Per C.N.B. Nair :

The appellants are manufacturers of carpets. In addition to selling carpets at ex-factory prices to dealers, the appellants also sell carpets at contract prices. Such contract prices are in respect of bulk consumers like East India Hotels Ltd., Godrej, ITDC and others. The price list in respect of such contracts is approved in part-II proforma and the appellants pay duty on such contract prices.

2. The Revenue authorities observed that the contract prices were much lower than the ex-factory dealer price. It was also observed that the appellant had agreements with their bulk consumers for laying and fixing the carpets. They, therefore, undertook investigation into the correctness of the assessable value adopted for the carpets. The Revenue authorities also noticed that the appellants were carrying out conversion of duty paid carpets (outside the factory premises) into rugs for use in Maruti cars. Further, they were also cutting and stitching duty paid, running length carpets in to smaller carpets in their depots. Show cause notice was issued demanding duty on an enhanced value as well as on the processes carried out after clearances of the goods from the factor