Job-work valuation of branded soaps must follow cost construction, not the brand owner's resale price.

Brand-name soap manufactured on job-work basis for a brand owner was held to be valued on cost construction under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975, not on the brand owner's resale price under Section 4 of the Central Excise Act, 1944. The arrangement involved supply of raw materials and packing materials by the brand owner, with the job worker manufacturing and clearing the goods to that owner. Prior decisions in identical job-work situations treated the job worker as the manufacturer, the transaction as principal-to-principal, and required cost-based valuation where no comparable sale price existed. Those decisions had been affirmed by the Supreme Court.

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Issues: Whether the assessable value of branded soaps manufactured on job-work basis for the brand owner was required to be determined on the brand owner's resale price under Section 4 of the Central Excise Act, 1944, or on cost basis under Rule 6(b)(ii) of the Central Excise Valuation Rules, 1975.

Analysis: The arrangement showed that the raw material and packing material were supplied by the brand owner, while the assessee manufactured the goods and cleared them to the brand owner. The earlier decisions in identical job-work situations had held that the job worker remained the manufacturer, that the relationship was on a principal-to-principal basis, and that in the absence of a comparable sale price the valuation had to be made on cost construction under Rule 6(b)(ii). Those decisions had also been affirmed by the Supreme Court.

Conclusion: The resale price of the brand owner could not be adopted; valuation had to be on cost basis under Rule 6(b)(ii), and the departmental appeal failed.

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