Job-work valuation turns on manufacturing cost and profit, not the principal manufacturer's resale price absent suppressed costs or flow-back.

Valuation of processed fabrics cleared by a job worker is to be based on the processor's cost of raw materials, manufacturing cost and profit, as recognised in Ujagar Prints. A relationship between the job worker and the supplier of grey fabrics does not by itself justify adopting the principal manufacturer's resale price. An enhancement is warranted only where the declared manufacturing cost is shown to be false, artificially suppressed, or supported by a flow-back of consideration. On the stated facts, no such material existed, and similar processing for unrelated parties at the same cost supported the declared cost structure.

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Issues: Whether, in the valuation of processed fabrics cleared by a job worker, the assessable value had to be based on the cost of manufacture and profit of the processor or could be enhanced by reference to the price at which the principal manufacturer sold the goods on the footing that the parties were related.

Analysis: The valuation of goods not sold by the manufacturer falls to be determined under the valuation rules by reference to the cost of raw material, manufacturing cost and profit, as recognised in the principle in Ujagar Prints. The existence of a relationship between the job worker and the supplier of grey fabrics does not by itself alter that basis. An addition to value would be justified only if the declared manufacturing cost were shown to be false or artificially depressed, or if there were evidence of a flow-back of consideration. On the facts, no such material was shown. The record also indicated that the appellant processed fabrics for unrelated parties at the same cost, which supported the genuineness of the declared cost structure.

Conclusion: The assessable value had to be determined on the basis of the job worker's cost of manufacture and profit, and not on the subsequent selling price of the related firms. The demand and penalties could not stand.

Ratio Decidendi: In job-work valuation, relationship with the buyer is irrelevant unless the declared cost of manufacture is shown to be unreal or artificially suppressed; the assessable value remains the processor's cost of manufacture plus profit.

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