May 29, 2012 - BMR Advisors

Vol. 7 Issue 5.6 May 29, 2012
About BMR Advisors | BMR in News | BMR Insights | Events | Contact Us | Feedback
The Tribunal (Bangalore Bench) in a recent decision of significant
importance has examined the issue of applicability of Rule 10A of the
Central Excise Valuation (Determination of Price of Excisable Goods)
Rules, 2000 (“Excise Valuation Rules”)
Facts of the case
The taxpayers, namely Dart Manufacturing India Private Limited (“Dart”) and
Innocorp Ltd. (“Innocorp”) were engaged in the manufacture of plastic tableware
and kitchenware. Each of them entered into separate ‘Contract Manufacturing
Agreements’ with M/s Tupperware India Private Limited (“Tupperware”) for
manufacture and supply of plastic tableware and kitchenware.
As a part of its quality control measures, Tupperware imported various moulds
(which are unique for the Tupperware products) and provided them to Dart /
Innocorp free of cost for the manufacture of finished goods for Tupperware.
Taxand Global Guide to M&A Tax
2012
Taxand Access
Getting the Deal Through – Tax on
Inbound Investment 2012”
Taxand’s Global Guide to M&A Tax.
Click here to view media commentary.
Taxand voted Top Tax Planning
Advisor in 32 countries in ITR’s 2011
poll. Click here to view article.
Taxand conducted Global Survey
2011 – Taxand the CFO. Click here to
view full research findings.
Dart / Innocorp cleared the finished goods to Tupperware by paying excise duty
on such clearances in terms of Section 4 of the Central Excise Act, 1944 (“Excise
Act”) read with Rule 6 of the Excise Valuation Rules i.e Dart / Innocorp’s
transaction value with Tupperware plus amortized cost of freely supplied moulds.
PERE together with Taxand produced
the 2011 global guide to tax, advising
on real estate investment
opportunities. Click here to view
guide.
Basis certain investigations conducted by officers of Central Excise , the Revenue
issued show cause notices to the assessees alleging that Innocorp / Dart were
not independent manufacturers but job workers of Tupperware and accordingly
Dart / Innocorp should have paid excise duty on the assessable value determined
under Rule 10A of the Excise Valuation Rules i.e on the transaction value of
Tupperware to its distributors.
Issue
The question for determination before the Tribunal was whether the goods
manufactured by Dart / Innocorp in terms of the ‘Contract Manufacturing Agreements’
with Tupperware were to be valued in terms of Rule 10A of the Excise Valuation
Rules.
Contention of the Revenue
BMR rated as 3rd most active
transaction advisor by Venture
Intelligence League Table for Q1
2012.
BMR rated as 6th most active
transaction advisor by Venture
Intelligence for 2011.
BMR Advisors has been rated as a
Tier 1 firm according to International
Tax Review, World Tax Guide 2012
for the fifth consecutive year.
BMR Advisors is ranked fourth most
active financial advisor for India in
Thomson Reuters Mid-Market Insight.
In the impugned order, the Commissioner held that the finished goods were
manufactured from the mould supplied by Tupperware and the raw materials for
BMR Advisors is ranked second Most
Active Transaction Advisor (Private

the manufacture of finished goods were authorized by Tupperware. From these
findings of the Commissioner, it is established that the manufacture of goods by
Dart / Innocorp for Tupperware amounted to job work.
The Commissioner relied on certain clauses of the Contract Manufacturing
Agreements and contended that Tupperware had proprietary interest in the
finished goods manufactured by Dart / Tupperware, from the raw material stage
itself.
Equity) according to the Venture
Intelligence League Table for the first
quarter of 2011
BMR is ranked Tier 1 in ITR’s “World
Tax 2011” guide, to the World’s
leading tax firms.
Dart / Innocorp had very little liberty in matters related to production
Contention of the Taxpayers
The assessees also relied upon various clauses of the Contract Manufacturing
Agreements and submitted that the relation between Tupperware and Dart /
Innocorp were on a principal to principal basis.
The Contract Manufacturing Agreements expressly declared that the relationship
between the parties was a buy-and-sell relationship.
With regard to the meaning of the phrase ‘on behalf of’, the assessees inter alia
relied upon the decisions in the cases of
- UOI v/s Citabul Ltd (cited above),where the question considered by the
Hon’ble Supreme Court was whether the goods in question were
manufactured by the seller ‘on behalf of’ the buyer. After examining the
relevant agreement and other material, the Apex court held that the goods
were manufactured by the seller on his own account and subsequently sold
to the buyer (with trademarks of the buyer affixed thereon); and
- Coromandel Paints Ltd. v/s CCE, Vishakapatnam [2010 (260) ELT 440 (Tri
Bang)], where, the applicability of Rule 10A was ruled out.
Judgment of the Tribunal
As per Explanation to Rule 10A (meaning of ‘job worker’), for any person to
qualify as a job worker, he should satisfy three requirements viz.
Abhishek Jain
Sudipta Bhattacharjee
Avantika Sethi
Rajeev Dimri, New Delhi
+91 124 339 5050
rajeev.dimri@bmradvisors.com
Sujit Ghosh, New Delhi
+91 124 3395070
Sujit.ghosh@bmradvisors.com
Himanshu Tewari, Mumbai
+91 22 30217099
himanshu.tewari@bmradvisors.com
Malini Mallikarjun, Mumbai
+91 22 30217025
malini.mallikarjun@bmradvisors.com
Mahesh Jaising, Bangalore
+91 80 40320140
mahesh.jaising@bmradvisors.com
Abhishek Jain, New Delhi
+91 124 3395082
abhishek.jain@bmradvisors.com
Sivarajan K, Chennai
+91 44 42987004
k.sivarajan@bmradvisors.com
i. He should manufacture or produce goods
ii.
He should do it on behalf of a principal manufacturer
iii.
He should do it from any inputs / goods supplied by the principal
manufacturer or by any person authorized by him
In the present case, Innocorp / Dart satisfy the first condition, which is not in
dispute
The second requirement was not satisfied basis the following terms of the
Contract Manufacturing Agreements that:

a. Dart / Innocorp was appointed by Tupperware on principal to principal basis
b. Tupperware was liable to pay to Dart / Innocorp basis the settled cost
quotations invoiced by Dart / Innocorp
c. Moulds supplied by Tupperware were returned after use (without availing
CENVAT credit)
d. Brand name of ‘Tupperware’ was affixed on the finished goods as required by
Tupperware
e. Dart / Innocorp had to use their own equipment and labour to manufacture
the finished goods, carry out quality control tests and pack and ship the
products in terms of Tupperware’s purchase orders
f. Dart / Innocorp were free to manufacture other goods for third parties
g. Tupperware was free to source products from other manufacturers
Basis the above, the contention of the Revenue that the assessees were
manufacturing finished products ‘on behalf of’ Tupperware was not accepted.
Strict quality standards prescribed by Tupperware are a part of normal
commercial practice and could not be considerations to hold that the activities of
Dart / Innocorp were under extensive control of Tupperware.
The third requirement mentioned above also was not satisfied in the present case
as goods were not manufactured by Dart / Innocorp from any inputs supplied by
Tupperware or any person authorized by them – the only thing supplied by
Tupperware were the moulds which were returned back to Tupperware. The fact
that the suppliers were chosen by Dart / Innocorp from a panel nominated by
Tupperware did not mean that the suppliers were authorized by Tupperware to
supply goods to Dart / Innocorp.
BMR Comments
This is an extremely significant decision clarifying the scope and extent of the
applicability of Rule 10 A of the Excise Valuation Rules and would be a reassuring
development for all contract manufacturing transactions across industry sectors –
be it automobile sector, the chemical products sector or the electronic goods
sector.
Disputes pertaining to Rule 10 A of the Excise Valuation Rules are being litigated at
various levels of adjudication across the country and this decision, by analysing the
various key ingredients for applicability of Rule 10A, would be an important judicial
precedent in this context

Disclaimer:
This newsletter has been prepared for clients and Firm personnel only. It provides general information and guidance as on date of preparation
and does not express views or expert opinions of BMR Advisors. The newsletter is meant for general guidance and no responsibility for loss
arising to any person acting or refraining from acting as a result of any material contained in this newsletter will be accepted by BMR Advisors. It
is recommended that professional advice be sought based on the specific facts and circumstances. This newsletter does not substitute the need
to refer to the original pronouncements.
Contact US | Archives
Quality tax advice, globally
www.taxand.com
BMR Advisors | 22nd Floor | Building No. 5 | Tower A | DLF Cyber City | DLF Phase III | Gurgaon 122 002
Tel: +91 124 339 5000 | Fax: +91 124 339 5001
The information contained in this communication is intended solely for the use of the individual or entity to whom it is addressed and others
authorized to receive it. This communication may contain confidential or legally privileged information. If you are not the intended recipient, any
disclosure, copying, distribution or action taken relying on the contents is prohibited and may be unlawful. If you have received this
communication in error, or if you or your employer do not consent to email messages of this kind, please notify us immediately by responding to
this email and then delete it from your system. No liability is accepted for any harm that may be caused to your systems or data by this
message. Unless related to BMR business, the opinions, conclusions and other information contained within this email are those of the sender
alone and do not necessarily constitute those of the Firm.
© Copyright 2012, BMR Advisors. All Rights Reserved
In case, you do not wish to receive this newsletter, click here to unsubscribe