1997 (3) TMI 216 - AT - Central Excise

Tribunal overturns order, values biscuits on declared price, no principal-agent relationship, show cause notices time-barred.

The Tribunal set aside the impugned order and allowed the appeal. It concluded that the assessable value of biscuits with the brand name HORLICKS should ... Valuation - Related person - Price based on quantities purchased - Demand - Limitation Issues Involved:1. Assessable value of biscuits with the brand name HORLICKS.2. Alleged principal-agent relationship between appellant and HMM Ltd.3. Suppression of facts and invocation of the extended period under Section 11A(1) of the Central Excise Act.4. Validity of the show cause notices issued beyond the prescribed period.Detailed Analysis:1. Assessable Value of Biscuits with the Brand Name HORLICKS:The appellant was manufacturing biscuits under the brand name HORLICKS and selling them to HMM Ltd. The dispute centered around the assessable value of these biscuits. The appellant filed price lists and cleared goods on payment of appropriate duty. However, the Superintendent issued a show cause notice demanding differential duty based on the sale price of HMM Ltd. to their wholesale dealers, rather than the prices declared by the appellant. The Collector proposed to discard the value declared by the appellant and adopt the wholesale price of HMM Ltd. The appellant argued that the agreement terms did not justify the Collector's inference that the manufacture was on behalf of HMM Ltd. The Tribunal found that the Collector's decision to base the assessable value on HMM Ltd.'s wholesale price was erroneous.2. Alleged Principal-Agent Relationship Between Appellant and HMM Ltd.:The Collector concluded that the appellant was manufacturing biscuits on behalf of HMM Ltd., based on the terms of the agreement dated 24-1-1986. The agreement included provisions for quality control, storage, and inspection by HMM Ltd., which the Collector interpreted as indicative of a principal-agent relationship. The appellant contended that these provisions were standard quality control measures and did not imply control over the manufacturing process by HMM Ltd. The Tribunal agreed with the appellant, stating that the agreement's terms were aimed at ensuring quality control and did not establish a principal-agent relationship. The manufacturing activity was carried out by the appellant on their own account and at their own risk.3. Suppression of Facts and Invocation of the Extended Period Under Section 11A(1) of the Central Excise Act:The show cause notices alleged suppression of facts, including the receipt of Rs. 5 lakhs as an advance and the existence of the agreement dated 24-1-1986. The appellant argued that the agreement had been produced before the Superintendent in April and May 1986, and the advance had no impact on the price. The Collector did not rely on the advance in the final order but based the finding on the agreement terms. The Tribunal found no evidence of suppression of relevant facts by the appellant. The Collector's order did not establish that the appellant was guilty of suppression, and thus, the extended period under Section 11A(1) could not be invoked.4. Validity of the Show Cause Notices Issued Beyond the Prescribed Period:The demand covered the period from April 1988 to April 1989, with show cause notices issued on 16-6-1989 and 7-12-1990, beyond the six-month period prescribed in Section 11A(1). The Collector invoked the larger period under the proviso to Section 11A(1), alleging suppression of facts. The Tribunal found no factual basis for suppression and held that the proviso could not be invoked. Consequently, the notices were barred by time.Conclusion:The Tribunal set aside the impugned order and allowed the appeal, concluding that the assessable value should be based on the appellant's declared price, there was no principal-agent relationship, no suppression of facts, and the show cause notices were time-barred.