Job-work valuation of processed fabrics cannot support a shrinkage addition when factory-gate principles are not properly applied.

In valuing processed fabrics manufactured on a job-work basis, assessable value must be determined on the settled deemed factory-gate basis, comprising the intrinsic value of grey cloth plus job-work charges, manufacturing expenses and manufacturing profit. The Tribunal held that an addition for shrinkage could not be sustained where the valuation method had not been correctly applied to justify that inclusion. The impugned demand was therefore not upheld, the order under appeal was set aside, and the valuation-based demand was annulled.

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Issues: Whether, in valuing processed fabrics manufactured on job-work basis, the shrinkage factor could be added to the assessable value and whether the demand raised on that basis was sustainable.

Analysis: The dispute concerned valuation of processed fabrics under the excise valuation scheme applicable to job-work processing. The Tribunal referred to the settled principle that the assessable value of processed fabrics is to be determined on the basis of the deemed factory-gate value, namely the intrinsic value of grey cloth together with the value of job work, manufacturing expenses and manufacturing profit. On the facts, the impugned demand proceeded on the premise that shrinkage in grey fabric had not been factored into the declared value. The Tribunal found that the order under appeal did not accord with the governing legal position and that the authorities below had not correctly applied the valuation principles to justify inclusion of the disputed amount.

Conclusion: The addition made towards shrinkage was not upheld and the impugned order was set aside.

Final Conclusion: The appeal succeeded and the demand based on the challenged valuation method was annulled.

Ratio Decidendi: In valuation of processed fabrics on job-work basis, assessable value must be determined in accordance with the settled factory-gate valuation principle and cannot sustain an addition unsupported by that legal method.

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