The court affirmed that excise duty is based on actual market value, ruling the show-cause notice was lawful due to material non-disclosure by the petitioner.

ORDER :

P. Sam Koshy, J.

Heard Mr. A.V.A. Siva Kartikeya, learned counsel appearing on behalf of Ms. Nafisa, learned counsel for the petitioner; and Ms. Pravalika, learned counsel appearing on behalf of Mr. Dominic Fernandes, learned Senior Standing Counsel for CBIC, for the respondent.

2. The instant writ petition under Article 226 of the Constitution of India has been filed by the petitioner assailing the proceedings initiated by the respondent / Commissioner of Customs & Central Excise, in show-cause notice O.R.No.69/2006-Hyd-I, Adjn., dated 04.10.2006, to the extent of proposing to determine the assessable value with reference to sale prices of trader Rallies India Limited (for short ‘RIL’) as illegal, void and inoperative and interdict the petitioner from proceeding further in pursuance of the said show-cause notice.

3. The facts of the case are that the petitioner is a manufacturing company based in Hyderabad. The petitioner entered into an agreement date 15.09.2001 with RIL for manufacturing of agro chemical formulation bearing brand name “Contaf 5E” (chemically know as Hexaconazole 5% EC). Under this agreement, RIL supplied all raw materials and packing material to the petitioner, who then manufactures the formulation according to RIL’s standards, specification and quality control procedures. Once manufactured and packed as per RIL’s instruction, the petitioner delivers the finished products at its factory gate to RIL, who then arranges for dispatch to its various depots after quality certification. According to the petitioner, the agreement clearly establishes that the petitioner operates purely as a job worker, who manufactured branded product for RIL. The relationship between the petitioner and the RIL is that of bailor and bailee. The petitioner has no involvement whatsoever in the subsequent sale of these formulations by RIL from its depots to the customers.

4. Now as per the provisions of the Central Excise Act, 1944, (for short the ‘Act’) the petitioner is obligated to pay excise duty on products cleared from its factory calculated on its assessable value after claiming CENVAT credit on inputs and raw materials paid by RIL and then claims reimbursement from RIL. It is important to note that the petitioner claims that he has no knowledge of the prospective customers, the prices charged by RIL or any contractual relationship with the ultimate buyers. Moreover, the petitioner has consistently filed clearance returns and paid excise duty accordingly. On 22.09.2006, the Central Excise authorities summoned and recorded the statement of Mr. K.Saibaba, the Manager (Planning & Co-ordination) at the petitioner's factory. In his statement, he confirmed that the petitioner undertakes job work for agreed upon conversion charges and pays duty based on the cost construction method, which includes the cost of raw materials and packing materials (as certified by a Chartered Accountant) plus the conversion or job work charges. He also confirmed that the finished products are cleared from the petitioner's factory by RIL to their depots across India, and categorically stated that the petitioner has no knowledge of the rates at which RIL sells these products to its customers.

5. However, the respondent issued the impugned show-cause notice proposing to determine the assessable value of the goods manufactured by the petitioner by reference to the sale price at which RIL, as an independent trader, sold the goods to its ultimate customers from its depot. This proposed assessment would result