TaxTMI 
TaxTMI 
2025 (12) TMI 1850
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.... 04.10.2006, to the extent of proposing to determine the assessable value with reference to sale prices of trader Rallies India Limited (for short 'RIL') as illegal, void and inoperative and interdict the petitioner from proceeding further in pursuance of the said show-cause notice. 3. The facts of the case are that the petitioner is a manufacturing company based in Hyderabad. The petitioner entered into an agreement date 15.09.2001 with RIL for manufacturing of agro chemical formulation bearing brand name "Contaf 5E" (chemically know as Hexaconazole 5% EC). Under this agreement, RIL supplied all raw materials and packing material to the petitioner, who then manufactures the formulation according to RIL's standards, specification and quality control procedures. Once manufactured and packed as per RIL's instruction, the petitioner delivers the finished products at its factory gate to RIL, who then arranges for dispatch to its various depots after quality certification. According to the petitioner, the agreement clearly establishes that the petitioner operates purely as a job worker, who manufactured branded product for RIL. The relationship between the petitioner and the RIL is t....
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.... legal position in M/s. Ujagar Prints and Others (II) vs. Union of India and Others (1989) 2 Supreme Court Cases 488, M/s.Ujagar Prints and Others (III) vs. Union of India and Others (1989) 3 Supreme Court Cases 531 and Pawan Biscuits Co. Pvt. Ltd. vs. Collector of Central Excise, Patna (2000) 6 Supreme Court Cases 489 would continue to apply even after the amendment to Section 4 of the Act. The petitioner further submitted that the impugned show-cause notice was issued despite a detailed representation dated 03.10.2006 bringing the settled legal position to the respondent's attention, thereby demonstrating lack of application of mind and violation of principles of natural justice. 6. The learned counsel for the petitioner contended that the entire foundation of the impugned show-cause notice rests on a fundamental misunderstanding of both the law and the actual transaction between the parties. When the goods are cleared from the factory gate, that moment is marked as the completion of the sale transaction as far as the petitioner is concerned. This is not merely the petitioner's interpretation; but it is the law as declared by the Hon'ble Supreme Court in the M/s. Ujagar Prints....
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.... Rule 7 of the Central Excise Valuation Rules. Rule 7 is meant to apply when manufacturer transfers goods to his own depot and not someone else's depot. Now in the present case the depot belongs to RIL which is an independent company with which the petitioner has no relationship beyond that of a job worker. The petitioner does not own the depot, does not control what happens at the depot, does not know who RIL's ultimate customers are and has no say whatsoever in the pricing decisions RIL makes when selling to those customers. Moreover, the respondent is trying to force this transaction into Rule 7, but it simply doesn't fit as none of the conditions that Rule 7 requires are actually met here. There is a deemed sale at the factory gate, the goods are not transferred to the petitioner's depot, and the petitioner has no privity of contract with RIL's customers. The department has not only failed to prove that Rule 7 applies, but they also have ignored evidence that does not exist. 9. Subsequently, the learned counsel for the petitioner contended that they have submitted a detailed representation dated 03.10.2006, which was duly acknowledged by the respondent's office on the same d....
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....4/ -. Further, she submitted that the assessee determined the value based on the cost construction method which included only the landed cost of raw material, packing materials and job work charges with profit margin. However, this valuation method did not reflect the actual transaction value at which the finished goods were ultimately sold by RIL from their depots to end customers. 12. Learned counsel for the respondent-Department further contended that as per Rule 7 of the Central Excise Valuation Rules, 2000, where excisable goods are not sold at the time and place of removal but are transferred to depots or premises of consignment agents from where they are subsequently sold, the assessable value should be the normal transaction value at which such goods are sold from such depot or premises. In this case, since finished product "Contaf 5E" was cleared from the factory of the petitioner and transferred to various depots of RIL where actual sales to customers took place at significantly higher price, the duty should have been paid on the depot sale price rather than on the artificially constructed cost based value. 13. The learned counsel for the respondent-Department conte....
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....d customers at significantly higher prices reflecting the true market value. The mere fact that the depot belongs to RIL rather than the petitioner does not take the transaction outside the ambit of Rule 7 particularly when the petitioner and RIL operated in a coordinated manner and the actual realization of value occurred only upon sale from the depot. The purpose of central excise duty is to tax goods at their true value in the market and the arrangement between the petitioner and RIL, though structured as a job work agreement cannot be used as a device to artificially suppress the assessable value and evade legitimate tax liability. The respondent has rightly invoked Rule 7 to ensure that duty is paid on the normal transaction value at which goods were sold from the depot rather than on an artificially constructed cost-based value that bears no relationship to market reality. 16. On the question of limitation, this Bench finds that the invocation of the extended period of five years under the proviso (1) of Section 11A of the Act is fully justified and warranted in the facts and circumstances of this case. The petitioner's contention that there was no suppression of facts or ....
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.... 135 : (1975) 3 SCR 563] Bhagwati, J. speaking for the court said : (SCC pp. 507-508, para 12) The value of the goods for the purpose of excise must take into account only the manufacturing cost and the manufacturing profit and it must not be loaded with post-manufacturing cost or profit arising from post-manufacturing operation .... It may be noted that wholesale market in a particular type of goods may be in several tiers and the goods may reach the consumer after a series of wholesale transactions. In fact the more common and less expensive the goods, there would be greater possibility of more than one tier of wholesale transactions .... If excise were levied on the basis of second or subsequent wholesale price, it would load the price with a post-manufacturing element, namely, selling cost and selling profit of the wholesale dealer. That would be plainly contrary to the true nature of excise as explained in the Voltas case [A.K. Roy v. Voltas Ltd., (1973) 3 SCC 503 : 1973 SCC (Tax) 261]. Secondly, this would also violate the concept of the factory gate sale which is the basis of determination of value of the goods for the purpose of excise. There can, therefor....
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....sure of the tax. 75. In the case of processing houses, they become liable to pay excise duty not because they are the owners of the goods but because they cause the "manufacture" of the goods. The dimensions of Section 4(1)(a) and (b) are fully explored in a number of decisions of this Court. Reference may be made to the case of Bombay Tyres International [(1984) 1 SCC 467 : 1984 SCC (Tax) 17 : (1984) 1 SCR 347, 375]. 76. Consistent with the provisions of Section 4 and the Central Excise (Valuation) Rules, 1975, framed under Section 37 of the Act, it cannot be said that the assessable value of the processed fabric should comprise only of the processing charges. This extreme contention if accepted, would lead to and create more problems than it is supposed to solve; and produce situations which could only be characterised as anomalous. The incidence of the levy should be uniform, uninfluenced by fortuitous considerations. The method of determination of the assessable value suggested by the processors would lead to the untenable position that while in one class of grey fabric processed by the same processor on bailment, the assessable value would have to be determin....
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....e manufacturing profit and expenses for the processing be Rs 5, then in such a case the value would be Rs 30, being the value of the grey cloth plus the value of the job work done plus manufacturing profit and expenses. That would be the correct assessable value. 2. If the trader, who entrusts cotton or man-made fabric to the processor for processing on job work basis, would give a declaration to the processor as to what would be the price at which he would be selling the processed goods in the market, that would be taken by the excise authorities as the assessable value of the processed fabric and excise duty would be charged to the processor on that basis provided that the declaration as to the price at which he would be selling the processed goods in the market, would include only the price or deemed price at which the processed fabric would leave the processor's factory plus his profit. Rule 174 of the Central Excise Rules, 1944 enjoins that when goods owned by one person are manufactured by another the information is required relating to the price at which the said manufacturer is selling the said goods and the person so authorised agrees to discharge all the liabilit....
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....ould be the value of the grey cloth in the hands of the processor plus the value of the job-work done plus manufacturing profit and manufacturing expenses whatever they pay. The factory gate was to mean the "deemed" factory gate as if the processed fabric was sold by the processor. To make the position clear this Court gave the following example: (SCC p. 531, para 1) "[I]f the value of the grey cloth in the hands of the processor is Rs 20 and the value of the job-work done is Rs 5 and the manufacturing profit and expenses for the processing be Rs 5, then in such a case the value would be Rs 30, being the value of the grey cloth plus the value of the jobwork done plus manufacturing profit and expenses. That would be the correct assessable value." 15. It was further observed (at SCC p. 532, para 2) that the price at which the processing house sells the goods "must be the value of the grey cloth or fabric plus the value of the job-work done plus the manufacturing profit and the manufacturing expenses but not any other subsequent profit or expenses. It is necessary to include the processor's expenses, costs and charges plus profit, but it is not necessary to ....