2011 (6) TMI 515 - AT - Central Excise

Tribunal rules in favor of appellants on Central Excise valuation issue, rejects department's appeal

The Tribunal found in favor of the appellants, M/s. Saurabh Organics Pvt. Ltd., in a case concerning the valuation of goods manufactured on a job work ... Job Work - Valuation of goods manufactured by Job Worker - Demand beyond the scope of show cause notice - Cenvat Credit on own material used in Job Work activity - held that:- the grounds alleged in the show-cause notice and the grounds on which demands have been confirmed in the order-in-original are at variance. While in the show-cause notice the duty demand is made on the premise that the appellants have not included the cost of materials procured and used by them in the manufacture of job-worked product, the original authority has confirmed the duty demand on a totally different ground i.e., the appellant has not included the cost of the raw material supplied by the principal manufacturer. Thus, the ground alleged in the notice and the ground on which the duty demand has been confirmed are different and, therefore, the order has traversed beyond the show-cause notice. On this ground alone, the order-in-original has to be held as unsustainable and bad in law and consequently, the impugned order which upholds the said order-in-original and we hold accordingly. Liability of payment of duty - held that:- it is seen from the records that the job work transaction was undertaken under Rule 57F (2) and, therefore, there is no responsibility on the job worker to discharge any duty liability. This position was also reaffirmed by this Tribunal in the case of M.Tex & D.K. Processors (2000 -TMI - 50278 - CEGAT, NORTHERN BENCH, NEW DELHI) - Decided in favor of assessee. Issues Involved:1. Valuation of goods manufactured on job work basis.2. Applicability of Rule 57CC of the Central Excise Rules, 1944.3. Validity of the show-cause notice and the adjudicating authority's order.4. Imposition of penalty and demand for interest.Issue-wise Detailed Analysis:1. Valuation of Goods Manufactured on Job Work Basis:The appellants, M/s. Saurabh Organics Pvt. Ltd., manufactured Para Nitro Aniline (PNA) using raw materials supplied by M/s. Ambuja Intermediates Pvt. Ltd. (AIPL) and their own materials. The jurisdictional Central Excise officers noted that the appellants discharged duty liability on a value of Rs.34/- per Kg for PNA cleared to AIPL, while for the same product sold independently, they discharged duty at Rs.69/- per Kg. The officers contended that the appellants did not include the value of their own raw materials and packing materials in the assessable value for PNA manufactured on a job work basis for AIPL. The Additional Commissioner confirmed this view, ordering that the assessable value should be determined under Section 4 (1) (b) of the Central Excise Act, 1944 read with Rule 7 of the Valuation Rules, 1975.2. Applicability of Rule 57CC of the Central Excise Rules, 1944:The officers observed that the appellants were using common inputs (Ammonia, LDO, HDPE Bags) for both dutiable final products and products manufactured under Rule 57F (4) without maintaining separate accounts. Consequently, they were required to pay 8% of the value of the exempted products under Rule 57CC. The Additional Commissioner confirmed this demand, amounting to Rs.2,69,376/-.3. Validity of the Show-Cause Notice and the Adjudicating Authority's Order:The appellants argued that the show-cause notice alleged non-inclusion of their own raw materials in the assessable value, while the adjudicating authority's order was based on the non-inclusion of the raw material supplied by AIPL. The Tribunal found that the grounds alleged in the show-cause notice and the grounds for confirming the duty demand were different, thus traversing beyond the scope of the show-cause notice. This discrepancy rendered the order-in-original unsustainable and bad in law.4. Imposition of Penalty and Demand for Interest:The Additional Commissioner imposed penalties under Section 11AC of the Central Excise Act and Rule 209A of the Central Excise Rules, 1944, along with interest under Section 11AB. The Commissioner (Appeals) reduced the penalties but confirmed the duty demands. The appellants contended that they had not taken any modvat credit on the inputs used for job work and maintained separate records for the inputs received under Rule 57F (4). The Tribunal noted that when no credit of duty paid on raw materials was availed, the question of paying 8% duty under Rule 57CC did not arise. The Tribunal also referenced judicial precedents, including the Supreme Court's judgment in International Auto Ltd. and the Tribunal's decision in M.Tex & D.K. Processors, which supported the appellants' position that the job worker is not liable to pay duty on inputs supplied by the principal manufacturer when no modvat credit is taken.Conclusion:The Tribunal concluded that the duty demands confirmed by the lower authorities lacked legal basis and set aside the orders. Consequently, the demand for interest and imposition of penalties were also unsustainable. The appeals filed by the appellants were allowed with consequential relief, and the department's appeal was rejected as devoid of merits.