BASIC CONCEPTS NEW CASE LAWS. Steel Authority of India Ltd (S.C.)

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1 BASIC CONCEPTS Amendment of the Third Schedule of the Central Excise Act relating to deemed manufacture Section 2(f)(iii) of the Central Excise Act contains provisions relating to deemed manufacture which inter-alia provides that manufacture includes any process, which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re- Iabelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer, The Third Schedule of the Central Excise Act contains around 100 goods relating to which any process specified above shall amount to manufacture. Now, the Third Schedule of the Central Excise Act relating to the deeming of certain processes as amounting to manufacture has been amended to include cigarettes. Hence forth, the packing, or repacking in a unit container, labeling or relabeling of containers including the declaration or alteration of Retail Sale Price on it or adoption of any treatment to render cigarettes marketable shall be processes amounting to manufacture. NEW CASE LAWS Steel Authority of India Ltd (S.C.) Facts: The Steel Authority of India Ltd. (SAIL) was mining iron ore from mines. The Department submitted that Steel Authority of India Ltd. (SAIL) was mining iron ore from mines and subjecting the same to crushing, grinding, screening and washing with an aim to concentrate the ores. The Department contended that in the case of the respondents, their mining activity was done by fully mechanized system; that they were mining iron ores from mines and then ores were subjected to process of crushing, grinding and screening and washing with a view to remove foreign materials and to concentrate such ores; that at each stage of washing water is added to improve the flowability of material by removing the sticky particles and the processes undertaken by them involved removal of parts of foreign material from the ores and mining iron ore from mines and then subjecting to process of crushing, grinding, screening and washing with a view to remove foreign materials to concentrate such increase the Fe content (i.e. iron content); thus goods so obtained by such process would qualify as concentrate. The SAIL submitted that the washing of iron ore by itself could never convert it into concentrates and that washing by itself did not amount to manufacture. The assessee also contended that the concentrates were manufactured by increasing the concentration of Fe content of the mineral by removing and separating different impurities; that concentrates were manufactured by enriching the material in terms of its Fe content; that under this process, raw iron ore of low Fe content was ground to very fine consistency and passed through various processes for making concentrates; that in the present matters neither they undertook any such process nor there was any variation in the Fe content of iron ore extracted from its mines and the Fe content of seized iron ore. Issue: Department contended that any ore which after being subjected to physical or physico chemical process viz., crushing, screening, etc., has had part or whole of its extraneous, foreign matter removed, would be termed as concentrate ; and thus the product obtained after the processes carried out by the Respondents was iron ore concentrate only and not iron ore. Decision: The Supreme Court held that removal of foreign materials from iron ore, i.e., mining iron ore from mines and then subjecting to process of crushing, grinding, screening and washing with a view to remove foreign materials to concentrate such ores do not result in manufacture of different commercial commodity. No Central excise duty isleviable on iron ore concentrate. 1 Page ph.no

2 DELTA POWER SOLUTIONS INDIA PVT. LTD. [2012] Facts: The applicant proposes to import VRLA battery cells of 2 volts each and warehouse them in the customs bonded warehouse. After receiving orders from customers, the same would be cleared to a non-bonded warehouse, tested and recharged if required and subsequently 24 battery cells are mechanically inserted in shelves to make a battery bank of 48 volts. Commercial nomenclature 'Battery Bank' was given by the dealer himself. Battery cells connected with clamps and metal connectors to function as a battery bank does not amount to manufacture, since function and use of the batteries remains the same and no new product can be said to have come into existence. Issue: Ruling is sought whether the above activity of making battery bank from battery cells amounts to manufacture? Decision: A battery bank is number of batteries acting as one battery. The functions and use of batteries whether in single units or in bank of multiple batteries remains the same. Process of putting two or more batteries does not alter their basic character are functions and no new product has come into existence and no manufacturing takes place. Osnar Chemical Pvt. Ltd. [2012] (SC) Facts: Whether The process of mixing polymers and additives to heated bitumen, which results in emergence of polymer modified bitumen (PMB) and crumbled rubber modified bitumen (CRMB) amount to manufacture? Mixing polymers & additives to heated bitumen Merely results in improvement in quality not manufacture Decision: The process of mixing polymers and additives to heated bitumen, which results in emergence of polymer modified bitumen (PMB) and crumbled rubber modified bitumen (CRMB) does not amount to manufacture because there was no change in characteristics or identity of bitumen, only its grade or quality was improved. The said process did not result in transformation of bitumen into new product having different identity, characteristic and end use: the end use also remained same, viz. mixing of aggregates for constructing roads. Further, the said process was not specified in section or chapter notes of the Tariff Act as amounting to manufacture. 2 Page ph.no

3 Elecon Engineering Co. Ltd. [2012](SC) Facts: The assessee was engaged in the process of fabricating columns, purlines etc. by cutting, drilling, punching and welding on duty paid channels and angles and thereafter, assembling to post at work site and fixing in the exact position for construction of a building or shed. The department contended that said process amounted to manufacture. Process of fabricating columns, purlines etc. by cutting, drilling, punching and welding & assembly on duty paid channels and angles does not amounts to manufacture. Decision: Held that, cutting, drilling, punching and welding do not result in transformation. The products resulting out of these processes are merely structural shapes; and assembling them for constructing building or shed is fabrication and not manufacture, as no new article different in name, character or use emerges. GRASIM INDUSTRIES LTD. (2011) (SC) Facts: The assessee is the manufacturer of the white cement. The assessee repairs worn out machineries or parts of the cement manufacturing plant. In this process of repair certain metal scrap or waste is generated. Department demanded duty along with equal amount of penalty pertaining to scrap and waste arising out of the dismantling of used capital goods as excisable goods which is mentioned in tariff. Assessee contended that excise duty not leviable as waste or scrap is not generated from manufacturing process. The repairing activity in any possible manner cannot be called as a part of manufacturing activity in relation to production of end product. Hence metal scrap & waste generated in the repairing of cement plant is not subject to payment of excise duty. Issue: Whether the metal scrap or waste generated whilst repairing of worn out machineries or parts of cement manufacturing plant amounts to manufacture, and thereby, is excisable to excise duty? Decision: The conditions contemplated under Section 2(d) (Excisable Goods) and Section 2(f) (manufactured) has to be satisfied conjunctively in order to entail imposition of excise duty under Section 3 of the Act. Simply because a particular item is mentioned in the First Schedule, it cannot become exigible to excise duty. The goods have to satisfy the test of being produced or manufactured in India. It is clear that the process of repair and maintenance of the machinery of the cement manufacturing plant, in which Waste & scrap arise, has no contribution or effect on the process of manufacturing of the cement, which is the excisable end product Incidental or ancillary process thereto means any process in relation to the end product, which brings in some kind of change to the raw material at various stages by different operation. It should lead to create any new or distinct & excisable product The repairing activity in any possible manner cannot be called as a part of manufacturing activity in relation to production of end product. Hence metal scrap & waste generated in the repairing of cement plant is not subject to payment of excise duty. 3 Page ph.no

4 AIR LIQUIDE NORTH INDIA PVT. LTD. (2011)(SC) Facts: The assessee had purchased Helium gas from the market in bulk and repacked the same into smaller cylinders after giving different grades to it and then sold the same in the open market. The assessee has conducted various test on the gas so purchased and on the basis of the tests and some treatment given, the gas was segregated into different grades having distinct properties and sold at different rates to different customers. Process of testing and selling of Helium gas in different grades amounts to deemed manufacture under note 10 to chapter 28 The adjudicating authorities held that these processes undertaken by the assessee amounted to manufacture under Chapter Note 10 of Chapter 28 of the Central Excise Tariff Act, 1985 and consequently duty and penalties payable on Helium gas. Assessee argued that after various activities of testing Helium gas as Helium gas and there is no change in chemical or physical properties. Also, as per Chapter Note 10 of Chapter 28 there is no adoption of any treatment to render the product marketable to the consumer because Helium gas was already in marketable state when it was purchased. Issue: whether the treatment given or the process undertaken by the appellant to Helium gas purchased by it from the open market would amount to manufacture, rendering the goods liable to duty under Chapter Note 10 of Chapter 28 of the Central Excise Tariff Act, 1985 Legal provision: Chapter Note 10 of Chapter 28 of the Central Excise Tariff Act, 1985 In relation to products of this chapter, labelling or relabelling of containers and repacking from bulk packs to retail packs or adoption of any other treatment to render the product marketable to the consumer shall amount to manufacture. Decision: It undisputed fact that the assessee had purchased Helium gas from the open market and has carried out various test on helium gas and Assessee had not disclose the process of testing and treatment being a trade secret. In the instant case, Helium gas was having different marketability, which it did not possess earlier and hence the gas sold by the assessee was a distinct commercial commodity in the trade and with higher value, rendering it adoption of any other treatment to make the product marketable and liable to duty under Chapter Note 10 of Chapter 28 of the Act. the phrase marketable to the consumer would naturally mean the marketability of the product to the person who purchases the product for his own consumption So far as the issue with regard to relabelling is concerned, we are in agreement that relabelling would not mean mere fixing of another label. When the assessee was selling different cylinders with different marking or different certificates to its different customers, we can say that the assessee was virtually giving different marks or different labels to different cylinders having different quality and quantity of gas. Accordingly, process of testing and selling of Helium gas in different grades amounts to deemed manufacture under note 10 to chapter 28 4 Page ph.no

5 Mehta & Co. [2011] 264 ELT 481 (SC) Facts: M/s. Mehta & Company, Mumbai (the assessee ) are engaged in the business of interior decoration. The assessee provides composite services including woodwork, furniture items etc. They entered into an agreement with M/s. Adyar Gate Hotel Ltd (now M/s. Welcome Group) for carrying out the renovation of the existing structure in their hotel. Assessee has Manufacture of furniture at customer s site. like chairs, beds, tables, desks, etc., The items like chairs, beds, tables, desks, etc., manufacture at client site & affixed to the ground could be said to be moveable assets and liable to excise duty. Department issued SCN on contention that the assessee manufactured movable goods like chairs, beds, tables, desks, etc., covered under different chapter headings at the customer s site and removed them without payment of proper duty. Assessee Argued that Furniture is an Immovable property & attached to the wall hence not subject Duty. Issue: whether the items like chairs, beds, tables, desks, etc., affixed to the ground could be said to be immoveable assets and not liable to excise duty? Decision: Furniture refers to desk, table and chairs, etc. and is different from fixtures that are attached to earth/ground/walls. Furniture cannot be regarded as immovable property. Thus the items which are ordinarily immovable or which ordinarily cannot be removed without cannibalizing e.g. storage units, running counters, over- head unit, rear and side unit, wall unit, pantry unit, kitchen unit and other items which are ordinarily immovable or cannot be removed without Cannibalizing are not furniture. However, items like tables, desks, chairs etc. are furniture and hence excisable. Therefore, furniture manufactured at customer's site is movable and is liable to excise duty. 5 Page ph.no

6 Orissa Bridge & Construction Corporation Ltd. (2011) (SC) The assessee is buying angle iron, MS Plates, MS Sheets, HR Sheets from the open market, the same are cut into specific sizes. They are further bent and welded at the cut/bent end to give the desired shape result into shuttering plates, vertical props and Derricks. Further holes in some items are made by drilling machine. The adjudicating authority has held that such activity to be a manufacturing activity by observing that the raw material no longer continues to be in that form or shape after conversion. Plates and sheets, which are the starting materials, get transformed into various products shuttering plates, vertical props and Derricks, which are having a distinct name, identity, character and use. The fabrication of shuttering plates, vertical props and Derricks made from Steel angle, MS plates, MS sheets and pipes amount to manufacture & are marketable product & liable to Excise Duty Issue Involved: Whether the fabrication of shuttering plates, vertical props and Derricks made from Steel angle, MS plates, MS sheets and pipes amount to manufacture? Whether Shuttering plates, Vertical props and Derricks are marketable products so as to become chargeable to excise duty? Decision: The plates and sheets which are starting materials get transformed into various products which are having distinct name, identity, character and use. The sheets, plates or angle irons cannot be used as shuttering plates for the reason of which they are specifically transformed into new product. Thus the fabrication of shuttering plates, vertical props and Derricks made from Steel angle, MS plates, MS sheets and pipes amount to manufacture & are marketable product & liable to Excise Duty. 6 Page ph.no

7 Medley Pharmaceuticals Ltd. [2011] (SC) Issue: Whether physician samples distributed to medical practitioner as free samples, are goods under excise? Decision: Even though Drugs and Cosmetics Act, 1940 bars the sale of physicians' samples, however, excise liability of a product is not dependent on its salability. Excise duty is a levy on production or manufacture and is payable whether or not the goods are sold. Further, such prohibition on sale of physicians' samples under Drugs Act doesn't also affect the marketability of such samples: marketability doesn't require actual sale, it is capability of being bought and sold. Even otherwise, restrictions under Drugs Act cannot affect imposition of excise duty under the Central Excise Act thereby causing loss of revenue. Therefore, physicians' samples are liable to excise duty. Note: What is Physician samples? physician samples distributed to medical practitioner as free samples is marketable & goods liable to Excise duty Some pharmaceutical companies, distributes physician samples to medical practitioners, which serves the company as a marketing tool. As per the drugs and cosmetic rules, the physician samples of patent and proprietary medicines are statutorily prohibited from being sold. It is also held in the said rules that the word Physicians sample Not to be sold requires to be printed GTC Industries Ltd (Bom.) Facts: A roll of aluminum foil was cut horizontally to make separate pieces of the foil and word PULL was embossed on it. Thereafter fixed number cigarettes were wrapped in it. Aluminum foil, being a resistant to moisture, was used as a protector for the cigarettes and to keep them dry. Revenue submitted that the process of cutting and embossing aluminum foil amounted to manufacture. Since the aluminum foil was used as a shell for cigarettes to protect them from moisture; the nature, form and purpose of foil were changed. Process of cutting and embossing aluminum foil for packing the cigarettes does not amount to manufacture Issue: Does the process of cutting and embossing aluminum foil for packing the cigarettes amount to manufacture? Decision: The High Court pronounced that cutting and embossing did not transform aluminum foil into distinct and identifiable commodity. It did not change the nature and substance of foil. The said process did not render any marketable value, only made it usable for packing. There were no records to suggest that cut to shape/embossed aluminum foils used for packing cigarettes were distinct marketable commodity. Hence, process did not amount to manufacture as per section 2(f) of Central Excise Act, Only the process which produces distinct and identifiable commodity with marketable value can be called manufacture. 7 Page ph.no

8 CENTRAL EXCISE RULES, 2002 LATEST AMENDMENTS Documents to be produced on demand under Rule 22(3) to Cost Accountant/ Chartered Accountant as nominated under section 14A/14AA. [Notification No.22/2012-CE (N.T.) dated ] Prior Amendment Earlier under rule 22(3), assessee, first stage dealer and second stage dealer were required to produce, on demand, the records maintained by him in respect of accounting of transactions, all financial statements, etc. as required under rule 22(2), cost audit reports and income tax audit reports to the following persons:- (i) Officer empowered under sub-rule (1) or (ii) Audit party deputed by the Commissioner / Comptroller and Auditor General of India for the scrutiny by the officer/audit party. Amendment by F.A.2012 Now, the said documents need to be produced on demand, to the following persons:- (i) Officer empowered under sub-rule (1) or (ii) Audit party deputed by the Commissioner/Comptroller and Auditor General of India (iii) Cost Accountant/ Chartered Accountant as nominated under section 14A/14AA of the Act for the scrutiny by the officer/audit party/cost accountant/ chartered accountant within the time-limit specified by them. Export procedures for Nepal amended [Notifications Nos CE (NT) all dated ] With effect from , the procedures prescribed for export under claim for rebate vide Notification No. 19/2004 CE (NT) dated and export without payment of duty under bond vide Notifications Nos. 42 to 44/2001 CE (NT) all dated would apply to Nepal as well. This has been done in view of the revised treaty between India and Nepal. CBEC has issued Notifications Nos CE (NT) all dated to give effect to this amendment. Implication: Now, Rule 18 & 19 export benefit is available to export of excisable goods to Nepal like other countries under form ARE-1 or ARE-2. As per the earlier provisions, procedures prescribed for export under claim for rebate vide Notification No. 19/2004 CE (NT) dated and export without payment of duty under bond vide Notifications Nos. 42 to 44/2001 CE (NT) all dated applied to countries other than Nepal and Bhutan. For Nepal and Bhutan separate procedures were prescribed for export under claim for rebate vide Notification No. 20/2004 CE (NT) dated and export without payment of duty under bond vide Notification No. 45/2001 CE (NT) dated In respect of goods received at concessional rate of duty, instead of monthly return quarterly return needs to be filed [Notification No. 13/2012-CE (NT) dated ] Rule 5 of the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 has been amended to, inter alia, provide that the manufacturer, receiving subject goods, shall submit a quarterly return instead of a monthly return. 8 Page ph.no

9 Examine the validity of the following statements, with reference to the Central Excise Rules, 2002:- a) The procedures prescribed for export under claim for rebate and export without payment of duty under bond does not apply to Nepal. b) In respect of goods received at concessional rate of duty, return is required to be filed on a monthly basis. Answer: a) The said statement is not valid. With effect from vide Notifications Nos CE (NT) all dated , the export procedures for Nepal has been amended. The procedures prescribed for export under claim for rebate (Rule 18 of Central Excise Rules, 2002) vide Notification No. 19/2004 CE (NT) dated and export without payment of duty under bond (Rule 19 of Central Excise Rules, 2002) vide Notifications Nos. 42 to 44/2001 CE (NT) all dated would apply to Nepal as well. This has been done in view of the revised treaty between India and Nepal. b) The said statement is not valid. Rule 5 of the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 has been amended vide Notification No. 13/2012-CE (NT) dated to, inter alia, provide that the manufacturer, receiving goods at concessional rate of duty, has to submit a quarterly return instead of a monthly return. NEW CASE LAWS INDIAN OIL CORPO-RATION LTD. [2012] (SC) Facts: The assessee was manufacturer of Reduced Crude Oil (RCO) which was exempted from excise duty if the same was used as fuel for generation of electrical energy by electricity undertakings owned or controlled by Central Government or State Government or State Electricity Board etc. Similarly, Naphta was exempt from whole of excise duty when the same was used for manufacture of fertilizers. The said exemption was subject to condition that if such goods were used elsewhere in the factory of production, then the procedure set out in the Central Excise (Removal of Goods at Concessional Rate of duty for manufacture of Excisable Goods) Rules, 2001 was to be followed. Assessee has removed excisable goods under exemption without following the procedure specified in Central Excise (Removal of Goods at Concessional Rate of duty for manufacture of excisable goods) Rules, 2001, the benefit of exemption shall not be available to him. The assessee removed the said goods under exemption without following the specified procedure. However, the said goods were used for the intended purpose by the buyer i.e. for generation of electrical energy and manufacture of fertilizers The department denied the exemption since prescribed procedure was not followed. However, assessee contended that he must be entitled benefit of exemption and procedural non compliance cannot deprive him for benefit of exemption. Decision: The Apex Court held that for claiming benefit of exemption, the condition specified in such exemption notification are to be complied with. Since the assessee has removed excisable goods under exemption without following the procedure specified in Central Excise (Removal of Goods at Concessional Rate of duty for manufacture of excisable goods) Rules, 2001, the benefit of exemption shall not be available to him. 9 Page ph.no

10 EVEREST FLAVOURS LTD. [2012] (BOM.) Issue: Whether mere presentation of ARE-1 form does constitute filing of a valid application for rebate of rule 18 under Section 11B? Mere presentation of ARE-1 form does not constitute filing of a valid application for rebate. An application for rebate has to be filed along with the documentary material as required. Decision: The mandatory requirements of section 11B that a claim for refund of duty has to be presented within a period of 1 year from the relevant date (being the date on which the ship or aircraft on which goods are loaded leaves India) extends to filing of an application under rule 18 of Central Excise Rule, 2002, for rebate of excise duty on the excisable goods exported out of India. This is evident from the Explanation provided in section 11B of Central Excise Act, 1944, which includes within the expression 'Refund', the rebate of duty of excise on excisable goods exported out of India. Rule 18 of the Central Excise Rules, 2002 providing for the rebate of duty cannot be read independent of requirement of limitation of prescribed in section 11B of the Act. Mere presentation of ARE-1 form does not constitute filing of a valid application for rebate. An application for rebate has to be filed along with the documentary material as required. Therefore, the application claiming rebate filed by the assessee exporter on 17th July 2007 for the goods that were exported on 12th February,2006 was beyond the period of limitation as envisaged in section 11B of the Central Excise Act, 1944 and rebate cannot be sanctioned. 10 Page ph.no

11 LATEST AMENDMENTS EXCISE VALUATION Substitution of Standards of Weights and Measures Act, 1976 with Legal Metrology Act, 2009 in section 4A With effect from , in section 4A of the Central Excise Act, 1944, in sub-section (1), for the words and figures Standards of Weights and Measures Act, 1976, the words and figures Legal Metrology Act, 2009 shall be substituted. AMENDMENTS IN THE CENTRAL EXCISE ACT, 1944 In the Central Excise Act, 1944, in section 4,(3)(b) dealing with related party, in the Explanation, for clause (i) providing the meaning of inter-connected undertakings, the following clause has been substituted,namely: (i) "inter-connected undertakings" means two or more undertakings which are inter-connected with each other in any of the following manners, namely: (A) if one owns or controls the other; (B) where the undertakings are owned by firms, if such firms have one or more common partners; (C) where the undertakings are owned by bodies corporate, (I) if one body corporate manages the other body corporate; or (II) if one body corporate is a subsidiary of the other body corporate; or (III) if the bodies corporate are under the same management; or (IV) if one body corporate exercises control over the other body corporate in any other manner; (D) where one undertaking is owned by a body corporate and the other is owned by a firm, if one or more partners of the firm, (I) hold, directly or indirectly, not less than fifty per cent. of the shares, whether preference or equity, of the body corporate; or (II) exercise control, directly or indirectly, whether as director or otherwise, over the body corporate; (E) if one is owned by a body corporate and the other is owned by a firm having bodies corporate as its partners, if such bodies corporate are under the same management; (F) if the undertakings are owned or controlled by the same person or by the same group; (G) if one is connected with the other either directly or through any number of undertakings which are inter-connected undertakings within the meaning of one or more of the foregoing sub clauses. Explanation I.- For the purposes of this clause, two bodies corporate shall be deemed to be under the same management, (i) if one such body corporate exercises control over the other or both are under the control of the same group or any of the constituents of the same group; or (ii) if the managing director or manager of one such body corporate is the managing director or manager of the other; or (iii) if one such body corporate holds not less than one-fourth of the equity shares in the other or controls the composition of not less than one-fourth of the total membership of the Board of directors of the other; or (iv) if one or more directors of one such body corporate constitute, or at any time within a period of six months immediately preceding the day when the question arises as to whether such bodies corporate are under the same management, constituted (whether independently or together with relatives of such directors or employees of the first mentioned body corporate) one-fourth of the directors of the other; or 11 Page ph.no

12 (v) if the same individual or individuals belonging to a group, while holding (whether by themselves or together with their relatives) not less than one-fourth of the equity shares in one such body corporate also hold (whether by themselves or together with their relatives) not less than onefourth of the equity shares in the other; or (vi) if the same body corporate or bodies corporate belonging to a group, holding, whether independently or along with its or their subsidiary or subsidiaries, not less than one-fourth of the equity shares in one body corporate, also hold not less than one-fourth of the equity shares in the other; or (vii) if not less than one-fourth of the total voting power in relation to each of the two bodies corporate is exercised or controlled by the same individual (whether independently or together with his relatives) or the same body corporate (whether independently or together with its subsidiaries); or (viii) if not less than one-fourth of the total voting power in relation to each of the two bodies corporate is exercised or controlled by the same individuals belonging to a group or by the same bodies corporate belonging to a group, or jointly by such individual or individuals and one or more of such bodies corporate; or (ix) if the directors of one such body corporate are accustomed to act in accordance with the directions or instructions of one or more of the directors of the other, or if the directors of both the bodies corporate are accustomed to act in accordance with the directions or instructions of an individual, whether The Institute of Chartered Accountants of India belonging to a group or not. Explanation II.- If a group exercises control over a body corporate, that body corporate and every other body corporate, which is a constituent of, or controlled by, the group shall be deemed to be under the same management. Explanation III.- If two or more bodies corporate under the same management hold, in the aggregate, not less than one-fourth equity share capital in any other body corporate, such other body corporate shall be deemed to be under the same management as the first mentioned bodies corporate. Explanation IV.- In determining whether or not two or more bodies corporate are under the same management, the shares held by financial institutions in such bodies corporate shall not be taken into account. Illustration: Undertaking B is inter-connected with undertaking A and undertaking C is inter-connected with undertaking B. Undertaking C is inter-connected with undertaking A; if undertaking D is inter-connected with undertaking C, undertaking D will be inter-connected with undertaking B and consequently with undertaking A; and so on. Explanation V.- For the purposes of this clause, "group" means a group of (i) two or more individuals, associations of individuals, firms, trusts, trustees or bodies corporate (excluding financial institutions), or any combination thereof, which exercises, or is established to be in a position to exercise, control, directly or indirectly, over any body corporate, firm or trust; or (ii) associated persons. Explanation VI.- For the purposes of this clause, (I) a group of persons who are able, directly or indirectly, to control the policy of a body corporate, firm or trust, without having a controlling interest in that body corporate, firm or trust, shall also be deemed to be in a position to exercise control over it; (II) "associated persons" (a) in relation to a director of a body corporate, means (i) a relative of such director, and includes a firm in which such director or his relative is a partner; (ii) any trust of which any such director or his relative is a trustee; (iii) any company of which such director, whether independently or together with his relatives, constitutes one-fourth of its Board of directors; (iv) any other body corporate, at any general meeting of which not less than one-fourth of the total number of directors of such other body corporate are appointed or controlled by the 12 Page ph.no

13 director of the first The Institute of Chartered Accountants of India mentioned body corporate or his relative, whether acting singly or jointly; (b) in relation to the partner of a firm, means a relative of such partner and includes any other partner of such firm; and (c) in relation to the trustee of a trust, means any other trustee of such trust; (III) where any person is an associated person in relation to another, the latter shall also be deemed to be an associated person in relation to the former;'. NEW CASE LAWS Fiat India Pvt. Ltd (S.C.) Facts: The Fiat India Pvt. Ltd. (Fiat) was the manufacturer of motor cars. They were selling Fiat UNO model cars below cost and were making losses in wholesale trade. The purpose was penetration of market and competing with other manufacturers of similar goods. The prices were not based on manufacturing cost and profit. This was happening over the period of five years. The Assistant Commissioner directed for the provisional assessment of the cars at a price which would include cost of production, selling expenses including transportation and landing charges, wherever necessary and profit margin, on the ground that the cars were not ordinarily sold in the course of wholesale trade as the cost of production is much more than their wholesale price, but were sold at loss for a consideration. The Department disputed that as the extra commercial consideration was involved in this case an additional consideration should be added to the price for the purpose of duty. Thus, the Department invoked Best Judgment Assessment. Decision: The Supreme Court held duty has to be paid on the transaction value. Section 4(1)(a) of the Central Excise Act, 1944 defines transaction value as under in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value If any of the ingredients in the above definition is missing then the price shall not be considered as the sole consideration as transaction value. Supreme Court opined that this is a case of extra commercial consideration in fixing of price, and artificially depressing it. Full commercial cost of manufacturing and selling was not reflected in the price as it was deliberately kept below the cost of production. Thus, price could not be considered as the sole consideration for sale. No prudent business person would continuously suffer huge loss only to penetrate market; they are expected to act with discretion to seek reasonable income, preserve capital and, in general, avoid speculative investments. It is immaterial that the cars were not sold to related persons. In view of the above resorting to best judgment assessment was proper 13 Page ph.no

14 ROYAL ENFIELD (2011)(SC) Facts: assessee is engaged in manufacturing of motorcycles. The said motorcycles were cleared by the assessee to the different dealers by sending them to various Depots on stock transfer basis. At the time of removal from the factory to depot the motorcycles were in packed condition and packing charges incurred towards scratch and breakage to motorcycles recovered from dealers. Department contended that packing charges recovered from the buyer is includable in assessable value. Whether the Department contention is correct in law or not? Cost of packing charges expended/incurred by the company is liable to be included in the assessable value of the motorcycles manufactured by the company. Issue: whether the cost of packing charges expended/incurred by the company is liable to be included in the assessable value of the motorcycles manufactured by the company. Decision: in case of motorcycles. In fact condition from the factory to depot, the packing charges incurred to avoid scratch and breakage to motorcycles, part of assessable value of motorcycles because such packing is necessary for putting the motorcycles excisable goods in salable condition. Even though such packing charges are separately reimbursed by the buyer, the same are includable in the value for the purpose of payment of excise duty Electronics & controls power systems Pvt. Ltd. (2011) (SC) Facts: assessee is manufacturer of uninterrupted power supply (UPSS), supplied bought batteries as an optional item along with UPS system. Department contended that the value of batteries was includable in value of UPS for the purpose of charge of excise duty on the ground that Battary was part of UPS system. Assessee denied such inclusion of value of batteries the value of UPS system. UPSS is an integral system of which the battery is essential and integral part. Hence, the value of bought out item batteries is includible in the value of UPSS. Decision: Even if UPS can't function without battery for conditioning power, however, battery is an essential prerequisite, if UPSS is to provide uninterrupted Power supply. In such a case, the source of over is the battery. So far as UPSS with battery supplied to the buyers are concerned, UPSS is an integral system of which the battery is essential and integral part. Hence, the value of bought out item batteries is includible in the value of UPSS. 14 Page ph.no

15 Essel Propack Ltd. [2011] (SC) Facts: The assessee was a manufacture, plastic tubes. It was receiving supply of plastic caps from its customers and after fitting them onto the plastic tubes, it was supplying the cap-fitted tubes to the customers. The assessee was paying duty on the value of plastic tubes; while the Department includes the value of caps in the value of tubes and demanded duty accordingly. Plastic caps supplied by customers cleared with manufactured plastic tubes caps not integral part of tubes and not includible in value of tubes: Decision: if the caps are manufactured separately and not in the same factory in which the tubes are being manufactured, the caps cannot form integral part of the assessable value of the tubes, manufactured and cleared from the factory; such caps are merely accessory. Since, supplied by the customers of the assessee, the value of the caps will not form part of the assessable value of the tubes manufactured by the assessee. 15 Page ph.no

16 SSI EXEMPTION NEW CASE LAWS Bonanzo Engg. & Chemical P. Ltd. v. CCEx (S.C.) Facts: If The assessee was a manufacturer of goods falling under Chapter headings 32 and 84 of the first schedule to the Central Excise Tariff Act, The goods falling under Chapter heading 84 were wholly exempt from duty vide an exemption notification, but the assessee by mistake paid the excise duty on it and did not even claim refund of the same. For goods falling under Chapter heading 32, the assessee wanted to claim SSI exemption. For the purposes of computing the eligible turnover for SSI exemption, the assessee excluded the goods which were exempted although duty was paid mistakenly on them. However, the Revenue contended that clearances of such goods should be included while computing the eligible turnover although the assessee satisfied all the other conditions for claiming the SSI exemption. Exempted goods on which duty is paid by mistake shall be excluded while calculating SSI turnover of 150 lakhs. Decision: The Supreme Court opined that SSI exemption would be allowable to the assessee, as they meet all the conditions thereof. The amount of clearances in the SSI exemption notification needs to be computed after excluding the value of exempted goods. Merely because the assessee by mistake paid duty on the goods which were exempted from the duty payment under some other notification, did not mean that the goods would become goods liable for duty under the Act. Secondly, merely because the assessee had not claimed any refund on the duty paid by him would not come in the way of claiming benefit of the SSI exemption. Accordingly, the appeal was allowed in the favor of the appellant-assessee. The Court directed the adjudicating authority to apply the SSI exemption notification in the assessee s case without taking into consideration the excess duty paid by the assessee under the other exemption notification. 16 Page ph.no

17 MINIMAX INDUSTRIES [2012] (SC) Facts: The assessee was a partnership firm using brand name "Minimax" and was claiming SSI exemption in respect of machines manufactured by it. Department of denied SSI exemption on the ground that brand name belonged to some other person i.e. M/s Minimax Engineering Industries (MEI), a sole proprietary concern (in which the sole proprietor of MEI was the brother of the partners of the partnership firm.) The assessee contented that the brand name belonged to him as the MEI has not registered brand name in its name. Besides this the same was not used to indicate any connection of the assesses manufactured goods with MEI. SSI Exemption cannot be withdrawn if brand name belongs to assessee himself although some one else is equally entitled to use such name. Issue: Whether SSI exemption can be denied on ground that assessee is using brand name of another person Decision: As per SSI exemption notification, the SSI exemption could be denied only if the assessee uses on the goods (in respect of which the exemption is sought), the same/ similar brand name with the intention of indicating a connection of his goods with goods of such other person. Since the trade mark 'Minimax1 was being used by both MEI and partnership firm for last number of years and the same has not been registered either under the Registration Act, or under Trade mark Act or any other Act. MEI who has been using the name prior in time has never claimed exclusive rights over the use of logo 'Minimax' and had never taken any action against the partnership firm; 'Minimax' has not acquired any such reputation that it can be associated with "MEI"; therefore, "Minimax' belongs to both the entities namely the partnership firm and the proprietary concern. Therefore, there being no violation of condition as stipulated in exemption notification, the same cannot be denied. CONVERTECH EQUIPMENTS PVT LTD (2011)(SC) Issue: whether SSI exemption is available if trademark of foreign companies assigned with all rights to the assessee? SSI exemption is available if trademark of foreign companies assigned with all rights to the assessee Decision: when trademark of foreign company is assigned with all rights to the assessee, the assessee become the owner of such trademark in India. Hence use of such trademark by the assessee on its goods does not voilate conditions of SSI exemption 17 Page ph.no

18 M/S ACE Auto Co. Ltd. [2011] (SC) Facts:The assessee, a manufacturer of clutch plates& pressure plate for motor vehicles. Assesee used the symbol of TATA & clear such goods under the brand name "TATA ACE" into the Market. The assessee had claimed SSI-exemption, which was denied by the Department contending that since the assessee had used the brand-name of other person "TATA" (along with its own brand "ACE" to make it "TATA ACE"), hence, it was not eligible for SSI-exemption. Issue: Wheter SSI exemption is available to assessee? Assesee using the symbol of TATA on clutch plates& pressure plate along own Brand name ACE & clear such goods into the Market is not eligible for ssi exemption Decision: It was held that, Notification No. 8/2003-CE bars exemption if an assessee uses another person's brand name or trade name with the intention of indicating a connection between the assessee's goods and such other person. However, if the assessee is able to show that there was no such intention or that the user of the brand name was entirely fortuitous, it would be entitled to the benefit of exemption. The object of SSIexemption is to grant benefits only to those industries which other do not have advantage of brand or trade name. In this case, the brand name "TATA" didn't belong to assessee. Further, by using the said brand name, the assessee had not only intended to indicate a connection between the goods manufactured by them and TATA Company, but also the quality of their products as that of a product of TATA Company. Hence, the assessee was not entitled to the benefit of SSI-exemption notification. Parle Bisleri Pvt. Ltd. [2011] 263 ELT 15 (SC) The assessee used to manufacture soft-drink flavours, which were assigned code names viz. G-44T, L-33A, etc. It availed the benefit of SSI-exemption and cleared goods to its subsidiary M/s. Parle Exports Ltd. (PEL). M/s. PEL used to manufacture Non-Alcoholic Beverages Base (NABB) out of flavours supplied by the assessee and also used to manufacture the same flavours as the assessee. M/s. PEL also claimed SSI-exemption. The aforesaid flavours manufactured by the assessee with the code names given by M/ s. PEL. The Department contended that since the assessee cleared flavours in the "code names" belonging to M/ s. PEL (i.e. brand name of other person), hence, it was not entitled to SSIexemption. Further, it was argued that both the companies (assessee and its subsidiary M/ s. PEL) had the same effective financial control and management and were, therefore, one company and their clearances were liable to be clubbed for determining SSI-exemption. Decision: It was held that, - Clubbing of clearances : Some effective financial control and management between two companies - Clearances to be clubbed for SSIexemption The directors of the two companies: assessee and M/s. PEL were same. M/s. PEL had advanced Rs 1 crores to assessee for purchase of raw material. The flavours being manufactured by the assessee were developed by M/s. PEL at their R&D Lab. This points out to that fact that both the companies were created as separate legal entities 18 Page ph.no

19 with a view to avail of the SSI-exemption. In reality, both of them had same effective financial control and management control. Hence, the clearances of both the companies were liable to be clubbed for determining the eligibility to SSI-exemption. Code names were 'brand names': Code names, used on the flavours cleared by the assessee, belonged to M/s. PEL. The codes were used to identify the flavours and they indicated a connection in the course of trade between the flavours and M/s. PEL. The franchisers were purchasing the flavours by referring to the code names. Hence, the code names were 'brand names' within the meaning of SSI-exemption notification. Therefore, the assessee and M/s. PEL were not entitled to SSI-exemption. Meyer Health Care Pvt. Ltd. [2011] (SC) Facts: If Trade mark registered retrospectively then whether SSI Exemption is available from retrospective date? If Trade mark registered retrospectively then SSI Exemption is not available from retrospective date. Decision: If SSI unit wrongly affixes a trade mark of another person, be it registered or not, then such default would not be eliminated by provisions of Trade Marks Act, 1999 granting retrospective registration. Thus, the grant of registration certificate with retrospective effect under Trade Marks Act, 1999 will not automatically provide benefit of exemption to SSI unit. 19 Page ph.no

20 NEW CASE LAWS CLASSIFICATION OF GOODS SALORA INTERNATIONAL LTD. [2012] (SC) Facts: The Assessee, a manufacturer of various components of TV sets, assembled them as TV sets and after checking and confirming its working, they were disassembled with individual serial numbers and sent to sister units of assessee. The appellants classified these as "Parts of Television Receivers" under Tariff Heading 8529 The Department issued a SCN and sought to classify these as 'Television Receivers' under Tariff Heading Classification: Parts of Television Sets which were assembled into Television Sets (to see its proper functioning) and which were subsequently disassembled before removal from factory classified as Television receivers' under Tariff Heading 8528 of the Tariff. Issue: The issue under consideration is whether the goods manufactured by the appellant are liable to be taxed as 'parts of television receivers' falling under Tariff Heading 8529 of the Central Excise Tariff; or as 'television receivers' under Tariff Heading 8528 of the Tariff. Decision: On the parts having been completely assembled or made completely finished goods manufacturing process was over. Goods/Components transported from factory had essential characteristics of finished television receiver and were to be classified as complete or finished goods by invoking Rule 2(a) of Rules for interpretation of tariff. Thus, the same are to classified as complete TV sets and not as parts. Wock-hardt Life Science Ltd. [2012] (SC) Facts: The assessee was a manufacturer of Povidone Iodine Cleansing Solution USP ( PICSU ) and Wokadine Surgical Scrub ( WSS ). The assessee contended that the said products were Medicaments under Tariff Heading 3003 as it was used for surgical cleaning, while the Department contended that they were detergent under Tariff Heading Surgical cleansing solution Mostly used for medical purposes, though used in detergents also Primary use and composition is medicinal Hence, classifiable as medicament: Decision: Held that, products were medicaments in view of the three important tests for classification: Composition test, use test and common parlance test, as discussed below: i) Composition Test: The PICSU and WSS was made of 330 kg. of medicines in 1000 litres of water. The quantity of medicines used in particular product is not relevant because, normally, extent of use of medicinal ingredients is very low, as larger use may be harmful to the body. Therefore, as per primary use test, the products were medicament. ii) Use Test: The products in question were primarily used by surgeons for cleaning or de-germing their hands and scrubbing surface of skin of patients before operation. Merely because they were used in detergents as cleansing agents would not affect the classification. Therefore, as per primary use test, the products were medicaments. iii) Common Parlance Test: The products in question were understood as medicaments in common parlance and trade. Therefore, merely because of alternative used in making detergents, they could not be classified as detergents. 20 Page ph.no