The respondent had availed the benefit of the licence being fully aware of the Rules, notification and the terms incorporated in the licence. The Rules provide that he has to pay from the date of the settlement and in this case, the settlement took place on 5th June, 2006. In view of what has been engrafted in the Rules, there cannot be any trace of doubt that the respondent has to be made liable to pay the licence fee from the date of the settlement. There could not have been condonation of default. Such a concept is alien to the present nature of trade and a licencee cannot claim any benefit under the same as the whole thing is governed by the command of the Rules. That apart, we are unable to subscribe to the interpretation placed by the High Court that the auction-purchaser is liable to pay from the date of issuance of licence but not from the date of the settlement as that runs counter to the plain language of Rule 24. Reading the Rules in a comprehensive manner in juxtaposition with the notification which forms the terms and conditions of the licence and the nature of the trade, the irresistible conclusion is that the liability accrued from the date of the settlement and, therefore, we find that the order passed by the Excise Commissioner was just and proper and there was no warrant on the part of the High Court to interfere with the same. 32. Consequently, the appeal is allowed, the order passed by the High Court is set aside and that of the Excise Commissioner is restored. The parties shall bear their respective costs.

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO. 128  OF 2013
                (Arising out of S.L.P. (C) No. 19133 of 2009)


State of Bihar and Others                          ... Appellants

                                   Versus

Nirmal Kumar Gupta                           ..Respondent






                               J U D G M E N T


Dipak Misra, J.



      Leave granted.

   2. The pivotal issue that emerges for consideration  in  this  appeal  is
      whether the Division Bench of the High Court of  Judicature  at  Patna
      has correctly interpreted the effect and impact of  the  Bihar  Excise
      (Settlement of Licences for  retail  sale  of  country/spiced  country
      liquor) Rules, 2004 (for short “the Rules”) and the sale  notification
      published by the Collector  of  Kishanganj  in  Excise  Form  127  for
      various excise shops in groups in the said district for the year 2006-
      07 and the terms of licence.

   3.  As the factual matrix would exposit, the Collector,  Kishanganj,  got
      the sale notification in Excise Form  127  issued  for  settlement  of
      various excise shops in various groups in the district  of  Kishanganj
      for the financial year 2006-07 which stipulated  that  the  settlement
      shall be made on 23rd March, 2006  on  auction-cum-tender  basis  and,
      accordingly, applications were invited from  interested  persons.   As
      the settlement could not be effected in respect of group ‘ka’ shops in
      the said district, the Collector issued a second notification on  17th
      May, 2006 for the said group  ‘ka’  which  consisted  of  six  country
      spirit shops and three spiced country  spirit  shops.   On  5th  June,
      2006, the group ‘ka’ excise  shops  were  settled  in  favour  of  the
      respondent at a monthly licence fee of Rs.8,29,600/-.  The  respondent
      deposited the advance security of Rs.8,29,594/- on 7th June, 2006  and
      further Rs.8,29,600/- on 22nd June, 2006.  The  Collector,  Kishanganj
      moved the Commissioner for his approval and the same  was  granted  on
      1st July, 2006 in the office of the Collector on 5th July, 2006 and on
      that day itself, the licence was issued in favour of  the  respondent-
      licencee.  It is the case of the appellant that as the respondent  did
      not deposit the requisite 1/4th amount of the annual  licence  fee  as
      advance security as prescribed under the Rules but  did  so  in  three
      instalments, there was delay in obtaining the approval from the Excise
      Commissioner in terms of Rule 17(kha) of the Rules.  Despite the delay
      in the payment of the advance deposit, the Collector  had  recommended
      his case for approval and, eventually, the Commissioner  approved  the
      grant of licence in respect of group ‘ka’ shops and,  ultimately,  the
      licence was issued, as stated earlier, on 5th July, 2006.

   4. As there was breach of the conditions of the  licence,  a  demand  was
      raised for the period commencing 5th June, 2006 to 5th July,  2006  by
      the Excise Superintendent, Araria-cum-Kishanganj on 27th March,  2007.
      On receipt of the demand  notice,  the  respondent  moved  the  Excise
      Superintendent on 29th April, 2007 asking him to withdraw  the  demand
      on the ground that he had  not  utilized  the  privilege  during  that
      period.  Thereafter, he challenged the demand notice before the Excise
      Commissioner, who rejected  the  application  vide  order  dated  18th
      September, 2008.  Being grieved by the said order he  moved  the  High
      Court invoking the writ jurisdiction in CWJC No. 16577 of 2008.

   5. The High Court referred to Rules 16, 17, 20, 22 and  24  and  recorded
      its opinion in the following manner: -

                 “That group of shops have been settled  in  favour  of  the
           petitioner in the midst of excise year, is not in  dispute.   It
           is also a fact that on 5th June,  2006,  the  bid  made  by  the
           petitioner for group ‘ka’ excise shops  of  Kishanganj  District
           was highest and accepted by the  auctioning  authority  by  such
           acceptance is subject to approval of  the  Excise  Commissioner.
           There also does not seem to be any dispute that there  was  some
           default on the part of the petitioner in payment of the  advance
           security amount.   However,  the  default  seems  to  have  been
           condoned as despite the said default, his bid  dated  5th  June,
           2006 was not cancelled and licence was issued in Form 26C of the
           Rules on 5th July, 2006.  Rules 16 and 17  of  the  Rules,  when
           read together, would show that the final acceptance of  the  bid
           by the auctioning authority, by itself,  does  not  entitle  the
           bidder to get the licence as the said bid has to be accepted  by
           the Commissioner of Excise and only after it is accepted by  the
           Commissioner, then the licence is issued.  In  the  backdrop  of
           the aforesaid legal position, when we turn to the facts  of  the
           present case, it would be seen that although highest bid of  the
           petitioner was accepted on 5th June, 2006 but  it  was  only  on
           30th June, 2006 that the Licensing Authority recommended to  the
           Commissioner of Excise for approval of  settlement  and  it  was
           approved by the Excise Commissioner, Bihar on 1st July, 2006 and
           after receipt of the approval from the  Excise  Commissioner  on
           5th  July,  2006,  the  licence  was  issued  by  the  Licensing
           Authority on that date.  Surely, in the backdrop  of  the  facts
           that the licence was issued on 5th  July,  2006  the  petitioner
           could not have been fastened with the liability to  pay  licence
           fee from 5th June, 2006.”

                                                       [Underlining is ours]

   6. Questioning  the  correctness  of  the  aforesaid  conclusion,  it  is
      submitted by Mr. Gopal Singh, learned counsel for the State of  Bihar,
      that the High Court has fallen  into  error  by  construing  that  the
      default has been condoned though there is no concept of condonation in
      such a trade.  It is urged  by  him  that  as  the  requisite  advance
      licence fee was not deposited as per the Rules, the approval could not
      be obtained earlier and hence, the Department,  not  being  at  fault,
      should not suffer the loss of revenue more so when  the  licencee  had
      accepted the conditions enumerated in the licence. That apart, submits
      Mr. Singh, as per the Rules, in such a situation, the  respondent  was
      legally bound to pay the licence fee from the date of settlement.

   7. Mr. Shantanu Sagar, learned counsel appearing for the respondent,  per
      contra, has submitted that the High Court has correctly determined the
      controversy that the liability would be from the date of issue of  the
      licence and not earlier than that, for unless the licence  is  issued,
      he cannot trade in liquor and further it cannot be said that the State
      has parted with the exclusive privilege.

   8. To appreciate the controversy, it is necessary  to  refer  to  certain
      Rules.  Rule 16 of the Rules deals  with  the  acceptance  of  bid  or
      tenders.  It reads as follows: -

           “16. Acceptance of bid or tenders.– (1) The Auctioning Authority
           shall not be bound to accept the highest bid or  tender  or  any
           bid.  If  the  highest  bid  or  tender  is  not  accepted,  the
           licensing officer shall  instantaneously  declare  the  date  of
           fresh auction, mentioning the reasons.  In such a  circumstance,
           the entire deposited advance money will  be  refunded  to  those
           applicants who do not want to participate in subsequent auction.

           (2)   If the bid amount in any auction is finally accepted,  any
           subsequent  offer  with  regard  to  that  bid  shall   not   be
           considered.  No further negotiation shall be entertained by  the
           Licensing Authority or the officer conducting the auction.”

   9. Rule 17 of the Rules which provides for final acceptance of the bid is
      as follows: -

           “17. Final acceptance of bid. – (a) The recommendation to  grant
           exclusive privilege of retail sale for  the  shop  or  group  of
           shops to the person bidding highest, and acceptance  under  Rule
           16, shall be sent to the Commissioner of Excise by the Licensing
           Officer, and after his acceptance a licence will be issued.

           (b)   The amount of highest bid, accepted  will  be  the  annual
           amount of licence fee.”

  10. On a perusal of  the  aforesaid  two  Rules,  it  is  vivid  that  the
      Licensing Officer conducting auction accepts the bid and,  thereafter,
      sends his recommendation for grant of exclusive  privilege  of  retail
      sale for the shops or group of shops to the Commissioner and after his
      acceptance, the licence is issued.  The pertinent part of this Rule is
      that the amount of highest bid accepted would be the annual amount  of
      licence fee.

  11. Rule 19 provides  for  payment  of  advance  security  in  the  manner
      prescribed therein.  The said Rule is reproduced hereinbelow: -

           “19. Payment of Advance Security. –  After  the  declaration  of
           acceptance of the  highest  bid  the  Licensing  Authority,  one
           fourth, portion of the annual licence fee shall be paid  by  the
           highest bidder as advance security in the following  manner  for
           due execution of a contract: -

           a) An amount equivalent to sixth portion of annual  licence  fee
              shall be immediately deposited in cash or in the form of Bank
              Draft.  The amount of cash/Bank Draft  and  that  of  advance
              money deposited previously under Rule 11(a)  and  Rule  11(c)
              respectively, shall be adjusted in part from security amount.

           b) The payable remaining amount on account of  advance  security
              shall have to be deposited within  ten  days  of  auction  or
              before commencement of the licence whichever is earlier.”

  12. On a plain reading of the said Rule, it is manifest that  the  highest
      bidder has to immediately deposit one fourth of the annual licence fee
      as advance security money in the manner provided  in  sub-clauses  (a)
      and (b) of the Rule.

  13. Rule 20 deals with the consequences of default  in  advance  security.
      It reads as under: -

           “20. Default in advance  security.  –  In  case  of  failure  to
           deposit the amount of advance security, as mentioned in Rule 19,
           within the prescribed time, the settlement and the  licence,  if
           issued, shall stand cancelled and the deposited amount, if  any,
           shall be forfeited to the Government.  In such a circumstance, a
           re-auction or alternative  arrangement  shall  be  made  by  the
           Licensing Authority.”

  14. The aforesaid  Rule,  when  properly  scrutinized,  clearly  lays  the
      postulate that if the advance security  amount  is  not  deposited  in
      accordance  with  the  time  limit  prescribed  under  Rule  19,   the
      settlement and the licence, if issued, shall stand cancelled  and  the
      deposited sum, if any, shall be forfeited to  the  Government.   Thus,
      there is a distinction between settlement and issue of licence.

  15. Rule 23 deals with adjustment/refund of advance security  amount.   It
      stipulates that the security amount referred to in Rule  19  shall  be
      refunded at the end of the settlement  period  if  all  the  dues  and
      claims of the State Government with regard to the  auctioned  shop  or
      group of shops have already been paid by the licencee.

  16. Rule 24 deals with the commencement of the period of licence.   It  is
      as follows: -

           “24. Commencement of the period of licence. – A  licence  issued
           in favour of any auction-purchaser shall be effective  from  1st
           April of the excise year unless the Licensing  Authority  orders
           otherwise.  The auction-purchaser shall be liable to pay the bid
           money from the first day of the  licence  period,  even  if  the
           licence has been issued thereafter.

                 Provided that if any shop or a group of shops is settled in
                 the midst of the excise year, the  licence  shall  commence
                 from the date of settlement of the shop  or  the  group  of
                 shops.

           The  Licensing  Authority   shall   mention   details   of   the
           shops/licences to  be  settled  and  annual  minimum  guaranteed
           quantity to be lifted under those licences and the reserved  fee
           thereof, in the sale notification for every excise year.”

  17. The said Rule has to be carefully x-rayed and understood.  It  clearly
      lays down that the licence shall be effective from 1st  April  of  the
      excise year and the auction-purchaser shall be liable to pay  the  bid
      money from the first day of the licence period, even  if  the  licence
      has been issued thereafter.  The proviso further  stipulates  that  if
      any shop or a group of shops is settled in the  midst  of  the  excise
      year, the licence shall commence from the date of  settlement  of  the
      shop or the group of shops.

  18. The High Court, interpreting the Rule position, has  opined  that  the
      shops were settled in favour of the respondent in  the  midst  of  the
      year, i.e., on 5th June, 2006, and after obtaining the approval on 1st
      July, 2006 from the Excise Commissioner, the licence was issued by the
      Licensing Authority on 5th July, 2006, and, therefore, the  demand  of
      licence fee for the period from 5th June, 2006 to 5th  July,  2006  is
      not sustainable.

  19. As the factual matrix would reveal, the notification in Form  No.  127
      was issued on 23rd March, 2006.   The  terms  and  conditions  of  the
      settlement  of  excise  shops  were  duly  incorporated  in  the  sale
      notification and as per Rule 8, the terms and conditions mentioned  in
      the notification are deemed to be included in the  conditions  of  the
      licence.  As per the first notification, all the three country  spirit
      shops could not be settled and further steps were taken for settlement
      and, eventually, the bid of the respondent was accepted on  5th  June,
      2006 with the annual licence fee of Rs.99,55,200/- or at a monthly fee
      of Rs.8,29,600/-.  The respondent was required to  pay  1/4th  of  the
      annual licence fee as advance security money but he failed to do so in
      time.  He deposited the requisite amount in three  instalments,  i.e.,
      first on 7th June, 2006, second on 22nd June, 2006 and third  on  17th
      July, 2006.  As per Rule 19(a),  he  was  required  to  deposit  1/6th
      portion of the annual licence fee immediately in cash or in  the  form
      of bank draft.  The remaining amount of advance  security  was  to  be
      deposited within ten days of the auction or before the commencement of
      the licence.  Thus, the respondent failed  to  comply  with  the  said
      Rule.  However, the Collector recommended his case on 30th June,  2006
      which was accepted on 1st July, 2006 and the licence was issued on 5th
      July, 2006.  It is worthy to note that thereafter,  demand  notice  of
      Rs.16,03,893/-  was  issued  by  the   Excise   Superintendent.    The
      Commissioner took note of the fact that  out  of  Rs.74,36,071/-,  the
      licencee had paid Rs.66,36,794/- and, hence, a  sum  of  Rs.7,99,277/-
      remained to be paid.  Be it noted, on 3rd March, 2007, the licence was
      cancelled for breach of other conditions and in the present  case,  we
      are not concerned with  those  conditions,  for  the  controversy   in
      praesenti only relates to the demand commencing 5th June, 2006 to  5th
      July, 2006.

  20. The High Court has opined that the  State  had  not  parted  with  the
      exclusive privilege till the licence was issued.   Under  Rule  24,  a
      licence issued in favour of the auction-purchaser  is  effective  from
      1st April of the excise year unless  the  Licensing  Authority  orders
      otherwise and the auction purchaser is liable to  pay  the  bid  money
      from the first day of the licence period even if the licence has  been
      issued thereafter.  That apart, he is supposed to pay the licence  fee
      from the  commencement  of  the  settlement  period  and  the  licence
      commences from the date of the settlement.  In the case  at  hand,  it
      was settled on 5th June, 2006.  The licence was issued  on  5th  July,
      2006.  The principle of condonation of default has been taken recourse
      to by the High Court on the foundation that despite default in  making
      deposit of advance security, the  licensing  officer  recommended  his
      case for approval to the Commissioner of Excise.  The default,  as  we
      perceive, comes into play if there  is  violation  of  Rule  19  which
      stipulates for advance security.  There is no dispute  over  the  fact
      that there was delay.  The respondent was clearly responsible for  the
      same.  The licensing officer thought it appropriate to  recommend  his
      case and the Excise Commissioner did approve it and on receipt of  the
      approval, the licence was issued on  the  same  day.   The  respondent
      accepted the licence knowing fully well the terms  and  conditions  of
      the licence and that he has to pay the licence fee from  the  date  of
      the settlement.

  21. At this juncture, we may usefully address to the issue  whether  in  a
      case of this nature, the principle of condonation of default by way of
      conduct can  be  attracted.   First  of  all,  under  the  Rules,  the
      authorities are entitled to forfeit the amount deposited when there is
      non-compliance of the Rules.  It is to  be  borne  in  mind  that  the
      nature of the trade has also its own significance.   In  Amar  Chandra
      Chakraborty v. The Collector of Excise, Govt. of Tripura, Agartala and
      others[1], this Court held thus: -

           “Trade or business in  country  liquor  has  from  its  inherent
           nature been treated by the State and the society  as  a  special
           category requiring legislative control which has been  in  force
           in the whole of India since several decades.   In  view  of  the
           injurious effect of excessive consumption of  liquor  on  health
           this trade or business must be treated as a class by itself  and
           it cannot be treated on the same basis  as  other  trades  while
           considering Article 14.”

  22. In the  case  of  Nashirwar  etc.  v.  State  of  Madhya  Pradesh  and
      Others[2], this Court opined that the State has the exclusive right or
      privilege in manufacturing and selling of liquor and a citizen has  no
      fundamental right to do business in liquor.  It has been further ruled
      that it is within the police power of  the  State  to  enforce  public
      morality by prohibiting trade in noxious or dangerous goods.

  23. In Har Shandar and Others etc.  v.  The  Deputy  Excise  and  Taxation
      Commissioner and others etc.[3], the Constitution Bench reiterated the
      principles that there is no fundamental right to do trade or  business
      in intoxicant and the State has the authority to prohibit  every  form
      of activity in relation to intoxicant including manufacture,  storage,
      export, import, sale and possession.  It has also been laid down  that
      a wider right to prohibit absolutely would include the narrower  right
      to permit dealings in intoxicants in such terms of general application
      as the State deems expedient.

  24. In State of M.P.  and  others  etc.  v.  Nandlal  Jaiswal  and  others
      etc.[4], this Court held that trading in liquor is inherently punitive
      in nature.

  25. In M/s.  Khoday  Distilleries  Ltd.  v.  State  of  Karnataka[5],  the
      Constitution Bench has ruled that the right to  carry  on  occupation,
      trade or business  does  not  extend  to  trade  or  business  or  any
      activities which are injurious and against the welfare of the  general
      public.  It is further held therein that a citizen has no  fundamental
      right to do business in intoxicant as liquor.

  26. In M/s. Ugar Sugar Works Ltd. v. Delhi Administration  and  others[6],
      this Court  reiterated  the  said  principle  and  emphasized  on  the
      regulatory powers of the State.

27.   In State of M.P. and Ors. etc. etc. v. Nandlal Jaiswal and  Ors.  etc.
etc.[7], a two-Judge Bench, while expressing the view  that  Article  14  of
the Constitution is attracted to grant of exclusive right or  privilege  for
manufacture and sale of liquor  as  it  involves  the  State  largesse,  has
stated thus:-


          “33. But, while considering the applicability of  Article  14  in
          such a case, we must bear in mind  that,  having  regard  to  the
          nature of the trade or business,  the  Court  would  be  slow  to
          interfere with the policy laid down by the State  Government  for
          grant of licences for manufacture and sale of liquor.  The  Court
          would, in  view  of  the  inherently  pernicious  nature  of  the
          commodity  allow  a  large  measure  of  latitude  to  the  State
          Government in determining its policy of  regulating,  manufacture
          and  trade  in  liquor.  Moreover,  the  grant  of  licences  for
          manufacture and sale of liquor would essentially be a  matter  of
          economic policy where the Court would hesitate to  intervene  and
          strike down what the State Government had done, unless it appears
          to be plainly arbitrary, irrational or mala fide.”


                                                         [emphasis supplied]


28.   In P.N. Krishna Lal and Ors. v.  Govt.  of  Kerala  and  Anr.[8],  the
Court expressed thus:-


          “28....dealing in liquor inherently pernicious or dangerous goods
          which endangers the community or subversive of morale, is  within
          the legislative competence under the Act. The State  has  thereby
          the power to prohibit trade or business which is injurious to the
          health  and  welfare  of  the  public  and  the  elimination  and
          exclusion from the business is inherent in the nature  of  liquor
          business. The power of the legislature to evolve the  policy  and
          its competence to raise presumptive evidence should be considered
          from this scenario.”


                                                         [emphasis supplied]


29.   In Secretary to Govt., Tamil Nadu and Anr.  v.  K.  Vinayagamurthy[9],
it has been held as follows:


          “7....So far as the trade  in  noxious  or  dangerous  goods  are
          concerned, no citizen can claim to have trade in the same and the
          intoxicating liquor being a  noxious  material,  no  citizen  can
          claim any inherent right to sell intoxicating liquor  by  retail.
          It cannot be claimed as a privilege of a citizen of a State. That
          being the position, any restriction which the State brings forth,
          must be a reasonable restriction within the  meaning  of  Article
          19(6) and reasonableness of the  restriction  would  differ  from
          trade to trade and no hard and fast rule  concerning  all  trades
          can be laid down....”


30.   In State of Punjab and  Anr.  v.  Devans  Modern  Breweries  Ltd.  and
Anr.[10], it  has  been  reiterated  that  trade  in  liquor  is  considered
inherently noxious and pernicious.


31.   We have referred to the aforesaid decisions to accentuate  the  nature
of the trade, the role of the State, the economic  concept  of  the  policy,
limited attractability of Article 14 of  the  Constitution  as  regards  the
legislation or policy, the restriction inherent in the policy and  the  duty
of the court.  
On the aforesaid touchstone, we are required to  see
whether
the doctrine of condonation by conduct,  especially  in  the  present  case,
could have been taken recourse to by the High  Court.   
The  respondent  had
availed the  benefit  of  the  licence  being  fully  aware  of  the  Rules,
notification and the terms incorporated in the licence.  
The  Rules  provide
that he has to pay from the date of the settlement and  in  this  case,  the
settlement took place  on  5th  June,  2006.   
In  view  of  what  has  been
engrafted in the Rules,  there  cannot  be  any  trace  of  doubt  that  the
respondent has to be made liable to pay the licence fee  from  the  date  of
the settlement.  
There could not have been condonation of default.   
Such  a
concept is alien to the present nature of trade and a licencee cannot  claim
any benefit under the same as the whole thing is governed by the command  of
the Rules.  
That apart, we are unable to  subscribe  to  the  interpretation
placed by the High Court that the auction-purchaser is liable  to  pay  from the date of issuance of licence but not from the date of the  settlement  as that runs counter to the plain language of Rule 24.  
Reading the Rules in  a
comprehensive manner in juxtaposition with the notification which forms  the
terms and conditions of the  licence  and  the  nature  of  the  trade,  the
irresistible conclusion is that the liability accrued from the date  of  the
settlement and, therefore, we find that  the  order  passed  by  the  Excise
Commissioner was just and proper and there was no warrant  on  the  part  of
the High Court to interfere with the same.


32.   Consequently, the appeal is allowed, the  order  passed  by  the  High
Court is set aside and that of the Excise  Commissioner  is  restored.   The
parties shall bear their respective costs.





                                                             ……………………………….J.
                            [K. S. Radhakrishnan]



                                                             ……………………………….J.
                                                     [Dipak Misra]

New Delhi;
January 08, 2013
-----------------------
[1]    AIR 1972 SC 1863
[2]    AIR 1975 SC 360
[3]    AIR 1975 SC 1121
[4]    AIR 1987 SC 251
[5]    (1995) 1 SCC 574
[6]    AIR 2001 SC 1447
[7]    AIR 1987 SC 251
[8]    1995 Supp (2) SCC 187
[9]    AIR 2002 SC 2968
[10]   (2004) 11 SCC 26

-----------------------
19

Central Excise Tarriff act, 1985-Chapter Heading 19.04 & 21.07 (remoulded as Chapter Heading 21.08 during AY 1996-97)-Assessee making `puffs' by swelling/roasting of cereals-Demand raised on accessee on ground of misdeclaration of product-Confirmed by authorities below as well as Tribunal-Main question required to be decided was whether the `puffs' would fall under Chapter Heading 19.04 or under Chapter Heading 21.07 (remoulded as Chapter Heading 21.08 during AY 1996-97)-But Tribunal gave no finding as to whether `puffs' would fall under the Chapter Heading 19.04-It did not consider various important issues questions-Matter remanded to adjudicating authority for fresh determination. Assessee manufactures `puffs' from cereals, namely wheat and soya nuts. The product is packed in unit containers and supplied to Integrated Child Development Scheme (ICDS) in Haryana. Department issued show cause notice raising demand on the assessee for mis-declaration of the said products as `chabena/prasad'. It was further alleged that the products were sold in the market under the brand name `bonton' as breakfast cereals, high in protein and low in cholesterol and also sold to five star hospitals and public schools. In the circumstances, the assessee was asked to pay Rs.2.31 crores as duty. The demand was confirmed by the authorities below as well as the Tribunal. Hence the present appeal.

Allowing the appeal, the Court HELD: 1.1. The `puffs' prepared from cereals cannot fall within the item `Prasad/prasadam'. To that extent the impugned order of adjudication is acceptable. [Para 8] [394-E] 1.2. The main question required to be decided was whether `puffs' made from cereals would at all fall under Chapter Heading 19.04 or whether they would fall under Chapter Heading 21.07 (remoulded as Chapter Heading 21.08 during the Assessment Year 1996-97). In the entire discussion in the impugned judgment there is no finding given by the Tribunal as to whether `puffs' prepared from cereals would fall under the Chapter Heading 19.04. As far as `puffs' prepared from soya nuts are concerned there is no finding as to the quantity of puffed soya nuts sold by the assessee during the requisite period of ICDS, Haryana and the quantity of the said product sold by the assessee during the same period to public schools and five star hospitals. There is also no finding as to whether `puffed soya nuts' were supplied to ICDS, Haryana under the brand name `bonton' or whether they were supplied without any brand name being affixed to the unit containers. These questions are important since the entry 2108.91 refers to nil rate of duty for "Other Edible Preparations" as long as the product is supplied without a brand name. These questions are also important to be decided particularly since the General Exemption No.83 states that the benefit of exemption shall be given only if the product is a soya based food preparation for infant use. According to the assessee puffed soya nuts is a soya based food preparation under item No.25 of the Notification No.2 of 1994 (General Exemption No.83). According to the assesee puffed soya nuts were supplied to the schools under ICDS programme. None of the questions have been decided. [Para 9 and 11] [394-E, F; 396-B-E] 2. In the circumstances, the judgment of the Tribunal is set aside and the matter is remanded to the adjudicating authority for fresh determination in accordance with law. [Para 12] [396-E, F] A.R. Madhav Rao, Alok Yadav and M.P. Devnath for the Appellant. V. Shekhar, C.K. Sucharita and B.K. Prasad for the Respondent. , 2007(5 )SCR389 , 2007(9 )SCC32 , 2007(6 )SCALE22 , 2007(8 )JT338 CASE NO.: Appeal (civil) 654 of 2002 PETITIONER: M/s. Adhunik Food Products (P) Ltd., U.P. RESPONDENT: Commissioner of Central Excise, Meerut DATE OF JUDGMENT: 20/04/2007 BENCH: S.H. KAPADIA & B.SUDERSHAN REDDY JUDGMENT: J U D G M E N T KAPADIA, J. A short point which arises for determination in this civil appeal is : whether 'puffs' obtained by the swelling or roasting of cereals constitute preparations of cereals under Chapter Heading 19.04. According to the appellant 'puffs' from cereals fall under Chapter Heading 21.07 (Edible preparations). The assessee manufactures 'puffs' from cereals namely wheat and soya nuts. The said product is packed in unit containers and supplied to Integrated Child Development Scheme (for short 'ICDS') in Haryana. On 21.3.1997 a show-cause notice was issued by the Department raising a demand on the assessee for mis-declaration of the said products as 'chabena/prasad'. In the said show cause notice it was further alleged that the products were sold under the brand name 'bonton'. Under the said show cause notice it was also alleged that the said 'puffs' were sold in the market as breakfast cereals, high in protein and low in cholesterol. It was further alleged that the said products were sold to five star hospitals and public schools. In the circumstances the assessee was called upon to pay to the Department Rs.2.31 crores as duty for the aforesaid period. This demand has been confirmed by the authorities below as well as by the Tribunal. Hence this civil appeal. In this case we are concerned with two sets of the same entry since the show cause notice covers the period of 5 years between 1992-93 to 1996-97. For the period 1994-95 we quote hereinbelow Chapter Heading 19.04 "CHAPTER 19 PREPARATIONS OF CEREALS, FLOUR, STARCH OR MILK; PASTRY COOKS' PRODUCTS Notes: 1. xxx xxx xxx 2. Heading No.19.04 does not cover preparations containing more than 8% by weight of cocoa powder or coated with chocolate or other food preparations containing cocoa of Chapter 18. Heading No. Sub- heading No. Description of goods Rate of duty (1) (2) (3) (4) 19.04 Prepared foods obtained by the swelling or roasting of cereals or cereal products (for example, corn flakes); cereals, other than maize (corn), in grain form, pre- cooked or otherwise prepared 1904.10 Put up in unit containers and ordinarily intended for sale 10% 1904.90 Other Nil For the same period we quote hereinbelow Chapter Heading 21.07: "CHAPTER 21 MISCELLANEOUS EDIBLE PREPARATONS Notes : 1 to 4. xxx xxx xxx 5. Heading No.21.07, inter alia, includes: (a) protein concentrates and textured protein substances; (b) preparations for use, either directly or after processing (such as cooking; dissolving or boiling in water, milk or other liquids), for human consumption; (c) preparations consisting wholly or partly of foodstuffs, used in the making of beverages or food preparations for human consumption; (d) powders for table creams, jellies, ice- creams and similar preparations, whether or not sweetened; (e) flavouring powders for making beverages, whether or not sweetened; (f) peanut butter; (g) preparations consisting of tea or coffee and milk powder, sugar and any other added ingredients; (h) preparations (for example, tablets) consisting of saccharim and a foodstuff, such as lactose, used for sweetening purposes; (i) pre-cooked rise cooked either fully or partially and their dehydrates; and (j) preparations for lemonades or other beverages, consisting, for example, of flavoured or coloured syrups, syrup flavoured with an added concentrated extract, syrup flavoured with fruit juices and concentrated fruit juice with added ingredients. (emphasis supplied) Heading No. Sub- heading No. Description of goods Rate of duty (1) (2) (3) (4) 21.07 Edible preparations, not elsewhere specified or included 2107.10 Prasad or prasadam Nil 2107.20 Sterilised or pasteurized miltone Nil Other: 2107.91 Put up in unit containers and ordinarily intended for sale 50% 2107.99 Other 50% At this stage it may be noted that Chapter sub- heading 2107.91 during the relevant period attracted 50% duty. However, the effective rate of duty was nil in view of general exemption No.83 (item No.25) of the Notification No.2/1994 dated 1.3.1994. We quote hereinbelow item No.25 of General Exemption No.84 vide Notification No.2/1994. "GENERAL EXEMPTION NO.83 Effective rate of duty for certain specified goods of Chapters 4 to 22 In exercise of the powers conferred by sub- section (1) of section 5A of the Central Excises and Salt Act, 1944 (1 of 1944), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts goods specified in column (3) of the Table hereto annexed and falling under the Chapter or sub-heading No. of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), specified in the corresponding entry in column (2) of the said Table, from so much of the duty of excise leviable thereon which is specified in the said Schedule, as is in excess of the amount calculated at the rate specified in the corresponding entry in column (4) thereof. Heading No. Sub- heading No. Description of goods Rate of duty (1) (2) (3) (4) 25 2107.91 (i) Soya textured protein, Soya yoghurt, soya tofu, soya based food preparations for infant use, soya milk powder, soya noodles, soya macaroni and soya tempeh, whether or not containing other food ingredients but not containing cocoa; (ii) Powders of fruitsand vegetables; (iii) Papad, idli-mix, vada- mix, dosa-mix, jalebi-mix, gulabjamun-mix or namkeens, such as bhujyia, chabena. Nil Heard learned counsel on both sides. In the present matter the show cause notice concentrated more on the denial of exemption claimed by the assessee, than the classification. We may make it clear that the 'puffs' prepared from cereals cannot fall within the item 'Prasad/prasadam'. To that extent we are in agreement with the impugned order of adjudication. The main question which was required to be decided was whether 'puffs' made from cereals would at all fall under Chapter Heading 19.04 or whether they would fall under Chapter Heading 21.07 (remoulded as Chapter Heading 21.08 during the Assessment Year 1996-97). For the sake of clarity we also quote hereinbelow the remoulded Chapter Heading 21.08. "CHAPTER 21 MISCELLANEOUS EDIBLE PREPARATONS Notes : 1 to 8. xxx xxx xxx 9. Heading No.21.08, inter alia, includes: (a) protein concentrates and textured protein substances; (b) preparations for use, either directly or after processing (such as cooking; dissolving or boiling in water, milk or other liquids), for human consumption; (c) preparations consisting wholly or partly of foodstuffs, used in the making of beverages or food preparations for human consumption; (d) powders for table creams, jellies, ice- creams and similar preparations, whether or not sweetened; (e) flavouring powders for making beverages, whether or not sweetened; (f) peanut butter; (g) preparations consisting of tea or coffee and milk powder, sugar and any other added ingredients; (h) preparations (for example, tablets) consisting of saccharim and a foodstuff, such as lactose, used for sweetening purposes; (i) pre-cooked rise cooked either fully or partially and their dehydrates; and (j) preparations for lemonades or other beverages, consisting, for example, of flavoured or coloured syrups, syrup flavoured with an added concentrated extract, syrup flavoured with fruit juices and concentrated fruit juice with added ingredients. Heading No. Sub- heading No. Description of goods Rate of duty (1) (2) (3) (4) 21.08 Edible preparations, not elsewhere specified or included 2108.10 Preparations for lemonades or other Beverages intended for use in the manufacture of Aerated Water 40% 2108.20 Sharbat 20% 2108.30 Prasad or Prasadam Nil 2108.40 Sterilised or pasteurized miltone Nil Other: 2108.91 Not bearing a brand name Nil 2108.99 Other 20% In the entire discussion in the impugned judgment there is no finding given by the Tribunal as to whether 'puffs' prepared from cereals would fall under the Chapter Heading 19.04. As far as 'puffs' prepared from soya nuts are concerned there is no finding as to the quantity of puffed soya nuts sold by the assessee during the above period to ICDS, Haryana and the quantity of the said product sold by the assessee during the said period to public schools and five star hospitals. There is also no finding as to whether 'puffed soya nuts' were supplied to ICDS, Haryana under the brand name 'bonton' or whether they were supplied without any brand name being affixed to the unit containers. These questions are important since the entry 2108.91 refers to nil rate of duty for "Other Edible Preparations" as long as the product is supplied without a brand name. These questions are also important to be decided particularly since the General Exemption No.83 states that the benefit of exemption shall be given only if the product is a soya based food preparation for infant use. According to the assessee puffed soya nuts is a soya based food preparation under item No.25 of the Notification No.2 of 1994 (General Exemption No.83). According to the assessee puffed soya nuts were supplied to the schools under ICDS programme. None of the questions have been decided. In the circumstances, we set aside the impugned judgment of the tribunal and remand the matter to the adjudicating authority for fresh determination in accordance with law. The appeal is accordingly allowed with no order as to costs.

the Customs Excise & Service Tax Appellate Tribunal, New Delhi (for short "the Tribunal"). By the impugned order the Tribunal has quashed the additional excise duty demand of `9,34,89,367/- under Section 11A of the Act; penalties of `1.5 crores each on respondent Nos.1 and 2 1 =whether the Assessee and Heinz are related persons. It based its decision solely on the observation made by the Adjudicating Authority "that the status of the Assessee was not better than that of a hired labour". We are, therefore, of the opinion that in the light of the above discussion, it would be necessary for the Tribunal to examine in depth the agreement between the Assessee and Heinz as also any other additional material, the 16

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 6539-6540 OF 2010 COMMISSIONER OF CENTRAL EXCISE, -- APPELLANT FARIDABAD VERSUS M/S. FOOD & HEALTHCARE -- RESPONDENTS SPECIALITIES & ANR. JUDGMENT D.K. JAIN, J.: 1. These appeals under Section 35L(b) of the Central Excise Act, 1944 (for short "the Act") are directed against a common final order, dated 2nd February 2005 in Appeal No. E/5261-62/04-NB(A), passed by the Customs Excise & Service Tax Appellate Tribunal, New Delhi (for short "the Tribunal"). By the impugned order the Tribunal has quashed the additional excise duty demand of `9,34,89,367/- under Section 11A of the Act; penalties of `1.5 crores each on respondent Nos.1 and 2 1 under Rule 173Q of the Central Excise Rules, 1944 (for short "the 1944 Rules") and Rule 25(1) of the Central Excise Rules, 2001 (for short "the 2001 Rules") read with Section 38A of the Act and a penalty of `2 crores under Rule 209A of the 1944 Rules and Rule 26 of 2001 Rules read with Section 38A of the Act on Respondent No. 2 as confirmed by the Deputy Commissioner of Central Excise. 2. Succinctly put, the material facts giving rise to the present appeals are as under: Respondent No.1--M/s Food & Healthcare Specialities (for short "the Assessee") was engaged in the blending and packing of `Glucon D' for M/s Heinz India Pvt. Ltd. (for short "Heinz"), respondent No.2 in these appeals, pursuant to an agreement commencing from 1st March 2000. Under the agreement, Heinz was to supply raw material, packing material and the technical know-how to the Assessee for the blending and packing of the said product. From March 2000 to September 2000, the Assessee paid excise duty on the basis of wholesale price of the product at the depots of Heinz. However, for the period commencing from October 2000, they filed price declarations seeking to modify the assessable value of the product as the aggregate of cost of raw material, packing material and their job work 2 charges and started paying duty on the same. During the course of investigations undertaken by the revenue, it was found that the said product was also being processed at the Aligarh factory of Heinz and the duty on those clearances was being paid at the assessable value/depot sale price of Heinz. Consequently, three notices were issued to the Assessee for the period October 2000 to December 2000; January 2001 to June 2001 and July 2001 to February 2002, to show-cause as to why the assessable value declared by them be not rejected and the price declarations submitted by them be not amended by determining the assessable value on the basis of the sale price fixed by Heinz at its depots and the duty so paid be not recovered along with penalty under Rule 173Q of the 1944 Rules. Upon consideration of the cause shown by the Assessee, the Adjudicating Authority, by its order dated 31st August 2004, confirmed the differential demand indicated in the show cause notices and imposed the aforesaid penalties on the Assessee as also on Heinz. On appeals preferred against the said order, the Tribunal, by an exceptionally short order, set aside the order-in-original, concluding that since the Adjudicating Authority has itself given a specific finding that the status of the Assessee was not better than that of hired labour and Heinz is the manufacturer, the duty is leviable only on the manufacturer. Being aggrieved by the dismissal of its appeal 3 under Section 35G of the Act by the High Court, as not maintainable, the revenue is before us in these appeals. 3. Mr. B. Bhattacharyya, learned Additional Solicitor General appearing for the appellant, referring to several clauses of the agreement between the Assessee and Heinz, in particular, clauses (d), (1), (2), (5), (7), (9),(13), (15) and (16), vehemently submitted that the relationship between the Assessee and Heinz was one of principal and agent and not of principal to principal and therefore, the price at which, Heinz sold `Glocon-D' in the wholesale market must be taken as the assessable value. According to the learned counsel, Heinz had complete control over the activities of the Assessee, who was merely a job worker. To bring home his point that the Assessee was merely an extended arm of Heinz, he laid emphasis on the fact that processed `Glocon- D' was stored at the same premises from where Heinz was operating; Heinz had also taken an exemption from registration under Rule 9(2) of the erstwhile Central Excise (No.2) Rules, 2001, in terms of Notification No. 36/2001 dated 26th June 2001, which was available to a manufacturer who got his goods manufactured on his account from any other person, subject to the condition that the said manufacturer authorised the person, who actually manufactured or fabricated the said goods, to comply with all the procedural 4 formalities under the Act and the rules made thereunder, in respect of the goods manufactured on behalf of the said manufacturer. Relying heavily on the decision of this Court in Commissioner of Central Excise, Indore Vs. S. Kumars Ltd. & Ors.1, wherein dealing with the question of assessable value of the processed goods in relation to the processor the earlier decisions of this Court in M/s Ujagar Prints & Ors. (II) Vs. Union of India & Ors.2 (for short "Ujagar Prints (II)"), M/s Ujagar Prints & Ors. (III) Vs. Union of India & Ors.3 (for short "Ujagar Prints (III)"), Empire Industries Limited & Ors. Vs. Union of India & Ors.4 and Pawan Biscuits Co. Pvt. Ltd. Vs. Collector of Central Excise, Patna5, were discussed. Learned counsel argued that the formula laid down in the Ujagar Prints (II) or (III) would not apply to the fact-situation. It was stressed that having failed to examine the relationship between the Assessee and Heinz, the Tribunal's order deserved to be set aside and the matter was fit to be remitted back to the Tribunal for fresh adjudication on the touchstone of the ratio of S. Kumars. 1 (2005) 13 SCC 266 2 (1989) 3 SCC 488 3 (1989) 3 SCC 531 4 (1985) 3 SCC 314 5 (2000) 6 SCC 489 5 4. Per Contra Mr. V. Lakshmi Kumaran, learned counsel appearing on behalf of the respondents submitted that in the show cause notice there was no allegation that the Assessee and Heinz are related persons and therefore, Section 4 (1)(b) of the Act could not be invoked to determine the assessable value. It was asserted that in reply to the show cause notice, it was clearly stated that apart from the fact that dealings between the Assessee and Heinz were on principal to principal basis, the Assessee was also processing goods for other manufacturers. In support of this argument, learned counsel relied upon clause 22 of the agreement between the said parties, which stipulated that: "Nothing herein contained shall constitute or be deemed to or is intended to constitute F&HS as an agent of Heinz. It is hereby expressly agreed and declared that F&HS shall not at any time- a) Enter into a contract in the name of or purporting to be made on behalf of Heinz. b) .............................................................." It was argued that the clause clearly shows that the parties were at arm's length and the Assessee was processing `Glucon-D' only on job-work basis. It was thus asserted that dealings between the Assessee and Heinz being on principal to principal basis, the principle laid down in Ujagar Prints (II), as clarified in Ujagar Prints (III), for determining the assessable value, was on 6 all fours with the fact-situation at hand and as such the ratio of the judgment in S. Kumars will not apply. In the compilation filed on behalf of the Assessee, reliance is also placed on Circular No.: 619/10/2002-CX dated 19th February 2002, which clarifies that even after the introduction of new valuation provisions with effect from 1st July 2000, in respect of goods manufactured on job-work basis, valuation would be governed by Rule 11 read with Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 (for short "the 2000 Rules") and the decisions of this Court in Ujagar Prints II and Pawan Biscuits. According to the learned counsel, the issue raised by the revenue stands concluded by the ratio of Pawan Biscuits, and therefore, the appeals deserve to be dismissed. 5. The principles of valuation of excisable goods for the purpose of charging excise duty are contained in Section 4 of the Act (as amended with effect from 1st July 2000), which, insofar as it is relevant, reads as follows: "4. Valuation of excisable goods for purposes of charging of duty of excise.--(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall-- (a) 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 goods are not related and the price is the sole consideration for the sale, be the transaction value; 7 (b) in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed. (2) .................................................................... (3) For the purposes of this section,-- (a) ............................................................ (b) persons shall be deemed to be "related" if-- (i) they are inter-connected undertakings; (ii) they are relatives; (iii) amongst them the buyer is a relative and distributor of the assessee, or a sub-distributor of such distributor; or (iv) they are so associated that they have interest, directly or indirectly, in the business of each other. Explanation.--In this clause-- (i) "inter-connected undertakings" shall have the meaning assigned to it in clause (g) of section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 (64 of 1969); and (ii) "relative" shall have the meaning assigned to it in clause (41) of section 2 of the Companies Act, 1956 (1 of 1956); (c) ............................................................ (d) "transaction value" means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not 8 limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods." The new Section 4 of the Act, substituted w.e.f 1st July 2000, and material for our purpose, prescribes that the value of excisable goods shall be the transaction value subject to satisfying the conditions that: (i) the price must be the sole consideration; (ii) the buyer must not be a related person and (iii) the goods must be sold by the assessee for delivery at the time and place of removal. The basic principle underlying Section 4(1)(a) of the Act is the transaction value as defined in clause (d) of sub-section 3 of Section 4 of the Act, which inter-alia, means the price actually paid or payable for the goods when sold, provided the assessee and the buyer of goods are not related. Clause (b) of sub-section (3) of Section 4 of the Act, inter-alia, stipulates that person shall be deemed to be "related" if they are so associated that they have interest, directly or indirectly, in the business of each other. It is clear that if the assessee and the buyer are related, valuation has to be under Section 4(1) (b) of the Act read with the 2000 Rules. We may, however, note that conceptually there is no significant change in the definition of "related person" in the new and repealed Section 4 of the Act. 9 6. Thus, the pivotal question on which learned counsel for both the parties addressed us, is whether the Assessee was merely a processor of `Glucon-D', independent of Heinz or it was related to Heinz. In other words, whether the relationship between the Assessee and Heinz was one of principal to principal or that of an agent and principal. As aforesaid, the stand of the revenue is that the Assessee, as the processor, is not independent of Heinz and therefore, ratio of Ujagar Prints (III) would not apply. It is evident from the order of the Tribunal that it has not addressed this aspect of the matter in detail, and has not considered whether the Assessee and Heinz were related persons. Nevertheless, since the rival contentions urged before us mainly related to the question as to whether the formula laid down in Ujagar Prints (III) and reiterated in Pawan Biscuits, would apply or the principle enunciated in S. Kumar will govern the present case, it will be useful to notice the principle enunciated in Ujagar Prints (II) and (III) as also the ratio of S. Kumar. 7. In Ujagar Prints (II), a Constitution Bench of this Court was called upon to consider the correctness of the view taken by this Court in Empire Industries. In Empire Industries, it was held that the Central Excises and Salt and Additional Duties of Excise (Amendment) Act, 10 1980, by which, the processes of bleaching, dying and printing were brought within the definition of `manufacture' for the purposes of the Central Excise and Salt Act, 1944 and the Additional Duties of Excise (Goods of Special Importance) Act, 1957 were constitutionally valid. While upholding the validity of the Amendment Act, it was observed that when the textile fabrics are subjected to the processes like bleaching, dyeing and printing etc. by independent processes, whether on their own account or on job charges basis, the value for the purposes of assessment under Section 4 of the said Act will not be the processing charges alone but the intrinsic value of the processed fabrics which is the price at which such fabrics are sold for the first time in the wholesale market. The principle enumerated in Section 4(1)(a) of the Act was applied to the processed goods. In other words, the assessable value of the processed goods, as far as the processor was concerned, had to be the same irrespective of the fact whether the processor manufactures the goods and then processes them itself or gives the goods and merely undertakes processing before returning the same to the manufacturer/owner. That common norm was the wholesale price. 11 8. On an application filed for clarification of the judgment in Ujagar Prints (II), this Court by a short order in Ujagar Prints (III) clarified as follows: "1...it is made clear 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 these may be, which will either be included in the price at the factory gate or deemed to be the price at the factory gate for the processed fabric. The factory gate here means the "deemed" factory gate as if the processed fabric was sold by the processor..." The Court went on to explain: "2. If the trader, who entrusts cotton or man-made fabric to the processor for processing on job work basis, would give a declaration to the processor as to what would be the price at which he would be selling the processed goods in the market, that would be taken by the excise authorities as the assessable value of the processed fabric and excise duty would be charged to the processor on that basis provided that the declaration as to the price at which he would be selling the processed goods in the market, would include only the price or deemed price at which the processed fabric would leave the processor's factory plus his profit..." 9. The decision in Ujagar Prints (III) was subsequently followed by this Court in Pawan Biscuits. In that case, the Tribunal had held that the assessee was, in reality, an agent of Britannia Industries Ltd. and, 12 therefore, the price at which Britannia was selling the manufactured goods in the wholesale market was to be taken as the assessable value. The decision of the Tribunal was reversed by this Court. It was found that the agreement between Pawan Biscuits and Britannia indicated that their relationship was one of principal to principal and not that of principal and agent and also that the assessee (Pawan Biscuits) could manufacture biscuits of other brands and sell them. Observing that Pawan Biscuits had been established much prior to its agreement with Britannia, it was held that the decisions in Ujagar Prints (II) and (III) could not be factually distinguished. In short, it was held that for the purpose of determining assessable value, 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-manufacturing profits. 10. A similar issue again came up for consideration of this Court in S. Kumars. In that case, the assessee was processing grey fabrics. Sometimes the grey fabrics were processed on their own account and sometimes the grey fabrics were received for processing on job charge basis from others, referred to in the judgment as the merchant manufacturers. The assessee paid excise duty on the fabrics processed 13 by it treating the value of the processed fabric as being that at which, the merchant manufacturers were selling the processed goods. This, according to the assessee was in accordance with the decision in Empire Industries. However, on the fabrics processed by it which had been received from the merchant manufacturers, the assessee 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 manufacturers were selling the processed goods was not taken into consideration. According to the assessee, this was done in light of the decision in Ujagar Prints (II) and (III). A notice was issued to the assessee to show-cause as to why differential duty of Excise along with penalty be not recovered from it as the assessee and the merchant manufacturers were all firms and companies having a common management and control with some of them selling grey fabrics to the assessee, which after processing the fabrics was sold to some independent dealers. All such independent dealers as well as the merchant manufacturers were described as `S. Kumars' and the revenue asserted to treat the price charged by the merchant manufacturers from independent dealers as the assessable value of the processed fabrics and to levy excise duty 14 thereon. The assessee denied that the merchant manufacturers were related persons and thus disputed the basis on which claim for additional excise duty was made. The stand of the assessee was that by virtue of the decision of this Court in Ujagar Prints (III), they were liable to treat the notional sale by the assessee to the merchant manufacturers as the relevant point for determining the assessable value. Examining the provisions of Section 4 of the Act, as it existed at the relevant time, with reference to the Central Excise Valuation Rules, 1975 and the decisions of this Court in Ujagar Prints (II) and Ujagar Prints (III) and Pawan Biscuits, the Court held as follows: "We, therefore, do not agree that Ujagar Prints (III) would apply even to a processor who is not independent and, as is alleged in this case, the merchant manufacturers and the purchasing traders are merely extensions of the processor. In the latter case, the processor is not a mere processor but also a merchant manufacturer who purchases/manufactures the raw material, processes it and sells it himself in the wholesale market. In such a situation, the profit is not of a processor but of a merchant manufacturer and a trader. If the transaction is between related persons, the profit would not be "normally earned" within the meaning of Rule 6(b)(ii). If it is established that the dealings were with related persons of the manufacturer, the sale of the processed fabrics would not be limited to the formula prescribed by Ujagar Prints (III) but would be subject to excise duty under the principles enunciated in Empire Industries as affirmed in Ujagar Prints (II), incorporating t he arms length principle." (Emphasis supplied by us) 15 11. It is manifest from the above that the only distinctive feature of S. Kumars in comparison with Ujagar Prints (II) and (III) is the emphasis on the factum of relationship between the parties viz., the processor and the merchant manufacturers/traders, in the former. In short, S. Kumars holds that if the processor-assessee is not at arm's length with the merchant manufacturer and is a related person, the formula prescribed in Ujagar Prints (III) would not apply and assessable value for the purpose of levy of excise duty will have to be determined in terms of the ratio of S. Kumar i.e. in accordance with the procedure contemplated in Section 4(1)(b) of the Act read with the relevant valuation Rules. We deferentially concur with the ratio of S. Kumars. 12. In the present case, as aforesaid, neither did the Tribunal address this aspect of the matter, nor did it consider whether the Assessee and Heinz are related persons. It based its decision solely on the observation made by the Adjudicating Authority "that the status of the Assessee was not better than that of a hired labour". We are, therefore, of the opinion that in the light of the above discussion, it would be necessary for the Tribunal to examine in depth the agreement between the Assessee and Heinz as also any other additional material, the 16 parties may like to adduce and determine the question whether or not both of them are related persons. 13. Resultantly, the appeals are allowed and the matter is remanded back to the Tribunal for the purpose of determining the nature of relationship between the Assessee and Heinz. If it is found that they are not related persons, then the present decision of the Tribunal will stand affirmed. However, if the Tribunal finds that the Assessee and Heinz are related, it shall remit the matter to the Adjudicating Authority for fresh determination of the assessable value of the goods in question in accordance with law. However, having regard to the facts and circumstances of the case, there will be no order as to costs. ............................................. (D.K. JAIN, J.) ............................................. (ANIL R. DAVE, J.) NEW DELHI; FEBRUARY 13, 2012. RS 17 18

The material facts are that the appellant is engaged in the manufacture of insulated wires and cables falling under Central Excise Tariff Sub-

                                            1






                                                        REPORTABLE




                IN THE SUPREME COURT OF INDIA




                 CIVIL APPELLATE JURISDICTION




                   CIVIL APPEAL NO. 5870  OF 2005








UNIFLEX CABLES LTD.                                         .....APPELLANT.




                                       VERSUS




COMMISSIONER, CENTRAL EXCISE,


SURAT-II                                                 .....RESPONDENT.




                                J U D G M E N T








ANIL R. DAVE, J.










1.     This is  an appeal under Section  35-L (b) of the Central  Excise Act, 




1944 (hereinafter referred to as `the Act'), against the Judgment and Order 




no  A/1326/WZB/2005/C-iii  dated  7.7.05 in  Appeal No.  E/1893/01,  passed 




by   the   Customs,   Excise   and   Service   Tax   Appellate   Tribunal,   West   Zonal 




Branch, Mumbai.










2.     The material facts are that the appellant is engaged in the manufacture 




of   insulated   wires   and   cables   falling   under   Central   Excise   Tariff   Sub-



                                               2






Heading No.8544.00. The appellant  claimed benefit under Notification no. 




205/88 - C.E. dated 25.05.88 as amended by Notification  no. 57/95.   The 




said   notification   grants   exemption   from   payment   of  central   excise   duty   in 




respect of manufacture of wind mills, parts of wind mills and any specially 




designed   devices   which   run   on   wind   mills.   As   the   appellant   had   received 




orders   from   various   wind   mill   manufacturers   for   specially   designed 




electrical cables, which were to be used in the manufacture of wind mills, 




the   appellant   filed   a   declaration   under   Rule   173-B   of   the   Central   Excise 




Rules, 1944 (hereinafter referred to as `the Rules') claiming nil rate of duty 




so   as   to   avail   benefit   under   the   aforestated   notification   for   the   insulated 




cables manufactured by it and supplied to the manufacturers of wind mills 




for  using  the same  as  part  of wind  mills for  the  period   commencing  from 




May,1995 to February, 2006. The appellant reversed the modvat credit taken 




on   inputs   for   Rs.   16,14,088.32   for   availing   the   exemption   benefit   under 




notification no. 205/88. 




3.      As   the   appellant   had   not   paid   excise   duty   on   the   electrical   cables 




supplied   to   the   manufacturers   of   wind   mills   as   stated   hereinabove,   three 




show   cause   notices   had   been   issued   to   the   appellant   by   the   Revenue 




-Authorities for recovery of total excise duty amounting to Rs.66,92,604/-. 




According   to   the   Authorities,   the   electric   cables   were   neither   parts   nor 



                                            3






specially   designed   devices,   which   were   necessary   for   manufacturing   or 




running wind mills.  For the aforestated reasons, according to the authorities, 




benefit under the aforestated notification could not have been availed by the 




appellant.    Ultimately, the Commissioner,  Central  Excise, Surat - II by an 




order dated 20.2.1998, confirmed the demand of excise duty amounting to 




Rs. 66,92,604 and imposed penalty under Rule 173Q(1) of the Rules.   The 




said order was challenged before the Tribunal and the Tribunal allowed the 




appeal   by   remanding   the   matter   to   the   Commissioner.     After   hearing   the 




appellant,   the   Commissioner  again   took  the  same  view   by   his  order  dated 




22.3.2001.




4.     Being aggrieved by the aforestated order dated 22.3.01, the appellant 




preferred an appeal before the Tribunal which was dismissed. The Tribunal 




relied   on  its   earlier   order   passed   in  NICCO   CORPORATION   LIMITED  v.  




COMMISSIONER   OF   CENTRAL   EXCISE,   CALCUTTA,    whereby   an 




analogous issue was adjudicated and decided against the concerned assessee. 




Aggrieved by the said order dated 7.7.2005, the appellant has preferred the 




appeal before this Court. 




5.     The   order   passed   by   the   Tribunal   in  NICCO   CORPORATION  




LIMITED  (supra)    was appealed against in C.A. No 1118/2001 before this 




Court. This Court, vide its order dated 22.3.06 dismissed the appeal and held 



                                                4






that insulated electrical cables designed for use in wind mills would not be 




eligible for exemption under notification no 205/88 as amended.   The said 




judgment   is   now   reported   as  Nicco   Corporation   Ltd.  v.  Commissioner   of 




Central Excise, Calcutta 2006 (203) ELT 362(S.C.).  During the pendency of 




the proceedings, the Authorities had issued a notice of demand directing the 




appellant   to   pay   central   excise   duty   and   penalty   amounting   to   Rs   1,   33, 




85,208. The appellant, in compliance of the said notice, deposited a sum of 




Rs 66, 92,604 towards the excise duty payable by it. However, the amount 




of   penalty   has   not   been   paid   as   stay   has   been   granted   against   the   said 




demand. 




6.      We   have   heard   the   learned   counsel   appearing   for   the   concerned 




parties.     It   has   been   mainly   submitted   on   behalf   of   the   appellant   that   the 




electrical   cables   supplied   to   the   manufacturers   of   wind   mills   were 




specifically   designed   for   use   in     wind   mills.     They   were   special   type   of 




cables,   without   which   the   wind   mills   could   not   have   been   operated   and, 




therefore, the revenue authorities ought to have granted exemption as stated 




in the notification referred to hereinabove.    The learned counsel appearing 




for   the   appellant   gave   details   as   to   how   the   electric   cables   were   specially 




used for running the wind mills.   He further stated that without use of the 




electric   cables   supplied   by   the   appellant,   functioning   of   the   wind   mills 



                                                5






would not have  been possible.    He, therefore, submitted  that the appellant 




ought   to   have   been   given   the   benefit   of   the   notification   referred   to 




hereinabove.




7.       On   the   other   hand,     Shri   H.P.   Raval,   learned   Additional   Solicitor 




General   appearing   for   the   respondent-authorities   relied   upon   the   judgment 




delivered   in  Nicco   Corporation   Ltd.  v.  Commissioner   of   Central   Excise, 




Calcutta  (supra)   and   submitted   that   the   electric   cables   manufactured   and 




supplied by the appellant were not so indispensable that without which the 




wind mills could not have been operated.  He further submitted that for the 




reasons   recorded   in   the   order   passed   by   the   Tribunal,   the   appellant   is   not 




entitled to exemption.  He further submitted that the order imposing penalty 




is also just and proper as the appellant  deliberately did not pay excise duty 




payable by it.  Thus, he submitted that the impugned order is just and proper 




and, therefore, the appeal deserves to be dismissed.




8.       Two issues arise for adjudication in the present case:








  I.     Whether the insulated electrical cables manufactured by the appellant 




         would   be   eligible   for   exemption   under   the   above   mentioned 




         exemption notification.




  II.    Whether   imposition   of   penalty   is   justified   in   view   of   the   facts   and 




         circumstances of the case. 



                                               6






9.      So far as the first issue is concerned, it is no more res  integra in view 






of   the   judgment   delivered   by   this   Court   in   the   case   of              Nicco 






Corporation   Ltd.  v.  Commissioner   of   Central   Excise,   Calcutta 




(supra).  The facts in the said case as well as in the present case are similar 




and,   therefore,   we   need   not   consider   the   said   issue   again.     In   the 




circumstances, the first issue is decided in favour of the Revenue.  It is also 




pertinent to note that the appellant has already paid a sum of Rs.66,92,604/- 




towards  excise duty.   As  regards  the second  issue about the imposition  of 




penalty, we are of the opinion that the said order cannot be justified in the 




facts of the case.








 10.     So far as the second issue with regard to the imposition of penalty in 




the   present   case   is   concerned,   the   Commissioner,   himself   in   his   order-in-




original has stated  that the issue involved in the case is of interpretational 




nature. Keeping in mind the said factor, the Commissioner thought it fit not 




to   impose   harsh   penalty   and   a   penalty   of   an   amount   of   Rs.   5   lakhs   was 




imposed on the appellant while confirming the demand of the duty.








11.       It   is   also   evident   from   the   said   order   that   the   Commissioner   also 




found   that   except   for   the   statement   of   the   Excise   Executive   Director   and 




Excise Clerk of the assessee company there was no other evidence pointing 



                                                      7






out any accusing finger at them in dealing with offending goods knowingly. 




A clear finding has been recorded by the Commissioner that it was difficult 




to hold that the appellant knowingly dealt with excisable goods which were 




cleared   without   payment   of   duty.   Nor   the   department   itself   took   it   as   a 




formal case of offence.








12.        When we take into consideration the aforesaid facts and also the fact 




that the Commissioner himself found that it is only a case of interpretational 




nature,   in   our   considered   opinion,   no   penalty   could   be   and   is   liable   to   be 




imposed on the appellant herein.








13.       Therefore, in the facts and circumstances of the present case we are of 




the   view   that   penalty   should   not   have   been   imposed   upon   the   appellant. 




Consequently, we quash the order of the Commissioner imposing penalty as 




also   the   order   of   the   Tribunal   so   far   as   it   confirms   imposition   of   penalty 




upon the appellant. The appeal is allowed to the aforesaid extent leaving the 




parties to bear their own costs.










                                                      ................................................J.


                                                      (Dr. MUKUNDAKAM SHARMA)










                                                        ....................................................J.



                                                  8






                                                               (ANIL R. DAVE)


New Delhi


August  24,  2011.