Job-work excise valuation must follow cost-plus-principal basis; demand based on resale price and related penalty failed.

In a bona fide job-work arrangement, excise valuation is to be determined on a principal-to-principal basis by taking the job worker's processing cost and profit together with the value of raw materials supplied by the principal. The note says that a demand based on treating the relationship as principal-agent and on the buyer's resale price was unsustainable because that valuation approach had been rejected by the Supreme Court in Ujagar Prints. It further states that, where the duty demand fails on that basis, the consequential penalty under Rule 209 of the Central Excise Rules also cannot stand.

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Issues: Whether the demand of differential central excise duty on goods manufactured on job work basis was sustainable on the footing that the relationship between the parties was principal-agent rather than principal-to-principal, and whether the consequential penalty under Rule 209 of the Central Excise Rules could be sustained.

Analysis: The valuation adopted by the Commissioner was founded on a Tribunal decision which had treated a similar arrangement as one of principal and agent and had used the buyer's resale price for assessment. That basis no longer survived because the Tribunal view had been set aside by the Supreme Court, which held that in a comparable job-work arrangement the relationship was principal-to-principal and that excise valuation had to be worked out on the job worker's processing cost plus profit together with the cost of raw materials supplied by the principal. The appellants had already been paying duty on the basis of the Supreme Court's approach in Ujagar Prints, and the impugned demand rested on a rejected valuation premise.

Conclusion: The demand of differential duty was not sustainable and was set aside; the penalty, being consequential, also failed.

Final Conclusion: The appeal succeeded and the assessee obtained full relief from the duty demand and the connected penalty.

Ratio Decidendi: In a bona fide job-work arrangement, excise valuation must be determined on the principal-to-principal basis by adding the job worker's manufacturing cost and profit to the value of raw materials supplied, and a demand founded on an overruled contrary precedent cannot be sustained.

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