ORDER
K.L. Retkhi, Member (T)
1. The respondents are not represented today. They have requested us to consider their written submissions. We have done so. We have also heard the learned representative of the department.
2. On careful consideration of the matter, we find that, the respondents are textile processors. Certain manufacturer-Exporters of garments buy grey cotton fabrics and artificial silk fabrics from the market and send them to the respondents for processing. The respondents dye/print these fabrics on recovery of processing charges. Since the fabrics so processed are liable to central excise duty on ad valorem basis, and there being no sale thereof, a dispute -arose in these proceedings as to how their value should be determined for assessment of central excise duty. The authorities found that sale price of comparable goods was not available and so they took resort to best judgment assessment under Rule 7 of the Central Excise valuation Rules, 1975. The Assistant Collector held that assessable value of the processed fabrics should be the sum total of –
1) value of the grey fabrics, 2) transport charges for bringing the grey fabrics to the respondents' factory, 3) processing charges recovered by the respondents and 4) gross margin of profit of the manufacturer-exporter of garments (assessed by the Assistant Collector at 10%). The respondents felt aggrieved at inclusion of the profit element at (4) above and appealed to the Collector (Appeals) who agreed with them. The department is now in appeal before us to have the Assistant Collector's order restored. While the respondents, through their cross-objection, want the Collector (Appeals)' order up-held.
3. The department relies on the Supreme Court judgment in the case of Shree Agency 1977 ELT (J 168) to plead its point that the garment exporter is the real manufacturer of the processed fabrics and since he uses the processed fabrics captively for manufacture of garments etc; his margin of profit should form a part of the assessable value of such fabrics in accordance with Rule 6(b)(ii) of the Valuation Rules. We find no parallel between the facts of M/s. Shree Agency’s case and the facts, on record, of the respondents’ case. Shree Agency’s case concerned a master-weaver who so organised his operations-right from the stage of financing certain powerloom units of Ichal Kranji to the stage of final disposal of all. the cloth woven by them and including supply of sized yarn on beams, specification of the cloth to be woven, getting the cloth processed at Bombay and looking after its bailing, forwarding and sale – that nothing was left with the powerloom units except their weaving charges. Though outwardly it was made out that the powerloom units were the manufacturers of fabrics on their own account, the real situation was that these units knew nothing about where the yarn came from and where the cloth went to. The powerloom units shared no profit in the sale of cloth. The Supreme Court saw through this facade and Ruled that in the facts and circumstances of this Case the master weaver was the real manufacturer of the fabrics, the position of powrloom units being no better than the hired labour of the master-weaver. In the case before us, the department wants us to pronounce the respondents as mere dummies of the garment exporter. But, as has been pointed out by the Collector (Appeals) also, the department has brought on record no evidence whatsoever to warrant such a conclusion. There is nothing to controvert the contention of the respondent that they were an independent processor working with their own capital, plant and machinery, dyes, chemicals and labour and that they were free to process any customer’s fabrics on payment of charges determined by the respondents themselves. In the facts of the case before us, the garment exporters cannot be held to be manufacturers of fabrics just because they own the fabrics and send them to the respondents for processing 1979 ELT J 597 (Allahabad) and 1979 ELT J600 (Andhra Pradesh).
4. The matter of valuation of fabrics processed by independent processors has more recently been dealt with by the Supreme Court in their judgment in the case of Empire Industries Ltd. and Ors. 1985 (20) ELT 179 (SC). In paragraph 47 of this judgment, the Supreme Court has held that the assessable value in such cases should be “the intrinsic value of the processed fabrics which is the price at which such fabrics are sold for the first time in the wholesale market.” In the case before us, since the fabrics are not sold and the finding of the lower authorities is that sale price of comparable fabrics is also not known, resort has to be made to the best judgment assessment under Rule 7. The first three elements of cost mentioned in paragraph 2 above are certainly a part of the intrinsic value of the processed fabric. The cost of the grey fabrics already includes the margin of profit of the weaving unit. Similarly, the job charges recovered for processing the fabrics also include the margin of profit of the processor. The weaving unit and the processor are the only two manufacturers involved. Since the garment exporter is not a manufacturer of these fabrics but the user thereof, his margin of profit cannot form a part of the assessable value of the processed fabrics.
5. The learned representative of the department argued before us during the hearing that the first three elements of cost specified in para 2 above do not exhaust all the elements that ought to go into the intrinsic value of the processed fabric. He argued that if the processed fabrics had belonged to the processing unit itself, it would have added the interest which it would have to bear on the investment cost of the grey fabrics. There could be other similar elements of cost also. While we do see some force in this argument, the case before us is not for inclusion of the interest on investment cost of the grey fabrics or of any other identifiable element of cost up to the stage of clearance of processed fabrics. The case before us is, on the other hand, for including the gross margin of profit of the garment exporter. For this we find no justification.
6. In the circumstances, we dismiss the appeal. Since the cross objection of the respondent does not seek any further relief, the same is also dismissed.