Job-work valuation excludes unknown royalty payments and bars extended limitation absent suppression; connected penalties fall with the demand.

In job-work valuation, royalty or technical fee paid by the principal manufacturer was not includible in the assessable value where the job worker followed the accepted cost-of-materials-plus-job-work-charges formula and had no knowledge of that payment. The department's prior awareness of the job-work arrangement, cost sheets and returns meant there was no suppression or misdeclaration, so the extended limitation period could not be invoked for the 2004-05 to 2007-08 demand. As the demand failed on merits and limitation, the associated penalties on both the job worker and the principal manufacturer also could not survive. The impugned order was set aside and the duty demand and penalties were cancelled.

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Issues: (i) Whether royalty or technical fee paid by the principal manufacturer was includible in the assessable value of goods cleared by the job worker. (ii) Whether the demand for the period 2004-05 to 2007-08 was barred by limitation. (iii) Whether the penalties imposed on the job worker and the principal manufacturer could survive.

Issue (i): Whether royalty or technical fee paid by the principal manufacturer was includible in the assessable value of goods cleared by the job worker.

Analysis: The valuation adopted by the job worker was based on the accepted job-work formula of cost of materials plus job-work charges. The job worker was acting on the cost sheets and particulars supplied by the principal manufacturer and there was no material to show that it knew of any royalty or technical fee paid by the principal manufacturer to a foreign entity. In such circumstances, the non-inclusion of that payment could not be treated as a misdeclaration by the job worker. The method followed was consistent with the governing valuation principle for job-work clearances.

Conclusion: The royalty or technical fee was not liable to be added in the assessable value in the hands of the job worker.

Issue (ii): Whether the demand for the period 2004-05 to 2007-08 was barred by limitation.

Analysis: The record showed that the department had knowledge of the job-work arrangement, the valuation method, the cost sheets and the monthly returns for years before issuance of the impugned notice. In the absence of suppression or misdeclaration, invocation of the extended period was not justified.

Conclusion: The demand was barred by limitation.

Issue (iii): Whether the penalties imposed on the job worker and the principal manufacturer could survive.

Analysis: Once the demand itself failed on merits and limitation, the foundation for penal action disappeared. No independent basis for sustaining the penalties remained.

Conclusion: The penalties could not survive.

Final Conclusion: The impugned order was set aside and both appeals succeeded, with the duty demand and connected penalties cancelled.

Ratio Decidendi: In job-work valuation, additions not known to the job worker and not forming part of the cost sheet basis supplied to it cannot be treated as misdeclaration, and the extended period cannot be invoked absent suppression or wilful omission.

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