- (1.)The respondent no. 1 processes grey fabric. Sometimes the grey fabrics are processed on its own account and sometimes the grey fabrics are received for processing on job charge basis from others (who are referred to as 'the merchant manufacturers). For the period 01 09.1985 to 28. 02.1989, the respondent no. 1 had paid excise duty on the fabrics processed by it during this period, calculating the duty payable by treating the value of the processed fabrics as being that at which the merchant manufacturer was selling the processed goods. According to the respondents, this was in keeping with the decision of this court in Empire Industries Ltd. v. Union of India and Ors. (briefly referred to as empire Industries). With effect from 01. 03.1989, the same method was followed in respect of the fabrics processed by the respondent no. 1 on its own account. However, on the fabrics processed by it which had been received from the merchant manufacturers, the respondent no. 1 valued the processed goods on the basis of the cost of grey fabrics plus the processing charges as well as its manufacturing expenses and profits. In other words, the price at which the merchant manufacturer was selling the processed goods was not taken. This was done relying upon the decision of this Court in M/s Ujagar Prints and Others v. Union of India (briefly referred to as M/s. Ujagar Prints II) as explained in M/s Ujagar Prints and Others v. Union of India and Others (briefly referred to as M/s. Ujagar Prints III).
(2.)On 5th October 1990, a show cause notice was issued by the appellant to the respondent proposing to recover differential duty of excise amounting to Rs. 4,84,62,452/- from the respondent no. 1 within the extended time limit under the proviso of Section 11a of the Central Excise Act, 1944 (hereinafter referred to as 'the Act') and proposing to impose penalty against the respondents. The basis of the demand against the respondents was that they were all firms and companies having a common management and control with some of them selling grey fabric to the respondent no. 1 which, after processing the fabrics, sold the same to some of the other respondents. The latter ultimately sold the processed fabrics to independent dealers. All the respondents were described as 's. Kumars' and the appellants claimed to treat the price charged by the trader respondents from the independent dealers as the assessable value of the processed fabrics and to levy excise duty thereon. The respondents replied to the show cause notice. They denied that the respondents were related persons and disputed the basis for the additional claim of excise duty. It was submitted that by virtue of this Court's decision in M/s. Ujagar Prints III they were liable to treat the notional sale by the respondent no. 1 to the merchant manufacturers as the relevant point for determining the assessable value. The claim of the respondent no. 1 was that prior to the decision in M/s. Ujagar Prints III it had paid the excise duty by taking the assessable value of the processed fabric at the wholesale price at the time the goods reached the open market. This was followed till the decision of this Court in ujagar Prints III It was submitted that in any event the respondent no. 1 was not only entitled to discounts in respect of the excise duty levied for the period 01. 09.1985 to 28. 02.1989 but there were gross inaccuracies in the computations made by the appellant. The Commissioner of Central Excise, held that the respondents were related persons and upheld the demand for duty to the extent of Rs. 3,82.41,53 for the period 01. 09.1985 to 30. 09.1989 from the respondent no 1. The claim for discounts was also rejected.
(3.)The respondents appealed before the customs, Excise and Gold (Control) Appellate Tribunal (hereinafter referred to as the Tribunal'). The Tribunal held that the respondents had rightly invoked the principles of M/s Ujagar Prints III In doing so, it did not go into the question whether the respondents were related persons as alleged in the show cause notice. The Tribunal therefore allowed the respondents' appeal and remanded the matter to the Commissioner in order to recompute the duty payable.