Collector of Central Excise Vs. Paliwal Glass Works - Court Judgment

Excerpt:
1. respondent, a partnership firm, engaged in the manufacture of glass and glassware filed price list no. 11/81 effective from 10-8-1981 in respect of glass chimney falling under ti-23a (3) declaring prices as rs. 3.75 per dozen usco (bata type) chimney and rs. 3.50 per dozen 250 chimney. it appears that the entire production of the respondent was being sold to m/s. kalatmak, another partnership firm. it appears there were three common partners in the two firms. the superintendent of central excise (valuation) issued notice dated 3-7-1982 to the respondent stating that there are some common partners in the two firms, that the manufacturing process was being completed by m/s.kalatmak by grinding and embossing of the chimneys, that m/s. kalatmak was selling the products at rs. 7.25/- and rs. 7.50/- respectively and that the two partnership concerns are related persons and requiring the respondent to show cause why the prices charged by m/s. kalatmak from the buyers should not be adopted as the basis for determining the assessable value for which respondent was to pay central excise duty.respondent sent reply to the show cause notice denying that m/s.kalatmak was completing the manufacturing process and alleging that the goods produced by the respondent were fully manufactured products and therefore, dutiable and denying the relationship alleged between the two persons. the assistant collector rejected these contentions and confirmed the proposal in the show cause notice on the grounds referred to in the notice. in appeal, collector (appeals) set aside the order holding that since mutuality of interest was not established, the two concerns cannot be regarded as related, that there was no evidence that transactions were influenced by non-commercial considerations, that since the department had approved the classification list filed in respect of chimneys being cleared by respondent, they must be regarded as marketable products. this order is being challenged by the department.2. according to the show cause notice the process of completion of manufacturing was being attended to by m/s. kalatmak. in the memorandum of appeal it is stated by the collector of central excise that at the stage at which the articles produced by respondent were sold to m/s.kalatmak, they were not marketable and they become marketable only on completion of grinding and embossing work done by m/s. kalatmak. if this stand is correct, it would mean that respondent was not manufacturing any exciseable products and therefore, would not have liability to pay central excise duty at all. such is not the case of the department.3. there is no doubt that there was a substantial difference in the prices charged by respondent from m/s. kalatmak. there are two facts which are responsible for such state of affairs. one is that the respondent was selling the entire production to m/s. kalatmak thereby relieving itself of responsibility for the effort of marketing and m/s.kalatmak would naturally be required to attend to marketing effort.secondly, the goods were later sold by m/s. kalatmak not in the form in which they were purchased from respondent. some further process such grinding and embossing was done by m/s. kalatmak and thereby incurring some expenditure.4. the show cause notice did not allege any reason to indicate mutuality of interest between the two concerns except that there was some common partners. respondent admits before us that there were three common partners. particulars such as constitution of the two firms, the number of other partners in the two firms and the management of the two firms were not referred to in the show cause notice or in the order passed by the assistant collector. mere commonality of a few partners would not be sufficient to show that the two concerns have mutual interest in the business of each other.5. for the reasons indicated above, we hold that the collector (appeals) was justified in coming to the conclusion that there was no ground to direct the assessable value of the respondent's products to be based on the basis of the prices at which m/s. kalatmak was selling to buyers. the appeal is accordingly dismissed. cross objection being merely supportive is rejected.

Judgment:
1. Respondent, a partnership firm, engaged in the manufacture of glass and glassware filed price list No. 11/81 effective from 10-8-1981 in respect of glass chimney falling under TI-23A (3) declaring prices as Rs. 3.75 per dozen USCO (Bata type) Chimney and Rs. 3.50 per dozen 250 Chimney. It appears that the entire production of the respondent was being sold to M/s. Kalatmak, another partnership firm. It appears there were three common partners in the two firms. The Superintendent of Central Excise (Valuation) issued notice dated 3-7-1982 to the respondent stating that there are some common partners in the two firms, that the manufacturing process was being completed by M/s.

Kalatmak by grinding and embossing of the Chimneys, that M/s. Kalatmak was selling the products at Rs. 7.25/- and Rs. 7.50/- respectively and that the two partnership concerns are related persons and requiring the respondent to show cause why the prices charged by M/s. Kalatmak from the buyers should not be adopted as the basis for determining the assessable value for which respondent was to pay central excise duty.

Respondent sent reply to the show cause notice denying that M/s.

Kalatmak was completing the manufacturing process and alleging that the goods produced by the respondent were fully manufactured products and therefore, dutiable and denying the relationship alleged between the two persons. The Assistant Collector rejected these contentions and confirmed the proposal in the show cause notice on the grounds referred to in the notice. In appeal, Collector (Appeals) set aside the order holding that since mutuality of interest was not established, the two concerns cannot be regarded as related, that there was no evidence that transactions were influenced by non-commercial considerations, that since the department had approved the classification list filed in respect of Chimneys being cleared by respondent, they must be regarded as marketable products. This order is being challenged by the department.

2. According to the show cause notice the process of completion of manufacturing was being attended to by M/s. Kalatmak. In the memorandum of appeal it is stated by the Collector of Central Excise that at the stage at which the articles produced by respondent were sold to M/s.

Kalatmak, they were not marketable and they become marketable only on completion of grinding and embossing work done by M/s. Kalatmak. If this stand is correct, it would mean that respondent was not manufacturing any exciseable products and therefore, would not have liability to pay central excise duty at all. Such is not the case of the department.

3. There is no doubt that there was a substantial difference in the prices charged by respondent from M/s. Kalatmak. There are two facts which are responsible for such state of affairs. One is that the respondent was selling the entire production to M/s. Kalatmak thereby relieving itself of responsibility for the effort of marketing and M/s.

Kalatmak would naturally be required to attend to marketing effort.

Secondly, the goods were later sold by M/s. Kalatmak not in the form in which they were purchased from respondent. Some further process such grinding and embossing was done by M/s. Kalatmak and thereby incurring some expenditure.

4. The show cause notice did not allege any reason to indicate mutuality of interest between the two concerns except that there was some common partners. Respondent admits before us that there were three common partners. Particulars such as constitution of the two firms, the number of other partners in the two firms and the management of the two firms were not referred to in the show cause notice or in the order passed by the Assistant Collector. Mere commonality of a few partners would not be sufficient to show that the two concerns have mutual interest in the business of each other.

5. For the reasons indicated above, we hold that the Collector (Appeals) was justified in coming to the conclusion that there was no ground to direct the assessable value of the respondent's products to be based on the basis of the prices at which M/s. Kalatmak was selling to buyers. The appeal is accordingly dismissed. Cross objection being merely supportive is rejected.