Biscuits Co. Pvt. Ltd. Vs. Collector of Central Excise Patna  INSC 371 (20 July 2000)
appellant who is manufacturing biscuits is seeding to impugn the assessabe
value of the biscuits manufactured by it for M/S. Britannia Industries Ltd.
(hereinafter feferred to as 'Britannia') pursuant to an agreement which had
been entered into between the two Companies.
not in dispute that the appellant was incorporated on 30.12.1982 and after
making arrangements for obtaining finance it started a Unit from 3.1.1985
wherein it commerced commercial production of its own brand of biscuits.
15.12.1986, an agreement was entered into between the appellant and Britannia
which required the appellant to manufacture discuits for Britannia. The terms
of the agreement, broadly speaking envisaged that the ingredients for the
manufacture of biscuits as well as the recipe or emthod by which the biscuits
were to be manufactured were to be supplied by Britannia. The ingredients so
supplied were also tobe regarded as belonging to Britannia for the manufacture
of the biscuits. The appellant was required to make jpackages as directed by
Britannia and then supply the same under Britannia's instruction. For the work
done, the appellant was entitled to receive certain amount which was to be
fixed from time to time. The agreement also contemplated that if the biscuits
were not manufactured upto the required standard, then the same were to be
destroyed and in respect of those biscuits on payment was to be made to the
appellant and on the contrary, the appellant would become liable to pay for the
cost of the ingredients which had nto spoiled.
is material in this agreement is that there was a clause which specifically provided
that "relationship between the parties shall always be that of principal
and principal and not principal and agent". The agreement also gave
liberty to the appellant to continue to manufacture biscuits under other brands
and to sell the same.
nobody's case that the Unit in question was established by or at the behest of
Britannia. The Unit had come into existence before the agreement dated
15.12.1986 entered into between the parties.
trouble for appellant arese when it received a show cause notice dated
16.11.1987 from the Assistant Collector requiring the appellant to show cause
as to why the assessable value should not be approved on the basis of
Britannia's wholesale cash price. A reference in the said show cause notice was
made to the agreement dated 15.12.1986.
appellant showed cause but the Assistant Collector by his order dated 29.6.1988
came to the conclusion that the biscuits manufactured by the appellant vere to
be cleared and excise to be paid on the value of the said biscuits calculated
after taking into consideration Britannia's wholesale price.
appellant filed an appeal before the Collector (Appeals) and the Collector
(Appeals) passed an order rejecting the said appeal and affirmed the order of
the Assistant Collector dated 29.6.1988. In fact the Tribunal held that the
appellant was an agent of Britannia and therefore it is the Britannia's
wholesale price which is to be taken into consideration for arriving at the
normal value for the purposes of computing the excise duty of the biscuits
manufactured by the appellant.
hearing the learned counsel for the parties, we are of the opinion that the
point in issue is no longer res integra. This Court has time and again held
that for the purpose of ascertaining assessabe value post-manufacturing
expenses have not to be taken into consideration. This Court in M/s Ujagar
Prints and Others (II) V.
of India and Others (1989) 3 SCC 488, was concerned with a number of issues
raised by the appellant. The appellant was a processing house which inter alia
processed the grey fabrics. Amongst other issues which were raised, one of the
contentions urged on behalf of the appellant therein was that the grey fabric
which was given for prosessing continued to belong to the customer and the
processing house was only entitled to charge the processing charges. It was the
case of the appellant therein that the price of the grey cloth, of which the
processing house had never become the owner, could never be taken into
consideration in arriving at the assessable value.
this contentions, this Court noticed that according to Sec.
the Central Excise Act, the value of the article for the purposes of duty shall
be deemed to be the wholesale cash price for which an article of the like kind
and quality was sold or was capable of being sold at the time of removal of the
article from the factory or premises of manufacture. It was then observed that
in the case of processing houses they became liable to pay excise duty not
because the manufacture of the goods.
held that it could not be contended, keeping in view the provisions of Sec 4
and the Central Excise (Valuation) Rules, 1975 that the assessable value of the
processed fabric should comprise only of the processing charges disregarding
the value of the grey cloth.
Mukherji, in a separate but concurring judgment observed that the assessable
value of the goods manufactured would include the value of the grey cloth in
the hands of the processor plus the value of the job work done plus
manufacturing profits and manufacturing expenses.
correct assessable value was to be the value of the fabric at the factory gate
at the time when the manufactured goods leave the factory and enter the
the aforesaid judgment in Ujagar Prints case was delivered on 4.11.1988 a civil
miscellaneous application for clarification was filed.
Constitution Bench in a two paragraph order dated 27.1.1989 reported in (1989)
3 SEC 531, M/s Ujagar Prints and Other (II) V.
of India and Others, clarified that the assessable value of the processed
fabric would be the value of the grey cloth in the hands of the processor plus
the value of the job work done plus manufacturing profit and manufacturing
expenses whatever they pay. The factory gate was to mean the deemed"
factory gate as if the processed fabric was sold by the processor. To make the
position clear this Court gave the following example:- It was further observed
that the brand at which the processing house sells the goods "must be the
value of the grey cloth or fabric plus the value of the job work done plus the
manufacturing profit and the manufacturing expenses but not any other
subsequent profit or expenses. It is necessary to include the processor's
expenses, costs and charges plus profit, but it is not necessary to include the
trader's profits who gets the fabrics processed, because those would be post
present case is similar to Ujagar Prints case. In Ujagar Prints' case, it was
the grey cloth which was given to the processor whereas in the present case it
was the raw material for the manufacture of biscuits given to the appellant.
After the biscuits are made, they are given back to or are delivered under the
instructions of Britannia.
appellant was entitled to receive processing charges which would include its
expenses plus profits for the purpose of determining the excise value. However,
the cost of the raw material supplied by Britannia will have to be included in
addition to the appellant's manufacturing costs and profit. What cannot be
included on the ration of Ujagar Prints case is any profit of Britannia or
expenses which are incurred after the manufacture of the biscuits by the
repeated attempts made by the learned counsel for the respondent, we are lunable
to distinguish this case from the ration laid down by this Court in the
aforesaid two decisions of Ujagar Prints' case.
appeal is accordingly allowed. The excise authorities will be at liberty to
determine the amount of excise duty afresh in accordance with law. There will
be no order as to costs.