C.N.B. Nair, Member (T)
1. Appellant is a limited company which manufactures hair oil and lal dant manjan. These items are manufactured exclusively for supply to M/s. Dabur India Ltd. (for short, Dabur). The products are manufactured as per specifications of Dabur.
2. Appellants are paying duty on the goods manufactured by them and sold by them to Dabur at their sale price to Dabur. A show cause notice dated 12.07.1994 was issued alleging “Burman Laboratories Limited exists entirely for the benefit of Dabur and does not have a separate existence. Therefore, it appears that the sale of products by Burman Laboratories to Dabur could not be treated as sales in the normal course of wholesale trade as many other considerations as mentioned above decide the sale and that the price at which Dabur sells the products of Burman to their wholesale dealers should form the price for assessable value under Section 4 of the Central Excises and Salt Act, 1944. Duty would appear to be payable on that assessable value” (para 9 of show cause notice). Appellant resisted the demand and submitted that manufacturer and the buyer in the present case were related companies and the commercial relationship was entirely one between independent parties. They also submitted that there was no relationship other than purely commercial relationship between them and the price in such a transaction should form the assessable value for central excise purposes. They also relied on several decisions on the subject, in particular the decision of the Supreme Court in Sidhosons and Anr. v. Union of India and Ors., 1986 (26) E.L.T. 881. Their contentions failed before the adjudicating authority who confirmed the duty demand arising on account of treating sale price of Dabur as the assessable value. Penalty equal to the duty demanded was also imposed on the appellant. The finding in the order is that “the notice company has been created as a company by promoters of M/s. Dabur to avoid tax liability on value of the goods manufactured and cleared by them”. Reference has also been made to the following clauses in the Agreement to show Dabur and the appellants were having mutuality of interest in the business of each other:-
“(a) The notices sells branded goods strictly in accordance with the specifications and/or standard laid down by Dabur.
(b) The notices will permit Dabur and/or it’s representative to frequently visit premises, factory, offices, stores etc. of the notice where branded goods are manufactured and packed.
(c) The notice shall supply, on demand, samples of branded goods free of charge.
(d) The notice, shall not permit any third party to use the brand of Dabur.
(e) The notice shall not manufacture and/or market/cause to be manufactured, marketed or sold any goods. Similar to the branded goods under whatever trade mark other than the Brand of “Dabur”.”
(Para 29 of the order in adjudication)
3. It has been submitted before us on behalf of the appellant that the facts stated in the show cause notice, the agreement between the parties and other materials on the records of the case do not support either the contention that Dabur and appellants were related or that the appellant company was created by the promoters of Dabur to avoid tax liability. The show cause notice states that Shri G.P.S. Bhandari, General Manager, Dabur and Shri Ramesh Burman, Sales Manager, Dabur were the founders of M/s. Burman Laboratories. It is also stated that majority of shareholders in Burman Laboratories Limited are M/s. Devi Associates. The investment companies which invested in Devi Associates i.e. M/s. Param Expo and Weltime Investment Companies, Lucky Lab. Limited, Rachana Investment, Bhagvati Charitable Trust exist one in name and the actual control is exercised by Dabur through its officers. However, it has not been shown that G.P.S. Bhandari, General Manager and Ramesh Burman, Sales Manager were the promoters of Dabur and they created the appellant company to avoid tax liability.
4. Learned Counsel submitted that the appellants’ case is on all fours with the case of Sidhosons and Another (supra). In that case goods were manufactured by the petitioner and sold to Bajaj Electricals Ltd. after affixing the brand name ‘Bajaj’. Bajaj Electricals Ltd. marked up the price of the goods and sold them. Central excise authorities demanded duty at the price at which Bajaj Electricals Ltd. sold the goods. Supreme Court held that there was no warrant in central excise law for such valuation of the goods. We have heard learned Departmental Representative also.
5. Valuation of goods manufactured according to the specifications of the buyer, the brand name owner, has come up for decision before the Tribunal and the Apex Court in several cases. In the Sidhosons case, referred by the appellants; Counsel, the Apex Court noted that the price fetched by the goods manufactured by the petitioner company is the price of the electrical goods sans the brand name and that should be the market value for the purposes of assessing the excise duty payable by the petitioner company which manufactures the excisable goods. The enhancement in the value of the goods by reason of the application of the brand name is because of the augmentation attributable to the value of the goodwill of the brand name which does not belong to the manufacturers and which added market value does not accrue to the petitioner company or go into its coffers. It accrues to the buyers to whom the brand name belongs and to whom the fruits of the goodwill belong. Excise duty is payable on the market value fetched by the goods. The Court therefore ordered that the respondent shall levy excise duty on the basis of the price charged by the manufacturers to the buyers namely Bajaj Electricals Ltd.
6. In the instant case, the grounds indicated in the impugned order for holding the appellants to be having mutuality of interest are seen in para 29 of the impugned order quoted earlier in this order. The conditions in the agreement between the parties only state that the manufacturer shall manufacture the goods strictly in accordance with the specification and/or standard laid down by the buyer; the manufacturer will permit the buyer to visit manufacturer’s premises; sample of branded goods shall be supplied; branded goods would not be allowed to be used by third parties and that the manufacturer shall not independently manufacture and sell the branded goods to strangers. None of these conditions can be interpreted as making the brand name owner the manufacturer of the goods. These are normal commercial terms and they do not constitute mutuality of interest between the parties. Therefore the terms of this agreement are no ground for assessing the goods manufactured by the appellant to central excise duty at the value charged by the brand name owner. Similar case came up for consideration before the Supreme Court in the case of Pawan Biscuits Co. Pvt. Ltd. in Civil Appeal No. 1819 of 1991, decided on 20.07.2000 [2000 (120) E.L.T. 24 (S.C.)]. Their Lordships held, while reversing the decision of this Tribunal [1991 (53) E.L.T. 595] that similar terms in the contract between the manufacturer and the buyer is no ground for treating the buyer of the goods as the manufacturer or to take the sale price of the brandname holder for the purpose of assessing the duty of central excise. Thus, this issue is no more res Integra.
7. From what has been stated above, we are clear that there is no basis for holding Dabur India Ltd. to be the manufacturer in the present case or for adopting the sale price of Dabur India Ltd. as the assessable value for the purpose of assessment of the goods manufactured by the appellant herein. Accordingly, appeal filed by the assessee is allowed and the impugned order is set aside in its entirety with consequential relief to the appellants. Appellant had deposited an amount of Rs. 20 Lacs in terms of Stay Order No. 60/2000-A dated 07.04.2000. That amount shall be returned to them without any delay.
8. Before parting with this case it may be noted that the word of caution expressed by Their Lordships of the Supreme Court in the decision in Sid-hosons and Anr. v. Union of India and Ors., 1986 (26) E.L.T. 881 is being misunderstood by the officers of the Department even after a lapse of 14 years therefrom. Had the officer who passed the impugned order substituted the name of Sidhosons for Burman Laboratories and Bajaj Electricals Ltd. for Dabur India Ltd. and read the judgment in the proper perspective, he would not have fallen into the error of misunderstanding the judgment conveniently.