ORDER
Gowri Shankar, Member (T)
1. This appeal is against the order of the Commissioner (Appeals) dismissing the appeal against the order of the Asst. Collector rejecting the claim filed by the appellant for refund of duty paid in excess.
2. The claim for refund arises in the following manner. Various textile processors among whom the appellant was one had filed in 1979 a writ petition before the Bombay High Court disputing levy of duty on processed fabric on the ground that such processing did not amount to manufacture. On the petition being dismissed by the High Court, they filed an appeal before the Supreme Court in which an additional ground was also taken that, if the process amounted to manufacture duty was payable only on the value of the job work done and not, as was the practice, on the sale price of the supplier of the grey fabric. It appears that while the matter was pending before the High Court no duty was paid, although this point is not entirely clear. The Supreme Court passed interim order for deposit in cash of half the past due and executing bank guarantee for the reminder. The Court also directed execution of a bank guarantee with regard to future liability for the disputed portion of the value requiring duty to be paid, on the undisputed portion. The Supreme Court finally passed orders in the case of Ujagar Prints vs. UOI followed by clarificatory order holding that the process amounted to manufacture and that the duty would be paid on the cost of job work plus profit of the job worker. The High Court directed valuation of the goods on the basis of the Supreme Court judgement.
3. After a round of litigation the Asst. Commissioner passed order confirming the inclusion of the charges shown in the declaration filed by the supplier of the grey fabric in terms of notification 305/77 which included cost of raw material profit and job charges. The Commissioner (Appeals) dismissed the appeal against this order, leaving it open to the assessee to claim refund if it was eligible. Based upon this observation, the assessee filed a claim in March 1993 on the ground that the profit shown in the declaration filed by the supplier of raw material was the profit not of the job worker, but of the supplier of the raw material and hence not includable in the assessable value. The Asst. Collector rejected this claim for want of substantiation and this order was confirmed by the Commissioner (Appeals). Hence this appeal.
4. The item under dispute is one of the elements of wholesale selling price of the supplier of the raw material. By virtue of notification 305/77 which exempted job workers from licensing control the “merchant manufacturer” i.e. supplier of the fabric was to authorise the processor to manufacture the goods and comply with the provision of the law. Such supplier was required to file a declaration to the jurisdictional authorities indicating the wholesale selling price of each variety of fabric and to break up the wholesale selling price into cost of grey fabric job charges and profit. Appellant’s claim is that this profit is the profit of the supplier of the grey fabric and not the profit of the processor. The representative of the appellant contends that this cannot be anything else because the declaration was signed by the supplier of the raw material and he would have no means of knowing, that the profit of the job worker would have been.
5. As have observed above, this matter had undergone various rounds of litigation earlier. Consequent upon the High Court’s order, the department was to reassess the value. Subsequently, the matter came up before the Asst. Collector who rejected this contention and thereafter to the Collector (Appeals) who remanded the case to the Asst. Collector. That authority once again confirmed the demand in his order passed in July 1992 on the ground that the appellant despite sufficient opportunity being given, could not show that the manufacturing profit was and did not any evidence in support of the claim that what was mentioned in the claim was profit of the supplier. Despite this order, no such evidence is claimed to have been produced either to the Collector (Appeals). It is clear that in the subsequent proceedings before the Asst. Collector or Collector (Appeals) no evidence have been produced. The representative of the appellant states that he has no evidence in support of the contention.
6. The question therefore is whether the claim made by the appellant is required to be accepted. The trade notice which prescribed the declaration is admittedly silent about the persons whose profit is being shown in the break up. Notification 305/77, as we have noted, prescribed a declaration to be signed by the “merchant manufacturer” i.e. the owner of the fabric who gets his fabrics processed on his account from anyone else. Various trade notices issued by the Collectors communicated the proforma of the declaration. One such is the trade notice no.43-CE dated 16.5.1986. The declaration that is annexed to the trade notice requires the owner of the fabric, the person sending it for processing to authorise the actual processor to manufacturer on his behalf man made fabrics and to comply with the provisions of the Act. The owner or the person sending the fabric is to authorise the processor to furnish information relating to the price at which “they are seeking (sic) the above goods to the department to enable them to determine the value of the goods …” The word “seeking” is clearly a misspelling for selling. The description of the fabrics is required to be given and its wholesale market price. The break up of the selling price declared above into fabrics, – job charges and profit is indicated. The question is whether profit referred to in the trade notice is the profit of the processor or the profit of the owner of the grey fabrics who gets them processed and subsequently sells them. From the words of the notification and the trade notice, it is clear that the departmental authorities considered the manufacturer to be the person who sends the grey fabrics for processing and subsequently sells the processed fabrics. This reflected the thinking at
the current time, that the owner of the fabric was the principal manufacturer and not the processor. The reference in the notification to the “merchant processor/manufacturer” is significant. If such “merchant manufacturer” were not to be considered the manufacturer, there would be no question of licensing him and hence granting him exemption from licensing control provided by notification 305/77. It is also clear that the basis of the valuation at the relevant time was the sale price of the “merchant manufacturer”. If the levy and therefore the value for such levy were at the stage of the first wholesale sale by the “merchant manufacturer” there would be no requirement for specification in the declaration specified in the trade notice in the profit of the processor. Of course, it has to be admitted that it not is entirely clear as to why a break up of the wholesale price in the cost of raw material job charges and profit was required; assessment at this wholesale sale stage could have been completed without this break up. Neither side was able to provide information in this regard. Whatever the reasons for that, we think that it is reasonable to conclude that the profit referred to as the profit of the seller and therefore not the profit of the job worker, the processor.
7. Further, the seller of the fabric would have no means of knowing the profit of the job worker. The seller would know what the job charges for the process were because that would be part of the contract between him and the job worker. But he would not be able to break-up further the job charges to actual manufacturing cost incurred by the processor and the profit earned by the processor. Normally no person in any trade would communicate the profit earned by him to any other person for reasons of privacy.
8. It has therefore to be concluded that the profit referred to in the declaration filed by the “merchant manufacturer” was a profit made by him in the sale of the fabric and not the profit earned by the job worker on processing. In this situation, it has to be held that the amount paid as processing charges to the job worker would include his profit, there being nothing to show that he received any sum from the “merchant manufacturer” towards processing of these fabrics other than these charges.The appellant has therefore made out a case on merit for payment of refund.Whether the refund is required to be paid to him, or to be credited to the
Consumer Welfare Fund would depend upon whether the ppellant is able to show as required in Sub-section (2) of Section 11B of the Act that the incidence of duty paid by him has not been passed on. Solely for this purpose, we remand the matter to the adjudicating authority.
9. The appeal is accordingly allowed and the impugned order set aside.