TaxTMI 
TaxTMI 
2001 (4) TMI 118
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....ocessing of fabrics. This processing house was commissioned on 29-3-1995 and was subsequently leased out w.e.f. 16-6-1995 to BSL under an agreement between the two Cos. Consequent upon leasing, RSWML surrendered their Central Excise Registration as a processing house and BSL took out a new Central Excise Registration for carrying out processing in the process house. Thereafter, BSL was paying Central Excise duty in respect of all the textile processing carried out from the processing house. Later on the lease agreement with BSL was terminated and the processing house was leased out to PFTL. Upon this also, surrender of Central Excise registration and fresh registration were done and PFTL cleared goods on payment of duty from the Mordi process house. 4. The impugned order has held that the "lease agreement was a total sham" and "the process house was being operated under RSWML as its unit". Upon this finding, the impugned order held that duty was payable by RSWML in respect of the fabrics processed for them by BSL/PFTL treating the sale price of RSWML as constituting the assessable value of the fabrics. As a result of the consequential re-assessment of the goods, the impugned ord....
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....(39) E.L.T. 493 and the method adopted for arriving at the assessable values for processed fabrics was that of adding processing charges to the cost of the grey fabrics. It is their submission that this method of arriving at the assessable value of processed fabrics has been approved in the case of M/s. Ujagar Prints Limited by the Apex Court. They have submitted that the impugned order has accepted as correct, duty paid in respect of fabrics processed for all parties other than RSWML and no differential duty has been held to be payable in respect of the fabrics processed for other parties. The duty demand has been made only in respect of the fabrics processed for RSWML. It is the contention of the appellant manufacturers that there is no legal or rational basis for treating the processing work carried out for RSWML on a different footing from the processing work carried out for other parties with regard to Central Excise valuation. They have emphasised that this action was grossly illegal in view of the fact that the processing charges levied from RSWML and the other parties were the same or closely comparable. 5.2. It is the contention of the appellants that leasing of plant a....
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....period of lease and monitoring of the performance of the process house by the common promoters of the lessor and the lessee and that payment had not been made by the lessee strictly in accordance with the terms of the agreement. They have submitted that these aspects are not material for determination of assessable value for Central Excise duty. Further, these factors do not affect the independence of the parties or the purely commercial character of the transaction. The lessees paid the lessor rent for the period of lease of the equipment and the lessor paid the lessee for the processing work carried out for them. With the assistance of the accounts of the parties for the relevant period, the appellants' Counsel has argued that the transactions were entirely commercial between the parties and that full payment, including interest in respect of delayed payment had been made. They have submitted that quite apart from the fact that the leasing agreement and other commercial transactions were entirely beyond the scrutiny and judgment of tax authorities, the examination of all the relevant facts would show that the transactions were entirely commercial and no favours were given or take....
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....st of grey fabrics plus the process charges. He also pointed out that the working of the companies is being monitored by the group management and the Mordi process house continued to be figuring under RSWML even after its transfer on lease basis to BSL. He also submitted that the transaction between the parties was more a matter of book adjustment than an actual payment. He, therefore, submitted that the facts of the case justified treating RSWML as the real manufacturer who carried out textile processing from the Mordi process house and the lease agreement as sham. 7. The basic issue for determination in the present appeals is whether RSWML could be treated as manufacturer in respect of the fabrics processed on their behalf in the Mordi process house during the period when the process house was on lease to BSL/PFTL and whether any short levy of Central Excise duty has taken place. The undisputed facts of the case are that the process house was carrying out processing work for several parties during the period. The ratio between fabrics processed for RSWML and other parties was 60:40. A process house is basically a job work facility. Many parties place orders for processing of g....
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....the lease period, financial relations between the lessee and the lessor and the control of one over the other. Lease agreements were entered into between public limited Cos. There could be no questioning of their competence to contract. The fact of their being Cos. of the same group notwithstanding, the lease agreements were valid in law. The commercial wisdom behind the agreements is not open to questioning by tax authorities. The issue as to whether a transaction is genuine or not is required to be examined from the point of view of whether the transaction really took place and who is the beneficiary of the transaction. In the present case, since the transacting parties were fairly big public limited companies, there could be no doubt about their existence. The books of accounts of the Cos. and their Balance Sheets show clearly that each bore the responsibility for his end of the deal. RSWML continued to be responsible for the capital invested on the process house as its owner, while BSL and PFTL bore responsibility for paying the lease amount as well as for the running of the processing house. Each Co. paid the other for the assets or services received, including interest for de....