagar Prints was distinguished because that case involved an independent job worker processing goods without the same degree of control and agency relationship.

Conclusion: The assessable value was to be taken at the price at which the brand owner sold the biscuits in the open market, not at the job worker's cost plus conversion charges.

Final Conclusion: The appeal failed because the appellant was treated as an agent of the brand owner and duty was payable on the market price realised by the brand owner.

Ratio Decidendi: Where the terms of the agreement show that the so-called job worker manufactures goods under the brand owner's control, supervision and ownership, the arrangement is one of agency and the assessable value is not the job worker's conversion value but the market price of the goods sold by the brand owner.

---