2024 (9) TMI 62 - AT - Central Excise

Job work appellant wins excise duty dispute using transaction value method over cost construction approach

CESTAT Hyderabad allowed the appeal of job work appellant who was paying excise duty on assessable value. Revenue contended duty should be calculated ... Appellant was paying the Excise duty on the Assessable Value which is undervalued - Revenue took the stand that Excise duty is payable on the cost construction method and not as per the price being charged on the buyers of the principal manufacturer - extended period of limitation. HELD THAT:- There is no dispute that the Appellants are carrying on job work which amounted to manufacture in terms of Section 2(f) of the CEA, 1944. They were also paying Excise duty for the goods cleared at their end. For such clearances, they were adopting the price given by the principal manufacturer for clearance to the ultimate buyers. There is nothing to indicate in the entire proceedings that the Appellant had any role to play in fixing up of this price. There is also no allegation that the buyers of sponge iron were in any way related to the Appellant or to the principal manufacturer. Therefore, in such case, the assessable value has to be determined based on the transaction value only. The transaction value concept can be ignored only if it comes to light that the Appellant has received any further consideration from the buyer. The Revenue’s argument that this is an additional consideration is wholly erroneous. The consideration is required to flow from the buyer and not from any other third party. Therefore, the entire proceedings have been taken up on a wrong notion that the Appellant is barred from relying upon transaction value for their clearances. On this count itself, the confirmed demand is required to be set aside. So far as the Department’s contention that the cost construction method adopted by them would result in higher assessable value, it is also questionable. Apparently, if the price for the finished goods is fixed by the principal manufacturer, he would have taken into account all his costs plus the cost of conversion for the job work and cost of the consideration on account of scrap being given free of cost to the Appellant plus his own profit margin to arrive at the total price. That being so, even hypothetically the cost construction method at the end of the job worker cannot be presumed to be higher than the ultimate sale price (transaction value) adopted by the principal manufacturer unless the Department brings in any evidence towards additional consideration flowing back from the buyer. The confirmed demand on merits set aside. Extended period of limitation - HELD THAT:- There are considerable force in the Appellant’s argument that the SCN issued on 30.09.2010 is time barred. The Appellant has produced copy of the letter submitted by them on 31.08.2005 clearly specifying the procedure being adopted by them for the sponge iron being cleared to the buyers of the principal manufacturer by adopting the price given by him. Apart from this, audit queries have been raised in February, 2009 for which the Appellant has filed reply on 18.03.2009 - the confirmed demand for the extended period is also liable to be set aside on account of time bar. The Appeal stands allowed both on account of merits and on account of limitation. Issues:1. Assessment of Excise duty on undervalued assessable value for job work undertaken.2. Dispute regarding the cost construction method and transaction value for clearance of goods.3. Allegation of time-barred SCN issuance and procedural errors in adjudication proceedings.Analysis:1. The Appellant, a job worker for a principal manufacturer, was assessed for paying Excise duty on an undervalued assessable value. The Revenue contended that Excise duty should be based on the cost construction method, not the price charged by the principal manufacturer to buyers. The Adjudicating Authority partially confirmed the demand, leading to appeals from both parties.2. The Appellant argued that the Department erred in following the cost construction method without proper justification. They maintained that the transaction value, determined by the principal manufacturer's price to buyers, should be upheld unless there is evidence of additional consideration. The Appellant emphasized that they had no role in setting prices and that the scrap value was not an additional consideration. The Tribunal agreed, setting aside the confirmed demand on these grounds.3. Regarding the time-barred SCN issuance, the Appellant demonstrated through correspondence and audit queries that they openly disclosed their procedures and transactions, refuting any suppression. The Tribunal found the SCN for the extended period to be time-barred, further supporting the Appellant's argument. The Tribunal allowed the appeal on both merit and limitation grounds, providing relief as per the law.Conclusion:The Tribunal ruled in favor of the Appellant, setting aside the confirmed demand for Excise duty based on the incorrect application of the cost construction method and the failure to consider the transaction value. Additionally, the time-barred SCN issuance was deemed invalid due to the Appellant's transparent disclosure of their procedures. The appeal was allowed on both merit and limitation grounds, granting consequential relief as per the law.