2014 (8) TMI 186 - AT - Central Excise

Tribunal Upholds OIO on Valuation of Goods, Dismisses Revenue's Appeal

CCE Ahmedabad-II Versus M/s Reclamation Welding Ltd.

The Tribunal upheld the OIO, discharging the show cause notice against the respondent in a case concerning the valuation of goods manufactured on job work ... Valuation of goods - Job work - Revenue argued that assessable value in such cases should be based on the raw material cost plus job charges plus profit of the job worker as per settled position of law - Held that:- Valuation of goods manufactured in the case of a job worker has to be based on the cost of the raw materials supplied plus the job charges which also include the profit of the job worker. That is what has been clarified by the CBEC vide Circular No.619/10/2002-CX, dt.19.02.2002 and respondent has correctly paid duty. No evidence has been introduced by the Revenue as to how job worker and the raw material supplier are related persons for the purpose of attracting Rule 8 of the Central Excise Valuation Rules 2000. Even if any additional duty was payable the same was also available as credit to the recipient of goods. It is an exercise entirely covered by the concept of revenue neutrality, as per the case laws relied upon by the respondent. - Decided against Revenue. Issues: Valuation of goods manufactured by the respondent on job work for M/s AIA Engineering.Analysis:1. The appeal was filed by the Revenue against the OIO passed by the Commissioner of Central Excise & Customs Ahmedabad, which discharged the show cause notice issued to the respondent. The respondent, engaged in manufacturing castings, took CENVAT Credit of input supplied by M/s AIA and supplied castings back to them on payment of duty.2. The Revenue argued that the assessable value should be based on raw material cost, job charges, and job worker's profit, citing Section 4 of the Central Excise Act, 1944. They contended that the valuation should be done as per Section 4(1)(b) read with Rule 8 of Central Excise Valuation Rules 2000, adding the job worker's profit to the assessable value based on Supreme Court judgments.3. The respondent argued that Rule 8 is not applicable to job workers and that valuation should be done under Rule 11 of the Central Excise Valuation Rules 2000, supported by Supreme Court judgments and a CBEC circular. They claimed that since duty paid was available as credit to M/s AIA, no intention to evade duty existed, and the demand for duty was not sustainable, emphasizing revenue neutrality.4. After hearing both sides, the Tribunal found that the valuation of goods manufactured by the respondent should include the cost of raw materials, job charges, and job worker's profit, as clarified by the CBEC circular. The Revenue failed to prove the relationship between the job worker and raw material supplier as related persons under Rule 8. The Tribunal held that any additional duty payable was available as credit to the recipient, ensuring revenue neutrality and negating any intention to evade duty, thus rejecting the Revenue's appeal and allowing the respondent's cross objection.5. In conclusion, the Tribunal upheld the OIO discharging the show cause notice, emphasizing the correct payment of duty by the respondent based on the valuation principles for goods manufactured on job work, and highlighting the concept of revenue neutrality in the transaction.