Excise valuation of fabrics cannot be based on sack sale price where conversion is done by a job-worker.

HDPE/PP fabrics cleared to the assessee's godown and later converted into sacks through job work were disputed on valuation, with the department seeking assessment on the selling price of the sacks. The fabrics and sacks were classifiable under the relevant Central Excise Tariff sub-headings, but the valuation issue turned on the post-clearance conversion. The text states that, even if conversion of fabric into sacks amounts to manufacture, that activity was carried out by the job-worker, so the value of the fabrics could not be linked to the selling price of the sacks. On that basis, the demand was treated as unsustainable.

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Issues: Whether the value of HDPE/PP fabrics cleared to the assessee's godown, and later converted into sacks through job work, could be assessed on the basis of the selling price of the sacks.

Analysis: The fabrics and sacks were classifiable under the relevant tariff sub-headings of the Central Excise Tariff Act, 1985. The dispute concerned valuation of the fabrics transferred after payment of duty to the assessee's godown, where they were subsequently converted into sacks before sale. The issue was treated as covered by an earlier final order on the same point. It was held that even if conversion of fabric into sacks involves a manufacturing process, the manufacturing activity was being undertaken by the job-worker, and the valuation of the fabrics could not be linked to the selling price of the sacks.

Conclusion: The demand was unsustainable and the appeal was allowed.

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