1989 (1) TMI 124 - SC - Central Excise

Assessable value for excise is manufacturer's selling price including grey cloth, job-work, manufacturing profit; excludes post-manufacturing trader margins - Rule 174

SC held that the assessable value of processed fabric for excise purposes is the price at which the manufacturer sells the goods, comprising the value of ... Assessable value of processed fabric - value of grey-cloth plus value of job work plus manufacturing profit and expenses - deemed factory gate - declaration by owner-trader as basis of assessable value - exclusion of post-manufacturing (trader's) profit from assessable value - Rule 174 of the Central Excise Rules, 1944 - information when goods of one person are manufactured by anotherAssessable value of processed fabric - value of grey-cloth plus value of job work plus manufacturing profit and expenses - deemed factory gate - Assessable value of processed fabric for excise purposes - HELD THAT: - The Court clarified that the assessable value of processed fabric is to be computed as the value of the grey-cloth in the hands of the processor plus the value of the job work done plus manufacturing profit and manufacturing expenses. Those elements together constitute the price at the factory gate or the 'deemed' price at the factory gate as if the processor had sold the processed fabric. The term 'factory gate' is to be read as a deemed factory gate where the processor is treated as the seller. The Court illustrated the application of this rule by aggregating the grey-cloth value, job-work value and manufacturing profit and expenses to arrive at the assessable value. [Paras 1]Assessable value must include grey-cloth value, job-work value and manufacturing profit and expenses, taken as the deemed factory-gate price of the processed fabric.Declaration by owner-trader as basis of assessable value - exclusion of post-manufacturing (trader's) profit from assessable value - Rule 174 of the Central Excise Rules, 1944 - information when goods of one person are manufactured by another - Effect of a trader's declaration of selling price on assessable value and scope of included components - HELD THAT: - The Court held that if the trader who entrusts fabric for processing furnishes a declaration stating the price at which he will sell the processed goods in the market, excise authorities may accept that declaration as the assessable value of the processed fabric and charge duty on that basis, provided the declared price comprises only the deemed factory-gate price (i.e., grey-cloth value plus job-work plus processor's manufacturing profit and expenses) and the processor's profit. The trader's subsequent or post-manufacturing profits and expenses (being post-manufacturing gains of the trader) are not to be included in the assessable value. Rule 174 requires information regarding the price at which the manufacturer is selling the goods and an undertaking that liabilities under the Act and rules will be discharged; the sale price must therefore reflect the manufacturing-stage value, not downstream trader profits. [Paras 2]A trader's declaration of sale price may be accepted as assessable value only if it represents the deemed factory-gate price inclusive of processor's costs and profit; the trader's post-manufacturing profit is excluded.Final Conclusion: The Court clarified that for excise valuation the processed fabric's assessable value is the deemed factory-gate price consisting of grey-cloth value, job-work and the processor's manufacturing expenses and profit; a trader's declaration may be accepted only to the extent it reflects that manufacturing-stage price and must exclude the trader's post-manufacturing profit. Issues involved: 1. Clarification of assessable value of processed fabric for excise duty calculation.2. Declaration by trader to processor for determining assessable value.Issue 1 - Clarification of assessable value:The Supreme Court clarified that the assessable value of processed fabric for excise duty calculation would include the value of grey-cloth in the hands of the processor, value of job work done, manufacturing profit, and manufacturing expenses. This value would be considered at the factory gate, which is deemed to be the point of sale by the processor. An illustration was provided to explain this concept, where the total value was calculated by adding the value of grey-cloth, job work done, and manufacturing profit and expenses.Issue 2 - Declaration by trader to processor:If a trader provides a declaration to the processor regarding the price at which the processed goods will be sold in the market, the Excise authorities will consider this declared price as the assessable value of the processed fabric for excise duty calculation. However, this declared price should only include the price at which the processed fabric leaves the processor's factory along with the processor's profit. Rule 174 of the Central Excise Rules, 1944 mandates that the price at which the goods are sold must include the value of grey-cloth, job work done, manufacturing profit, and manufacturing expenses, excluding any subsequent profit or expenses. The trader's post-manufacturing profits are not required to be included in the assessable value calculation.