ORDER
S.L. Peeran, Member (J)
1. Both these appeals raise a common question of law and facts. They arise from OIO No. 09/98 dated 22.10.1998 and OIO No. 3/99 dated 15.03.1999. The Revenue proceeded by issue of respective Show Cause Notice on the same issue calling upon the Respondent M/s. Nestle India Ltd. to show cause as to why M/s. Nestle India Ltd. should not be held to be the manufacturer, under Section 2(f) of CE Act, of Nestle Chocolates manufactured at the Chocolate factory of M/s. Campco at Puttur and why M/s. Campco Ltd. should not be held to be the agents of M/s. Nestle India Ltd. The second ground was that the assessable value of Nestle brand chocolates should not be re-determined by taking challan price of M/s. Nestle as the correct value after allowing the permissible deductions and differential duty amounts as shown in the respective Show Cause Notice for the period September 1990 to July, 1993 (OIO No. 9/98 dt.22.10.98 in E/1686/1999) and from 4/90 to 8/90 (OIO No. 3/99 dt. 15.03.99 in E/176/2000). As the issue is common in both these appeals, the appeals are taken up together for disposal as per law.
2. The respondent M/s. Campco contended that they had entered into an Agreement to manufacture the goods in terms laid down in the Agreement. Both are independent factories. M/s. Campco is a Cooperative Society and also engaged in the manufacture of goods independently in their own name as well as a job worker on behalf of M/s. Nestle India Ltd. They had their own factory with independent registration under the Factories Act and Sales Tax Act. The factory had a licenced capacity of 8800 MT per annum and investment of nearly Rs. 14 crores. M/s. Nestle India Ltd. is a multi-national company who had given on job work raw materials to M/s. Campco for manufacture and supply of Nestle Chocolates. Both are independent units and are not related. There is no flow back of funds and there is no mutuality of interest between each other. The relationship is on principal-to-principal basis and, therefore, it was contended by both the persons that the price of M/s. Nestle India Ltd. cannot be adopted. The ground for proceeding against the assessee for rejecting their price and for adopting the price of M/s. Nestle India Ltd. was loan furnished by M/s. Nestle India for purchase of certain machineries. This was denied by the respondents that the loan granted for purchase of machinery had any effect on the pricing of the goods. There was no extra consideration given by M/s. Campco to M/s. Nestle on that basis. The Commissioner was satisfied with the submissions made by both units of being independent units and working at arm’s length and on principal-to-principal basis. He accepted the contention of the respondents that they were job workers and the price adopted for the job work should be accepted and not the selling price of M/s. Nestle India Ltd. The relevant portion of his finding in paras 9.2 to 9.5 in OIO No. 9/98 dated 22.10.1998 (E/1686/99) is reproduced herein below:-
9.2. Now, in the instant case, though it is true that Nestle had given interest free loans to Campco, there is no evidence to show that Campco had adopted a lower assessable value for the clearance of Nestle products. The price adopted by Campco for clearances of their own branded chocolates and the price adopted for the job-work clearances of Nestle are not comparable and as such, it cannot be said with certainly that Campco adopted a lower selling price in consideration of the interest free loan extended by Nestle. The investigating officers had merely invoked the related person concept without bringing in evidences to prove that price was not the sole consideration of sale in their allegations against Campco for adopting the Nestle price, They had not proved with evidences that there was some more consideration over and above the selling price which had disturbed the normal selling price visualised under Section 4 of Central Excises Act, 1944. Thus, I do not find that the extension of huge advances by Nestle had, in anyway, coloured/disturbed the “normaley” of the selling price adopted by Campco for their job work clearances of Nestle products.
9.3. Further, the practice of showing the outstanding amount of advance extended by Nestle to Campco towards payment of excise duty as “miscellaneous advances” in the Balance Sheet of Nestle also reflects only a normal accounting practice Normally, in any job-worker’s bill raised for recovery of processing charges the excise duty paid by the job-worker on the value of the goods manufactured on job-work basis would also be mentioned. In the instant case, since Nestle had been paying such amounts in advance (even before the actual clearances by the job-worker) they are not shown in the processing charges bill. Further, in view of the payment which is in the nature of an advance/temporary loans, any outstanding amount at the end of the year which was not utilised for payment of excise duty by Campco would naturally be shown in the assets side of the Balance Sheet of Nestle as Miscellaneous advance; drawing conclusions that Nestle was the real manufacturer and that Campco was a dummy merely based on such instances of accomodative practices followed by Nestle is not correct and justified since such practices, as explained above, are otherwise found normal and had not in any way helped the investigation for invoking the related person concept.
9.4. Thus, I conclude that the justification in the show cause notice for treating Nestle as the real manufacture in respect of the transactions relating to job-work manufacture of Nestle brand products at Campco factory and for adopting the Nestle’s selling price for such clearances by Campco is inadequate. In such cases, we have to take recourse to well settled principles and practices enacted by the Apex Court and other legal forums only. The Supreme Court’s decision in the Ujagar Prints case 1989 (39) ELT 493 (SC) clearly spells out the guidelines to be adopted in respect of valuation of goods produced on job-work basis and settles once for all the disputes relating to the prices to be adopted in such cases. The judgment in MRF case etc. 1995 (77) ELT 433(SC) are only a refinement of the Ujagar judgment without altering the basic ruling. In terms of Notification No. 305/77-CE, dated 5.11.1977, issued under Rule 174 of Central Excise Rules, 1944, when goods owned by one person are manufactured by another person, the owner of the goods is required to give a declaration to the job-worker as to what would be the price at which he would be selling the goods (manufactured on job-work basis) in the market and that price would be taken by the Central Excise Department as the assessable value of the goods so manufactured by the job worker. In the Ujagar Prints case cited above, the Supreme Court had held that such prices (i.e., the price filed in the declaration given under Notification No. 305/77) would include only the cost of raw materials + job charges and expenses the job-worker’s profit, but not any subsequent profit or expenses subsequent to such clearances and that it was not necessary to include trader’s profit who gets the goods manufactured on job-work basis because that would be a post manufacturing profit.
9.5. Now, applying the essence of the above judgment to the instant case, find that adoption of Nestle’s price would only be artificially inflating the assessable value without any necessity. It is not just enough to allege that there was a flowback due to interest foregone on advances, but it is equally essential and a must to prove that the price adopted for such job-work clearances was abnormally low when compared with the normal selling price which is otherwise adopted for regular clearances and that such a value equivalent to the interest foregone which when added to such job-work clearances prices would make the same a normal price as contemplated under Section 4 of the Central Excises Act, 1944. Here, there is no such substantiation done by the investigating officers against Campco. Hence, I hold that there is no necessity for adoption of Nestle selling puce for the clearances of Nestle products manufactured at Campco on job work basis.
3. The findings recorded by the Commissioner in paras 10 to 11 in OIO No. 3/99 dated 15.03.1999 (E/176/2000) is also reproduced herein below:
10. I find this allegation not sustainable. Firstly, the investigating officers were alleging that for Nestle products manufactured at Campco, the Nestle price were to be adopted. But, surprisingly, alongwith the same arguments, they were also projecting the issue of commitment charges on semi-finished goods borne by Campco and sought to demand duty on the same. If Nestle prices were to be adopted, then the proposal for demand of duty on certain portion of commitment charges which were not included in the assessable Value would not arise since the Nestle price itself would be an all inclusive price or rather ‘Normal Price’ under Section 4 of Central Excise Act, 1944. The proposal to invoke Nestle price as well as to levy duty on commitment charges cannot take place simultaneously since both are contradictory to each other. As such, the proposal itself is prima-facie infructuous and legally incorrect. Secondly, it is not clear from the Statement of Grounds enclosed to the show cause notice whether the said commitment charges applicable to the semi-finished goods were actually paid by Nestle, and the same had not been included by Campco in the assessable value. It is only alleged that the commitment charges was bifurcated and certain amount apportioned as identifiable wit the semi-finished goods were borne by Campco itself since Nestle never lifted such semi-finished goods; and such commitment charges borne by Campco were to form part of the assessable value and duty was to be paid on the same, If Nestle didn’t lift those goods, then what is the nature of their disposal? Was Campco permitted to dispose them off at their own will and pleasure? Or did they remain in stock without being cleared to Nestle? Thus, I find the proposal to demand duty on commitment charges pertaining to semi-finished goods is purely on imaginary grounds. The question of demand would arise only in cases where such charges paid by Nestle were not included by Campco in their Assessable value and declared the same in the price lists filed to the Department. Here, the investigation has not provided evidences to answer these queries. As such, I do not find any basis for demand of duty on commitment charges.
10.1 Further, the Hon’ble Supreme Court had held in the case of Collector v. Indian Oxygen 1998 (36) ELT 730 (SC) that, liquidated damages recovered by assessee for non-performance of contract being profit for the manufacturer, not includible in the assessable value since the same was actually compensation of non-performance and not a price for the manufacture. The CEGAT, New Delhi, in the case of Spring Fresh Drinks v. CCE had followed the above said judgment of the Hon’ble Supreme Court and had held that “compensation, recovered for not lifting the entire contracted quantity of aerated water, cannot be added to the assessable value as they would represent profits of ancillary nature.”
10.2 In the instant case, Nestle had treated the commitment charges as exceptional debits in their Profit and Loss Account i.e. some sort of fine or penalty for non-performance. It is true that such commitment charges are directly proportional to the quantity committed to be lifted by Nestle but such fact simply does not make it includible in the selling price. It is not clearly established in the Show cause notice that Nestle had made certain extra payments in the guise of commitment charges. Secondly, the investigation also had not proved with any evidences that part of the normal selling price due on the goods were being collected in the guise of commitment charges to reduce duty incidence. When the investigation is of the opinion that Nestle price is the real assessable value then there is no meaning in saying that commitment charges had not formed part of the value and duty discharged on the same.
11. Further, I find, there is also a proposal to demand duty of Rs. 552.75/- on the shortage of 2 cases of R.D. Chocolates and Rs. 1,104.18/- on the shortage of 4 cases of Bingo chocolates noticed by Superintendent of Central Excise, Hqrs. Preventive, Belgaum on 21.09.1992. The issue was under protracted correspondence for quite some time. Campco had admitted that the shortage of 2 cases were at partially packed stage (not a stage for entry in RG1), and that 4 cases of Bingo chocolates were diverted for laboratory purposes and that the above discrepancies occurred during trial production. Having been aware of the issue for quite a long time, the Superintendent (Prev.) ought to have raised the demand for such shortages then itself. It is not clear, how, an issue totally not related to ‘the issues’ being investigated by the Anti-Evasion officials became part of the present Show cause notice. It suffers from a lot of infirmities and also appears to be time barred.
4. We have heard both sides in the matter.
5. The learned SDR took us through the grounds made out in the appeal and contended that M/s. Nestle India Ltd. had advanced huge amounts of more than Rs. 4.5 crores in investment for purchase of Plant and Machinery. That itself is a sufficient ground to reject the assessable value of M/s. Campco and to proceed on the sale price of M/s. Nestle India Ltd. It is contended that the relationship between M/s. Campco and M/s. Nestle India Ltd. was not on principal-to-principal basis.
6. The learned Counsels submitted that this advance of the amount has not effected the pricing and the price, at which the other job workers manufacturing the goods, was same as in respect of the goods manufactured by M/s. Campco. M/s. Cameo was not given any preference because of the loan taken by them. There was no mutuality of interest between each other and that M/s. Campco was not a dummy. There was no suppression of facts and, therefore, the question of rejecting the assessable value of M/s. Campco does not arise. They also submitted that the Commissioner has given a correct order in the light of the law laid down. They further referred to the ruling rendered by the Apex Court in the case of Pawan Biscuits Co. (Pvt.) Ltd. v. CCE, Patna wherein, on a similar circumstance, the Apex Court has allowed the assessees’ appeal in the light of the Apex Court judgment rendered in the case of Ujagar Prints and Ors. v. UOI and Ors. 1989 (39) ELT 493(SC). It is submitted that the assessable value declared by the job worker should be accepted and not the selling cost of the supplier of raw material. The learned Counsels also submitted that in the absence of an appeal by Revenue against M/s. Nestle India Ltd., this appeal is not sustainable and in this regard, they rely on the following judgments;-
1. CCE, Rajkot v. Sompura Ceramics
2. CCE, Mumbai v. Maganlal Nandlal & Sons
7. The learned SDR submits that the appeal against M/s. Nestle India Ltd. was dismissed on time bar and the Revenue is in appeal before the High Court and, therefore, this ground should not be entertained.
8. On a careful consideration, we notice that the Revenue appeal against M/s. Nestle India Ltd. has been dismissed on time bar. The Tribunal, in the case of CCE, Mumbai v. Maganlal Nandlal & Sons case has held that when an appeal is filed by the department against only one firm without impleading the other two firms, then the appeal is not maintainable in an issue where clearance of all the three are proposed to be clubbed. In the case of CCE v. Sompura Ceramics, the appeal of the Revenue was dismissed on a similar ground. The Revenue had filed an appeal against a single unit. They were proceeding to club the clearances of more than one unit. The appeal against the other unit had been dismissed as barred by time. Therefore, in that situation also, the other appeal was dismissed as not maintainable. In view of these judgments, the contention raised by the learned Counsels that in the absence of an appeal against M/s. Nestle India Ltd. and the appeal of M/s. Nestle having been dismissed, these appeals are required to be rejected, is to be accepted in the light of the judgments.
9. We also take the issue on merits and find that the Commissioner’s reasoning to drop the Show Cause Notice is correct in law. M/s. Nestle India Ltd. was supplying the raw material. They had given loan for purchase of machinery but it had not influenced the pricing and the assessable value of the goods manufactured by the assessee as an independent job worker. The value of the job worker alone is required to be adopted in terms of the Apex Court judgment rendered in the case of M/s. Pawan Biscuits Ltd. (cited supra) which has followed the earlier judgment of the Apex Court rendered in the case of M/s. Ujagar Prints (cited supra). There is no flow back of funds and the assessee herein does not have interest in M/s. Nestle India Ltd.’s profits. There is no mutuality of interest and the relationship was on principal-to-principal basis. In view of this settled position of law, dropping of proceedings by the Commissioner in both these orders is correct, legal and proper. There is no merit in these appeals and the same are rejected.
(Operative portion of this Order was pronounced in open court on conclusion of hearing)