Full Judgment
3. Shri Satish Kumar, the learned JDR who has appeared on behalf of the respondent a lied on the order-in-original and pleaded that prima facie the revenue has got a good case on merits. However, he stated that the decisions cited by the learned advocate though similar to facts and circumstances, but each and every case has to be looked into. He pleaded for the rejection of the stay application.
4. We have heard both the sides and have gone through the facts and circumstances of the case. The facts are not disputed. The applicant is manufacturer of Arnica hair shampoo and sells the same to M/s. Bakson Homoeo Pharmacy Pvt. Ltd. with the brand name of "Sunny". Hon'ble Supreme Court in the case of Sidhosons and Anr. v. Union of India and Ors. reported in 1986 (26) ELT 881 (SC) : 1986 (9) ECR 545 (SC) : ECR C 1012 SC had made a reference to all the earlier decisions on the subject. Para No. 1 from the said judgment is reproduced below: The question raised in this Writ Petition under Article 32 of the Constitution of India is as regards the determination of the market value of the goods manufactured by the petitioner company for the purposes of computation of the excise duty leviable on the same. The petitioners (manufacturers) are manufacturing electrical goods under a contract with another company known as the Bajaj Electricals Ltd. (hereafter referred to as buyers). The agreement between the parties provides for the buyers having the right to reject the goods if the goods are not in accordance with the buyers' specifications or do not come up to the stipulated standard or quality. After the manufactured goods are tested, approved and accepted by the buyers, the manufacturers apply the label of the brand name of the buyers (in this case 'Bajaj') on the manufactured goods. The petitioners contend that the market value of the goods manufactured by the petitioners should be assessed at the price at which the goods are agreed to be sold under the agreement between the manufacturers and the buyers. On the other hand the respondent contends that the excise duty must be levied on the basis of the market value fetched by the sale of these goods by the buyers to their wholesalers. The goods manufactured by the Petitioner Company, which are accepted by the buyers and to which the brand name label 'Bajaj' is applied are sold by the manufacturers to the buyers at the stipulated price and to none-else. They are not at all sold in the open market by the manufacturers. The right to sell these goods with the brand name is solely and exclusively that of the buyers having regard to the fact that they alone are the owners of the brand name 'Bajaj. 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 docs 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, in the wholesale market at the factory gate manufactured by the manufacturers. It cannot be assessed on the basis of the market value obtained by the buyers who also add to the value of the manufactured goods the value of their own property in the goodwill of the 'brand name'. The petitioners are, therefore, right and the respondents wrong. This point is covered by earlier decisions of this Court, namely, (1) Union of India v. Cibatul Ltd. 1985 (22) ELT 302, (2) Joint Secretary to the Government of India v. Food Specialities Ltd. 1985 (22) ELT 324 and (3) Civil Appeal No. 1496 of 1977 disposed of by a Bench of three Judges of this Court by its judgment dated 3rd April, 1986. The petition must, therefore, be allowed. The respondents shall levy excise duty on the basis of the price charged by the manufacturers to the buyers namely M/s. Bajaj Electricals Ltd. A word of caution is however called for. Our decision must be understood correctlynot misunderstood conveniently.
We, therefore, clarify that our pronouncement will not enable a manufacturer who manufactures and sells his goods under his own brand name or under a brand name which he has acquired a right to use. In such a case the sale price fetched by sales effected by him under such brand name in wholesale will be the basis for computation of excise duly payable by him. So also nothing said herein will come to the rescue of a brand name owner who himself is the manufacturer of goods or to sales effected in favour of 'related' persons as defined by the Act. The Bank guarantee, if any, furnished by the petitioners in the context of the present Writ Petition will stand discharged. No other point has been argued. The petition is allowed and the Rule is made absolute to the aforesaid extent. The Writ Petition is disposed of accordingly. There will be no order as to costs.
In the matter-before us, there is no finding that the purchaser viz.
Bakson Homoeo Pharmacy Pvt. Ltd. is a related person. Earlier the matter had come up before the Tribunal vide appeal No. 373/90-A and the same was disposed of vide order No. 235/90-A. Para No. 6 from the said judgment is reproduced below: 6. We have gone through the records of the case and have considered the arguments advanced from both sides. In our considered opinion, the contradiction pointed out by the learned advocate is apparent in the impugned order. We feel that on this ground itself the impugned order will deserve to be set aside and remanded to the Principal Collector for fresh adjudication after proper application of mind, according to the provisions of law. We, therefore, dispense with the deposit of duly and penalty and allow the stay application. We also set aside the impugned order and remand the matter to the Principal Collector, New Delhi for de novo adjudication in the light of what has been staled above. The applicants should be granted personal hearing before the matter is decided.
Thereafter, after the re-adjudication, the Collector has enhanced the duty amount to Rs. 10,88,440.70 from Rs. 6,76,622.20. The show cause notice is dated 19th December, 1988 and the period involved is 1986-88 and no fresh show cause notice was issued after the remand of the matter by the Tribunal. Tribunal in the case of O.K. Industries v.Collector of Customs reported in 1988 (37) ELT 207 (Tribunal) had observed that on be novo adjudication fine in lieu of confiscation and penalty to be re-determined not to exceed the amounts imposed in the impugned order. Para No. 7 from the said judgment is reproduced below: 7. As the impugned order is set aside and the matter is remanded for examination for the purpose of proper valuation of the goods in accordance with law, the adjudicating authority will be at liberty to re-determine the quantum of re-demption fine and penalty having regard to our findings that the description of the goods has been mis-declared and his decision on the point whether there is under-valuation of the goods, but such redemption fine and penalty should not exceed the fine and penalty imposed in the impugned order.
The Tribunal had the occasion to deal with the same product in the case of Neha Cosmetics v. Collector of Central Excise, New Delhi in appeal No. E/574/90-A stay application No. E/270/90-A vide stay order No.136/90-A dated 18th June, 1990. Paras No. 2 and 3 from the said judgment are reproduced below: 2. We have heard Shri Virmani, learned advocate for the applicants and Shri V.K. Sharma, learned Senior Departmental Representative for the respondent. Shri Virmani has argued that the applicants manufactured Arnica Hair Shampoo under the brand name of their customers M/s. Bakson Homoeo Pharmacy (P) Ltd. It is argued that they sold the goods to the latter on principal to principal basis.
The manufacture and sale of this shampoo was under an agreement between the applicants and M/s. Bakson Homoeo Pharmacy (P) Ltd. Collector has held that the applicants did not manufacture the shampoo on behalf of M/s. Bakson Homoeo Pharmacy. Instead of accepting the invoice value of the applicants as the assessable value of shampoo, the Collector fixed the assessable value on the basis of the sale price of M/s. Bakson Homoeo Pharmacy to their buyers. On the basis of assessable value fixed by the Collector, he has computed the value of clearances over Rs. 5 lakhs and demanded duty. The learned advocate has argued that after holding that the sale by applicants to M/s. Bakson Homoeo Pharmacy was on principal to principal basis, the Collector could not have fixed the assessable value on the basis of the sale price of the latter company. The applicants have, therefore, a strong prima facie case on merit in their favour. Shri Virmani has then argued that the demand for duty is time-barred. The learned advocate has also pleaded financial hardship of the applicants in depositing the duty and penalty. In this connection, he has drawn our attention to the copy of Balance Sheet of the applicants as on 31.3.1989.
3. We have gone through the records of the case and have considered the arguments. Merits of the case and the limitation of demands are arguable points. These can be appreciated after hearing full-fledged arguments at the time of hearing of the appeals. From the copy of the Balance Sheet we observe that the liquidity position of the applicants is far from satisfactory. They had cash in hand Rs. 278.35 and closing stock of Rs. 64,511.55 only. As against this, they had loans of Rs. 60,000.00, bank over-draft Rs. 12,353.06 and Sundry Creditors Rs. 956.87. We are, therefore, convinced that it will cause undue hardship to the applicants if they are asked to deposit even a part of the duty/penalty. In the circumstances, we dispense with the deposit of the same and stay the recovery thereof till the disposal of the appeal.
5. In the matter before us the facts are similar to the case of Mis.
Neha Cosmetics v. Collector of Central Excise, New Delhi and while disposing of the stay application in that case, the financial position of the applicant was also taken into account. The applicant has filed balance-sheet for the year ending 31st March, 1990. There is a net loss of Rs. 32,757.65 and the total capital of the applicant is at Rs. 34,801.51. The duty amount is at Rs. 10,88,440.70 and the penalty at Rs. 50,000.00. We had enquired from Shri Lakshmi Kumaran, the learned advocate during the course of arguments whether the applicant has got any other source of income. To this the learned advocate stated that applicant does not have any other source of income. This reflects that the liquidity position of the applicant is not good. Since the matter is sub-judice, further observations at this stage will not be proper.
We are of the view that prima facie the applicant has got a good case on merits and the liquidity position of the applicant is also bad. In view of the decision of the Supreme Court in the case of Spencer & Co.
Ltd., Madras v. Collector of Central Excise in application No. 332/84 in appeal No. 693/84, which was followed by the Tribunal in the case of Sonodyne Television Co. v. Collector of Central Excise, Calcutta reported in 1985 (22) ELT 582 : 1985 ECR 2532 (Cegat), the liquidity position of the applicant has also to be taken into consideration while disposing of the stay application. Relevant extract from the said judgment is reproduced below: We are in agreement with the contention of the counsel for the petitioner that the expression 'undue hardship' occurring in the proviso to Section 35F of the Central Excises and Salt Act, 1944, would include consideration, inter alia, of the aspect of liquidity possessed by the assessee. We are not inclined to take the view that the impugned order gives any indication that aspect has been completely ignored as was contended by counsel. With these observations, the special leave petition is dismissed.
6. In view of the above observations, we are of the view that if the applicant is desired to deposit the duty amount of Rs. 10,88,440.70 and penalty amount of Rs. 50,000.00, it will amount to undue hardship. We dispense with the pre-deposit of the same and further order that during the pendency of the proceedings, the revenue authorities shall not pursue the recovery proceedings.