Citation: M/s Coromandel Paints Ltd Vs The Commissioner of Central Excise, Visakhapatnam (2010-TIOL-1312-CESTAT-BANG)
Brief : M/s Coromandel Paints Ltd („the appellant?) are manufacturers of paints & varnishes, thinners falling under chapter 32 and 38 of the schedule to the Central Excise Tariff Act, 1985 („the Central Excise Tariff?). The appellant had entered into an agreement with M/s. Sigmakalon India Pvt. Ltd., Mumbai (SIPL) for manufacture and supply of paints. The paints manufactured by the appellant for SIPL were meant for industrial and institutional use, hence, in accordance with the provision of Standards of Weights and Measures Act, 1976, no MRP was required to be printed on such packages. Accordingly, the valuation of the same is not required to be done under Section 4A of the Central Excise Act, 1944 („the Central Excise Act?). Therefore, the appellant sold the said goods to SIPL by paying Central Excise duty on the transaction value i.e. on the landing cost of the raw materials and the production overheads. Further, the invoice amounts were adjusted against the advances paid by SIPL.
The Department demanded duty from the appellant on the ground, that the goods were being manufactured by the appellant on job work basis and the same were required to be assessed in terms of Rule 10A of the Central Excise (Determination of price of excisable goods) Rules, 2000 („the Valuation Rules?). The demand was upheld by the Commissioner of Central Excise (Appeals).
Being aggrieved by the order of the Commissioner (Appeals), the appellant preferred an appeal to the Customs, Excise and Service Tax Appellate Tribunal (“CESTAT?).
Contentions of the Appellant
• SIPL had approached the appellant for utilization of additional capacity available with the appellant and has entered into an agreement with the appellant for manufacture and supply of paints.
• The value which has been arrived in the agreement is a commercial one, based upon the cost of the material etc. and a marginal profit.
• The appellant has procured the raw materials from the vendors specified by SIPL only for the reason that the manufacture of paint for SIPL was for specific application and the quality needs to be maintained.
• The purchase of the raw materials was directly done by the appellant and cannot be considered as being directed by SIPL.
• Explanation to Rule 10A of the Valuation Rules defines a job worker as a person engaged in the manufacture or production of goods, on behalf of a principal manufacturer, from any inputs or goods supplied by the said principal manufacturer or by any other person authorised by him. The same is not applicable to the present situation.
• It is a settled principle that the supply of machinery on lease for procurement of raw materials from the advance paid cannot be considered as job work undertaken, as held in the CESTAT decision in the case of Gillette Diversified Operations Ltd. Vs. CCE, Chennai (2007-TIOL-2341-CESTAT-MAD).
Contentions of the Department
• The agreement indicates that SIPL has absolute control over the functioning of the appellant.
• The agreement provides explicit prohibition of the use of raw materials and packing materials for any other purpose than the manufacture of the products of SIPL.
• On termination of the agreement, all the packing materials and unused raw materials would be returned back to SIPL upon request.
• The consideration paid by SIPL to the appellant is only a compensation of Rs.5 per litre and additional profit of Rs.1 per litre, after meeting the cost of raw materials and packing materials. This indicates that the appellant is not allowed to freely decide the price or the value at which they have to sell the product.
Observations of CESTAT
The following observations were made by the Bench of the Hon?ble CESTAT –
• Clauses of the Agreement indicate the arrangement between the appellant and SIPL as principal to principal basis.
• There is nothing on record to indicate that SIPL had supplied raw materials or inputs or goods to be appellant for manufacturing, in order to bring the appellant into the category of job-worker and apply the provisions of Rule 10A of the Valuation Rules for the purpose of discharge of duty liability on the price of SIPL.
• As per the agreement, the appellant is not to bound to return the raw material / packing material without any charge.
• The compensation received by a person or a company, can be decided in any manner mutually acceptable to the contracting parties. Hence, the compensation which was based upon the material cost + additional specific profit, in itself cannot be used to establish that the relationship between the appellant and SIPL is that of a job worker and principal manufacturer.
• Merely indicating the vendors of the raw materials or by giving advance money for procurement of such materials or installing the equipment given by SIPL would not render the appellant as a job worker.
Conclusion:- Merely indicating the vendors of the raw materials or by giving advance money for procurement of such materials or installing the equipment provided by the buyer would not render one as a job worker.