CX - Soap noodles was sold by HLL to companies against form 'C' who manufactured branded soap - Rule 8 of Valuation Rules, 2000 inapplicable : CESTAT
By TIOL News Service
MUMBAI, OCT 20, 2017: THE respondent-manufactured Breeze/Lux Soap Noodles and cleared it to M/s. Aquagel Chemicals Pvt. Ltd., Gujarat and M/s. Sree Rayalaseema Alkalis and Allied Chemicals Ltd., Andhra Pradesh on payment of Central Excise duty.
Both the units manufactured branded soap on behalf of Hindustan Lever Ltd., out of soap noodles sold by M/s. Hindustan Lever Ltd. Khamgaon and all the quantities of finished branded soap manufactured by them are returned back to M/s. Hindustan Lever Ltd, who ultimately sell it to the wholesale trade.
Contending that the transaction of supplying soap noodles to both the above said units at Gujarat and Andhra Pradesh is not a sale transaction, valuation was sought to be arrived at in terms of rule 8 of the Valuation Rules, 2000.
The demand of differential duty of Rs.41,41,631/- was confirmed along with equivalent penalty and interest.
The Commissioner(Appeals) held that the transaction between the appellant and the manufacturers is one of "sale" and "purchase" and, therefore, the demand is not sustainable.
The appeal was allowed and, therefore, the revenue is in appeal before CESTAT.
The AR submitted that in the facts of the present case, the respondent cleared soap noodles to two parties for manufacture of soap for the assessee only under the agreement and, therefore, the transaction was not in ordinary course of trade and business but was influenced and conditioned for future obligation to be fulfilled in favour of the assessee. Inasmuch as the transaction cannot be termed as sale and hence valuation in terms of Rule 8 of CE Valuation Rules, 2000 will apply. Reliance is placed on the decisions in Indorama Synthetics (I) Ltd. - 2015-TIOL-190-SC-CX , IFGL Refractories Ltd. - 2005-TIOL-103-SC-CX.
The respondent assessee submitted that there are two transactions involved, one, sale of noodles by the respondents to said two companies and second, sale of branded soap by those companies to the respondent. Sales invoices were produced. Further, the agreement referred by the department in their grounds of appeal is not a sale agreement but it is a sourcing agreement particularly for the purpose of manufacture and supply of branded soap by the said two companies to the respondents; that both the companies are free to purchase and procure all raw materials, packing materials, etc. for manufacture of finished products, i.e. soaps, therefore, this agreement will not have any effect on the transaction of sale and purchase of noodles made between the respondent and the recipient; that the impugned order is legal and proper.
The Bench perused the sale invoices between the respondent and the two companies and observed -
++ Respondent, M/s Hindustan Lever Ltd. have sold the goods to M/s. Aquagel Chemicals Pvt. ltd. Gujarat and M/s. Sree Rayalaseema Alkalis and Allied Chemicals Ltd. Andhra Pradesh. It is also observed that being a sale transaction, the Central Sales Tax @ 4% was also charged in the bill. As per the certification given in the bills also it is clear that the goods, i.e., soap noodles was sold by Hindustan Lever Ltd. to the said two companies against form "C".
++ It is further observed that both the companies after purchase of soap noodles and also various other inputs sourced by them manufactured branded soap and the same was sold to Hindustan Lever Ltd. …
++ …invoice of M/s. Aquagel Chemicals Pvt. Ltd. Gujarat, issued to respondent, M/s Hindustan Lever Ltd. It is observed that it is a sale invoice wherein Central Sales Tax @ 4% was charged.
++ From the aforesaid transaction, it is clear that in respect of noodles there is a transaction of sale from the respondent to M/s. Aquagel Chemicals Pvt. ltd. Gujarat and M/s. Sree Rayalaseema Alkalis and Allied Chemicals Ltd. Andhra Pradesh and similarly in respect of soap, there is a sales transaction from M/s Aquagel Chemicals Pvt. Ltd. Gujarat and M/s. SreeRayalaseema Alkalis and Allied Chemicals Ltd. Andhra Pradesh to the respondents.
++ Accordingly, it cannot be said that these transactions are not a sale transaction in the ordinary course of trade. This be so, the transaction value has to be taken for charging of Central Excise duty in terms of Section 4(1)(a) of Central Excise Act, 1944. Rule 8 can be resorted to for valuation only when the transaction is not of sale. In the facts of the present case, the possession of the goods and ownership stands transferred from the respondents to M/s. Aquagel Chemicals Pvt. Ltd. Gujarat and M/s. SreeRayalaseema Alkalis and Allied Chemicals Ltd. Andhra Pradesh, in respect of sale of soap noodles. The show-cause notice only made a charge that transaction is not of a sale, which is absolutely incorrect on the face of the evidences as referred above.
After narrating the elaborate findings given by the Commissioner(A), the Bench concluded that it fully concurs with the same.
The impugned order was upheld and the Revenue appeal was dismissed.
(See 2017-TIOL-3736-CESTAT-MUM )
