Job work excise valuation follows Ujagar Prints; demand and penalty fail when duty is paid on the correct basis.

Central excise valuation in a job work arrangement must follow the Ujagar Prints principle: assessable value consists of processing charges, covering manufacturing cost plus profit, together with the cost of raw materials supplied by the customer. The earlier Tribunal view in Pawan Biscuit Company, treating the arrangement as principal-agent, had been reversed by the Supreme Court, which held such agreements to be on a principal-to-principal basis. On the facts stated, the assessee had already paid duty on the correct valuation basis and the Revenue did not dispute it, so the duty demand and consequential penalty were not sustainable.

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Issues: Whether the demand of central excise duty and the consequent penalty were sustainable on the basis that the job worker and brand owner had a principal-agent relationship, and whether the valuation had to follow the assessable value principle laid down in Ujagar Prints.

Analysis: The impugned demand had been sustained by applying an earlier Tribunal view in Pawan Biscuit Company. That view had, however, been reversed by the Supreme Court, which held that the arrangement in a similar manufacturing agreement was on a principal to principal basis and not one of principal and agent. The Supreme Court also reaffirmed that, in a job work situation, assessable value is to be determined on the basis of processing charges comprising manufacturing cost plus profit, together with the cost of raw materials supplied by the customer, in line with Ujagar Prints. In the present case, the appellants had been paying duty on that basis, and the Revenue did not dispute it.

Conclusion: The duty demand based on the overruled Tribunal decision was not sustainable, and the penalty also could not survive. The appeals were therefore allowed in favour of the assessee.

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