COMMNR. OF CENTRAL EXCISE, FARIDABADversusM/S FOOD & HEALTHCARE SPECIALITIES & ANR.

                       (2012) 1 S.C.R. 908


A       COMMNR. OF CENTRAL EXCISE, FARIDABAD
                               v.
      M/S FOOD & HEALTHCARE SPECIALITIES & ANR.
            (Civil Appeal Nos. 6539-6540 of 2010)

                      FEBRUARY 13, 2012
B
              [D.K.JAIN AND ANIL R. DAVE, JJ.]

       Central Excise Act, 1944:

c      Section 4(1) · Valuation of excisable goods for purposes
  of charging of excise duty · Contract between merchant-
  manufacturer and processor-assessee for blending and
  packing 'Glucon D' · Held: If the processor-assessee is not
  at arm's length with the merchant-manufacturer and is a
0 related person, assessable value for the purpose of levy of
  excise duty will have to be determined in accordance with the
  procedure contemplated ins. 4(1)(b) of the Act read with the
  relevant valuation Rules · Since neither did the Tribunal
  address this aspect of the matter nor did it consider whether
  the merchant-manufacturer and the processor-assessee were
E related persons, the matter is remanded to it to examine in
  depth the agreement between the two and decide in
  accordance with law and observations made by Supreme
  Court in the instant judgment.
F      Respondent No.1 (assessee) was engaged in
  blending and packing of 'Glucon D' for respondent no.2,
  who was to supply raw material, packing material and
  technical know-how to the former. From March 2000 to
  September, 2000, the assessee paid excise duty on the
G basis of wholesale price of the product at the depots of
  respondent no.2. However, for the period commencing
  from October, 2000, the assessee filed price declarations
  seeking to modify the assessable value of the product as
  the aggregate of cost of raw material, packing material and
H                              908
  COMMNR. OF CENTRAL EXCISE, FARIDABAD v.               909
      FOOD & HEALTHCARE SPECIALITIES

their job work charges, and started paying duty on the A
same. It was found that the said product was also being
processed at the factory of respondent no.2 and duty on
those clearance was being paid at the assessable value
/depot sale price of respondent no.2. Consequently,
notices were issued to the assessee for demand of B
differential duty with penalties. The Adjudicating
Authority confirmed the demand and imposed the
penalties. The Customs, Excise and Service Tax
Appellate Tribunal set aside the order in original.
    Allowing the appeals filed by the revenue, the Court C
      HELD: 1.1 In S. Kumars, it has been held 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 (Ill) would not apply
                                                            0
and assessable value for the purpose of levy of excise
duty will have to be determined in accordance with the
procedure contemplated in s. 4(1 )(b) of the Central Excise
Act, 1944 read with the relevant valuation Rules. In the
instant case, neither did the Tribunal address this aspect
of the matter, nor did it consider whether the assessee E
and respondent no.2 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". Therefore, it
would be necessary for the Tribunal to examine in depth F
the agreement between the assessee and respondent
no.2 as also any other additional material, the parties may
like to adduce and determine the question whether or not
both of them are related persons. [para 11-12] [921-E-H;
922-A-C]                                                    G
     Commissioner of Central Excise, Indore Vs. S. Kumars
Ltd & Ors. 2005 (5) Suppl. SCR 370 = (2005) 13 sec 266,
relied on.
    Mis Ujagar Prints & Ors. (///) Vs. Union of India & Ors.   H
    910     SUPREME COURT REPORTS              (2012] 1 S.C.R.


A                            =
  1988 (3) Suppl. SCR 770 (1989) 3 SCC 531); Mis Ujagar
  Prints & Ors. (II) Vs. Union of India & Ors. 1989 (1) SCR 344
    =
    (1989) 3 SCC 488), Empire Industries Limited & Ors. Vs.
                                                     =
  Union of India & Ors. 1985 (1) Suppl. SCR 292 (1985) 3
  SCC 314 and Pawan Biscuits Co. Pvt. Ltd. Vs. Collector of
                                                     =
B Central Excise, Patna 2000 (1) Suppl. SCR 628 (2000) 6
  sec 489, referred to.
        1.2 Resultantly, the matter is remanded back to the
  Tribunal for the purpose of determining the nature of
  relationship between the assessee and respondent no.2.
C If it is found that they are not related persons, then the
  decision of the Tribunal challenged in the instant appeals
  will stand affirmed. However, if the Tribunal finds that the
  assessee and respondent no.2 are related, it shall remit
  the matter to the Adjudicating Authority for determination
D of the assessable value of the goods in question afresh
  in accordance with law. [para 13] [921-D-E]

                        Case Law Reference:
          2005 (5) Suppl. SCR 370      referred to    para 3
E
          1988 (3) Suppl. SCR 770      referred to    para 3
          1989 (1) SCR 344             referred to    para 3
          1985 (1) Suppl. SCR 292      referred to    para 3
F         2000 (1) Suppl. SCR 628      referred to    para 3
        CIVIL APPELLATE JURISDICTION : Civil Appeal No.
    6539-6540 of 2010.

      From the Judgment & Order dated 12.1.2005 of the
G Customs, Ecise & Service Tax Appellate Tribunal West Block
  No. 2, R.K. Puram, New Delhi in Appeal No. E/5261-52621
  2004-NB (A).

       B. Bhattacharyya, ASG, Harish Chander, Aruna Gupta,
H Ajay Singh, A.K. Sharma, B. Krishna Prasad for the Appellant.
  COMMNR. OF CENTRAL EXCISE, FARIDABAD v.                       911
     FOOD & HEALTHCARE SPECIALITIES

    V. Lakshmi Kumaran, Alok Yadav, Krishan Mohan, M.P.                A
Devanath for the Respondent.

     The Judgment of the Court was delivered by

     D.K. JAIN, J. 1. These appeals under Section 35L(b) of
the Central Excise Act, 1944 (for short "the Act") are directed B
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 Rs. 9,34,89,367/- under C
Section 11A of the Act; penalties of Rs. 1.5 crores each on
respondent Nos.1 and 2 under Rule 1730 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 D
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   E
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 Mis Heinz India Pvt. Ltd. (for short
"Heinz"), respondent No.2 in these appeals, pursuant to an F
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 G
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 charges and started paying duty on H
    912     SUPREME COURT REPORTS                    [2012] 1 S.C.R.


A 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
s 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
C basis of the sale price fixed by Heinz at its depots and the duty
  so paid be not recovered along with penalty under Rule 1730
  of the 1944 Rules.

          Upon consideration of the cause shown by the Assessee,
    the Adjudicating Authority, by its order dated 31st August 2004,
D   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
E   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 under Section
    35G of the Act by the High Court, as not maintainable, the
F   revenue is before us in these appeals.

         3. Mr. 8. Bhattacharyya, learned Additional Solicitor
    General appearing for the appellant, referring to several
    clauses of the agreement between the Assessee and Heinz,
G   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
H
      COMMNR. OF CENTRAL EXCISE, FARIDABAD v. 913
     FOOD & HEALTHCARE SPECIALITIES [D.K.JAIN, J]

  complete control over the activities of the Assessee, who was     A
  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-0' 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        B
 erstwhile Central Excise (No.2) Rules, 2001, in terms of
  Notification No. 3612001 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     c
 manufactured or fabricated the said goods, to comply with all
 the procedural 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 D
 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 eariier
decisions of this Court in M/s Ujagar Prints & Ors. (II) Vs.
 Union of India & Ors. (for short "Ujagar Prints (II)"), Mis Ujagar E
Prints & Ors. 2 (Ill) Vs. Union of India & Ors. 3 (for short "Ujagar
Prints (11/)'J, Empire Industries Limited & Ors. Vs. Union of
India & Ors4. and Pawan Biscuits Co. Pvt. Ltd. Vs. Collector
of Central Excise, Patna, 5 were discussed. Learned counsel
argued that the formula laid down in the Ujagar Prints (II) or F
(Ill) 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.            G
1.    (2005) 6 sec 211.
2.    (1989) 3 sec 488.
3.    (1989) 3 sec 531.
4.    (1985) 3 sec 314.
5     (2000) 6 sec 489.                                            H
    914       SUPREME COURT REPORTS                           (2012] 1 S.C.R.


A      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
B 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
C 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
D         shall not at any time-

          (a) Enter into a contract in the name of or purporting to be
          made on behalf of Heinz.

          (b) .............................................................. "
E
         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
F · to principal basis, the principle laid down in Ujagar Prints (II),
    as clarified in Ujagar Prints (Ill), for determining the assessable
    value, was on 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
G 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
H Valuation (Determination of Price of Excisable Goods) Rules,
 COMMNR. OF CENTRAL EXCISE, FARIDABAD v.      915
FOOD & HEALTHCARE SPECIALITIES [D.K.JAIN, J.]

2000 (for short "the 2000 Rules") and the decisions of this Court   A
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.
                                                                    B
     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       C
    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-
                                                                    D
      (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;
                                                                    E
     (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.

     ~)                                                             F


     (3)    For the purposes of this section,-

            (a)
                                                                    G

            (b)    persons shall be deemed to be "related" if-

            (i)    they are inter-connected undertakings;

            (ii)   they are relatives;                              H
    916       SUPREME COURT REPORTS                            (2012] 1 S.C.R.


A                  (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,
B                  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
c         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 (1of1956);
D         (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
E         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
          limited to, any amount charged for, or to make provision
          for, advertising or publicity, marketing and selling
          organization expenses, storage, outward handling,
F
          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."

G        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
H (iii) the goods must be sold by the assessee for delivery at the
 COMMNR. OF CENTRAL EXCISE, FARIDABAD v. 917
FOOD & HEALTHCARE SPECIALITIES [D.K.JAIN, J.]

time and place of removal. The basic principle underlying A
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 B
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. c
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.

      6. Thus, the pivotal question on which learned counsel for
both the parties addressed us, is whether the Assessee was D
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, E
is not independent of Heinz and therefore, ratio of Ujagar Prints
(Ill) 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 F
before us mainly related to the question as to whether the
formula laid down in Ujagar Prints (Ill) 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 (Ill) as also the G
ratio of S. Kumar.

      7. In Ujagar Prints(//), 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   H
    918       SUPREME COURT REPORTS                   [2012] 1 S.C.R.


A  held that the Central Excises and Salt and Additional Duties
   of Excise (Amendment) Act, 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
B 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
c for the purposes of assessment under Section 1 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
D 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
E norm was the wholesale price.

           8. On an application filed for clarification of the judgment
    in Ujagar Prints(//), this Court by a short order in Ujagar Prints
    (Ill) clarified as follows:
F
          "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
G
          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. .. "

H
 COMMNR. OF CENTRAL EXCISE, FARIDABAD v. 919
FOOD & HEALTHCARE SPECIALITIES [D.K.JAIN, J.]

    The Court went on to explain:                                  A

    "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
                                                                   8
    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,        C
     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 (///) was subsequently
followed by this Court in Pawan Biscuits. In that case, the D
Tribunal had held that the assessee was, in reality, an agent of
Britannia Industries Ltd. and, 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 E
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 F
much prior to its agreement with Britannia, it was held that the
 decisions in Ujagar Prints (//) and (///) 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 G
 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
                                                                   H
     920      SUPREME COURT REPORTS                    [2012) 1 S.C.R.


A     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 by it
B     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
c    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
0
     of the decision in Ujagar Prints (II) and (Ill). 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
E    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
F   manufacturers from independent dealers as the assessable
    value of the processed fabrics and to levy excise duty 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
G   was that by virtue of the decision of this Court in Ujagar Prints
    (Ill), 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
H   reference to the Central Excise Valuation Rules, 1975 and the
 COMMNR. OF CENTRAL EXCISE, FARIDABAD v. 921
FOOD & HEALTHCARE SPECIALITIES [D.K.JAIN, J.]

decisions of this Court in Ujagar Prints (II) and Ujagar Prints   A
(Ill) and Pawan Biscuits, the Court held as follows:

    "We, therefore, do not agree that Ujagar Prints (Ill) would
    apply even to a processor who is not independent and, as
    is alleged in this case, the merchant manufacturers and the
                                                                  8
    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 C
    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 D
    prescribed by Ujagar Prints (Ill) but would be subject to
    excise duty under the principles enunciated in Empire
    Industries as affirmed in Ujagar Prints (II), incorporating
    the arms length principle."
                                                                  E
                                       (Emphasis supplied by us)

       11. It is manifest from the above that the only distinctive
feature of S. Kumars in comparison with Ujagar Prints (II) and
(Ill) is the emphasis on the factum of relationship between the F
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 (Ill) would not apply and assessable value for
the purpose of levy of excise duty will have to be determined G
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.
                                                                   H
    922     SUPREME COURT REPORTS                  [2012] 1 S.C.R.


A       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
B 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
  parties may like to adduce and determine the question whether
c 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. It
  it is found that they are not related persons, then the present
D 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
E circumstances of the case, there will be no order as to costs.

    R.P.                                         Appeals allowed.