Excise valuation of job-work processed fabrics includes grey fabric and processing charges, not later trader profit.

Processing grey cotton and man-made fabrics on a job work basis was treated as manufacture for excise purposes on the footing that an earlier three-Judge decision had already so held, and that a two-Judge Bench could not depart from that view. For valuation, the assessable value was taken to arise at the factory gate when the processed goods leave the processor's factory; it includes the grey fabric and job work charges, but not the trader's subsequent selling profit, because post-factory profit is extraneous to the processor's assessable value. The matters were referred to a five-Judge Bench for reconsideration of valuation and, if necessary, manufacture.

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Issues: (i) Whether processing of grey cotton and man-made fabrics on job work basis amounts to manufacture and attracts excise duty. (ii) Whether, for valuation, the assessable value of processed fabrics includes only job work charges or also the trader's subsequent selling profit.

Analysis: The order proceeded on the footing that the earlier three-Judge decision had already treated the relevant processing as manufacture and that a two-Judge Bench could not disregard that view. On valuation, the order accepted that assessable value under the excise scheme is determined at the factory gate when the manufactured goods leave the processor's factory. It further held that the value must include the grey fabric and job work charges, but not the profit earned by the trader on subsequent sale, since such post-factory selling profit is extraneous to the processor's assessable value.

Outcome: The matters were referred to a larger Bench of five Judges for reconsideration of the valuation question and, if necessary, the manufacture question as well.

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