Job-work valuation of fabric cut-pieces must follow cost construction, not lower market price, where the same inputs are involved.

On job-work manufacture of fabrics, valuation had to follow the Ujagar Prints cost construction formula of raw material cost plus job charges. Cut-pieces emerging during processing could not be separately valued at a lower market price merely because they fetched less in trade, where the same cost elements were involved in their production. The market-fetch basis was therefore not acceptable for such job-work goods, and the cut-pieces were not to be treated as rags for valuation purposes. The revenue's cost-based valuation approach was sustained and the assessee's lower valuation was rejected.

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Issues: Whether the value of cut-pieces emerging during job-work processing of fabrics could be separately determined at a lower market-based value, or whether their valuation had to follow the same cost-based formula as first quality processed fabrics.

Analysis: The valuation of processed fabrics manufactured on job work basis was required to follow the formula laid down in Ujagar Prints, namely cost of raw material plus job charges. The cut-pieces were not shown to be goods in whose production any material element of cost had not been incurred. Since all elements entering into the manufacture of first quality fabrics also went into the manufacture of cut-pieces, their value could not be arbitrarily reduced merely because they fetched a lower price in the market. The basis of market fetch was therefore not acceptable for valuation of goods produced by a job worker, and the finding that the cut-pieces were not to be treated as rags was justified.

Conclusion: The valuation of the cut-pieces had to be at par with the first quality fabrics on the same cost-based formula, and the assessee's lower valuation was not accepted.

Final Conclusion: The appeal failed and the revenue's valuation approach was sustained.

Ratio Decidendi: Where goods are manufactured on job work basis, the assessable value cannot be fixed by reference to the market price of defective or cut-piece goods if the same cost elements are involved in their production; the cost construction formula remains applicable.

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