Jurispruden tiol - Yesterday's Supreme Court Judgement
CENTRAL Excise - Valuation (prior to the 2000 amendment of Section 4) - Related Person - Normal Price - just because two companies are related by their holding/subsidiary relationship, the normal price does not change., especially when the goods were sold to related persons at a higher price than to independent buyers. Yesterday the Supreme Court delivered a masterly judgement on valuation, but may not be very relevant today as it primarily dealt with the valuation rules as existing prior to 1.7.2000.
The long journey began in 1995, when a Show Cause Notice was issued. Detergents India Limited, now Henkel Marketing India Limited, was at the relevant time a subsidiary of Shaw Wallace and Company Limited. 90% of the manufacturing capacity of Detergents India Limited was to manufacture various products for Hindustan Lever Limited which were then branded with Hindustan Lever names in small packs. The excess 10% capacity which was not mopped up by Hindustan Lever was sold to Shaw Wallace, its holding Company. Various other manufacturers/sellers also sold the same and similar products to Shaw Wallace and Company. A large number of these manufacturers were not subsidiary companies of Shaw Wallace and indeed had no business relationship with Shaw Wallace other than the sale of these products. The price paid by Shaw Wallace and Company for the purchase of the same/similar products from the other firms/companies was less than the price paid to Detergents India Limited.
The Department felt that as Detergents India and Shaw Wallace were related persons, the price paid by Shaw Wallace was not the normal price and the price at which Shaw Wallace sold the goods should be the price for excise valuation. In one of the cases, the Deputy Commissioner dropped the proceedings and his view was confirmed by the Commissioner (Appeals) and the Tribunal. However in another case, the Commissioner confirmed the demand, but Tribunal by majority set aside his order.
The Revenue is before the Supreme Court. The Supreme Court observed that just because Shaw Wallace and Detergents India are "related persons" by their holding/subsidiary relationship, it does not follow that there is any arrangement of tax avoidance or tax evasion. Further, the single most relevant fact, namely, that Shaw Wallace paid for the same/similar goods to unrelated suppliers at a price lower than the price paid by Shaw Wallace to DIL, has not been adverted to at all by the Commissioner.
So, the Supreme Court dismissed the Revenue appeal.
Please see Commissioner of Central Excise, Hyderabad vs Detergents India Ltd -
Jurispruden tiol - Supreme Court recent case
JUST a day before, the Supreme Court delivered another important judgement. In this case, the respondent is a manufacturer of medicaments having license under the provisions of the Drugs and Cosmetics Act, 1940. The respondent not only manufactures certain medicaments but also gets certain medicaments manufactured through other job workers so the respondent is a loan licensee - who is also permitted to get drugs manufactured at different places under the provisions of the Drugs and Cosmetics Act, 1940 and Rules made thereunder. Under the agreement entered into between the respondent on one hand and the job workers on the other hand, raw material as well as packing material is supplied to the job workers and as per the instructions of the respondent loan licensee, the job workers manufacture the medicaments under the supervision of the loan licensee, i.e. the respondent so as to see that the quality of the medicaments manufactured by the job workers is as prescribed by the loan licensee.
The Department was of the view that the respondent and not the job workers are the manufacturers and so they are liable to pay duty (on higher value). The Tribunal allowed the appeal and Revenue is before the Supreme Court. The period in dispute is from 1998 to 2003.
The Supreme Court observed that the term 'manufacturer' or the loan licensee used under the provisions of the Drugs and Cosmetics Act, 1940 has nothing to do with the manufacturing activity or term 'manufacture' under the provisions of the Central Excise Act, 1944 and whether a person has manufactured a particular item or whether a person is a manufacturer is a question of fact. Once the Tribunal, after appreciating relevant evidence, has come to a conclusion that the job workers were the manufacturers and the respondent - the loan licensee, was not the manufacturer, there is no reason to interfere with the said findings of fact, especially when the same is correct and not perverse.
The Supreme Court upheld the findings arrived at by the Tribunal that the job workers are the manufacturers and observed,
Once it has been determined that the job workers are the manufacturers, the assessable value of the goods would be a sum total of cost of raw material, labour charges and profit of the job workers, as per circular No.619/10/2002-CX dated 19th February, 2002 and the law laid down by this Court in the case of Pawan Biscuits and other cases. In such a case, the price at which the respondent brand owner sells its goods would not be the assessable value because the duty is to be paid at the stage at which the goods are manufactured and not at the stage when the goods are sold .
Thus the Revenue Appeal was dismissed.