Job-work excise valuation must follow cost-based principles, not the principal's depot sale price, where the principal is treated as manufacturer.

Where the Revenue treats the principal under a loan-licence arrangement as the manufacturer, central excise duty cannot be fastened on the job-worker because the manufacturer identified by the Department remains the assessee. For medicines manufactured on job work, assessable value is not to be determined under Rule 7 of the Central Excise Valuation Rules merely by reference to the principal's depot sale price; the proper approach is the settled cost-based job-work valuation principle. The text states that Board clarification and Tribunal precedent support this position, and that the demand and penalty could not be sustained against the job-worker.

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Issues: (i) Whether the duty liability could be fastened on the job-worker when the Revenue itself treated the principal as the manufacturer under a loan-licence arrangement; (ii) Whether the assessable value of medicines manufactured on job-work basis could be determined with reference to Rule 7 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 instead of the job-work valuation principles.

Issue (i): Whether the duty liability could be fastened on the job-worker when the Revenue itself treated the principal as the manufacturer under a loan-licence arrangement.

Analysis: The adjudicating authority had recorded a clear finding that the principal, and not the appellant, was the manufacturer, while also proceeding on the basis that the goods moved to the principal's depot. In such a situation, the person treated by the Revenue as the manufacturer becomes the assessee for central excise purposes. The duty burden cannot simultaneously be shifted to the job-worker when the Revenue's own case is that manufacture was undertaken on behalf of the principal. The record also did not establish any real supervision or control by the principal over the manufacturing operations so as to displace the job-worker's independent role.

Conclusion: The duty liability could not be fastened on the appellant job-worker; the issue is decided in favour of the assessee.

Issue (ii): Whether the assessable value of medicines manufactured on job-work basis could be determined with reference to Rule 7 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 instead of the job-work valuation principles.

Analysis: Rule 7 applies where goods are not sold at the time and place of removal and are transferred to a depot or similar premises from where they are to be sold. That valuation route presupposes that the assessee is the manufacturer whose depot is in issue. Here, the valuation dispute arose from goods manufactured on job work, for which the applicable principle is the cost-based valuation line laid down for job-work manufacture. The Board's clarification and prior Tribunal precedent also confirmed that the post-2000 valuation regime did not depart from the settled job-work valuation principle. Accordingly, valuation by reference to the principal's depot selling price was unsustainable.

Conclusion: Rule 7 was inapplicable, and the assessable value had to be determined on the settled job-work valuation principles; the issue is decided in favour of the assessee.

Final Conclusion: The demand and penalty could not be sustained against the appellant, and both appeals were allowed by applying the settled job-work manufacturer and valuation principles.

Ratio Decidendi: Where the Revenue treats the principal as the manufacturer, excise duty cannot be demanded from the job-worker, and goods manufactured on job-work basis must be valued according to the settled cost-based job-work valuation principle rather than by reference to the principal's depot sale price.

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