1998 (2) TMI 532 - AT - Central Excise

Tribunal Upholds Small Industry Firm's Valuation Method in Central Excise Dispute

The Tribunal ruled in favor of the small scale industry firm in a dispute over the valuation of goods under the Central Excise (Valuation) Rules. The ... Valuation under Rule 6(b)(i) and Rule 6(b)(ii) of the Central Excise (Valuation) Rules - Comparable goods - Job work valuation - Assessable value based on cost of raw materials plus job charges - Principal-to-principal relationship - Application of Ujagar Prints principleComparable goods - Valuation under Rule 6(b)(i) and Rule 6(b)(ii) of the Central Excise (Valuation) Rules - Job work valuation - Whether the value at which the raw material supplier sold the same branded biscuits in the wholesale market could be adopted as the assessable value of goods manufactured by the job worker by treating them as comparable goods under Rule 6(b)(i), or whether valuation must be on the basis of cost of raw materials plus job charges. - HELD THAT: - The Tribunal held that the identical goods manufactured by the job worker and subsequently sold by the raw material supplier cannot be treated as distinct 'comparable goods' for the purpose of Rule 6(b)(i). Rule 6(b) is intended to apply where excisable goods are not sold by the assessee but are used or consumed by him or on his behalf in manufacture of another article; it is not properly invoked to compare the same goods produced by a job worker with the same goods later sold by the supplier. The terms of the agreement showing some control by the supplier to ensure quality did not establish that the job worker lacked independent existence or that the manufacture was on behalf of the supplier in a manner that would justify adopting the supplier's wholesale price. Applying the Supreme Court's reasoning in Ujagar Prints, where goods are manufactured on job-work basis the correct assessable value is the cost of raw materials supplied plus the job charges; therefore Rule 6(b)(i) could not be invoked to pick up the supplier's resale price and the cost-plus-job-charge basis must be adopted. [Paras 4, 5, 6]The value declared by the appellants based on cost of raw materials plus job charges is the correct assessable value; the adoption of the supplier's wholesale price under Rule 6(b)(i) was not justified and the impugned order is set aside.Final Conclusion: Appeal allowed; valuation to be on the basis of cost of raw materials plus job charges in accordance with the principle applicable to goods manufactured on job-work basis (Ujagar Prints), and the order adopting the supplier's wholesale price under Rule 6(b)(i) set aside. Issues: Valuation of goods under Central Excise (Valuation) Rules based on job work agreement; Comparison of goods for assessable value determination; Interpretation of Rule 6(b)(i) and Rule 6(b)(ii) of Valuation Rules.Analysis:Issue 1: Valuation of goods under Central Excise (Valuation) Rules based on job work agreementThe case involved a small scale industry firm that had an agreement with a company for the manufacture and sale of 'Horlicks' brand biscuits. Initially, the firm declared prices based on raw materials and job charges. Subsequently, a revised agreement shifted the responsibility of supplying raw materials to the company. The dispute arose regarding the correct valuation of goods, with the firm claiming valuation based on raw material cost and job charges, while the Revenue insisted on using the wholesale selling price of the company. The Commissioner (Appeals) upheld the Revenue's valuation method. The Tribunal analyzed the terms of the agreement and concluded that the firm's declared value based on raw materials and job charges was the correct assessable value, in line with the Supreme Court's principles on job work basis valuation.Issue 2: Comparison of goods for assessable value determinationThe Revenue argued that the goods manufactured by the firm were comparable to those sold by the company in the wholesale market, justifying the use of Rule 6(b)(i) for valuation. However, the Tribunal disagreed, stating that identical goods cannot be compared in the valuation process. The Tribunal referenced previous judgments and highlighted that Rule 6(b) should not apply when goods are manufactured on job work basis and returned to the raw material supplier. The Tribunal emphasized that the relationship between the firm and the company did not indicate a principal-agent dynamic, supporting the firm's valuation method based on raw materials and job charges.Issue 3: Interpretation of Rule 6(b)(i) and Rule 6(b)(ii) of Valuation RulesThe Tribunal examined the application of Rule 6(b)(i) and Rule 6(b)(ii) in determining the assessable value of goods. It noted that Rule 6(b) should not be used when goods are manufactured on a job work basis and returned to the raw material supplier. The Tribunal emphasized the Supreme Court's guidance on job work basis valuation and concluded that the firm's declared value based on raw materials and job charges aligned with the principles set forth in the Ujagar Prints case. The Tribunal set aside the Commissioner (Appeals) order and allowed the firm's appeal, determining the correct assessable value as per the firm's declared value methodology.