2009 (5) TMI 426 - AT - Central Excise

Firms mounting bodies on manufacturer-supplied chassis treated as job work under Rule 10A, not Rule 6; penalties quashed

CESTAT, New Delhi held that firms undertaking body fabrication and mounting on chassis supplied free by the chassis manufacturer were performing job work ... Assessable value of the goods - scope of 'job work' - exemption notification - chassis supplied to free of cost by the manufacturer of the chassis - applicability of Rule 10A - contract between the manufacturer of chassis and the firms in relation to the manufacture of body building for the purpose of fabricating and mounting on the chassis manufactured by the chassis manufacturer - Whether the goods cleared from the premises of M/s. Audi Automobiles and M/s. Bhagirath Coach & Metal Fabricators Pvt. Ltd., would be assessable in terms of Rule 10A of the Central Excise Valuation Rules, 2000 - contention on behalf of the said firms is that they are the sub-contractors in relation to the body building activity of the motor vehicle - HELD THAT:- It is also pertinent to note that the contention on behalf of the said firms is that they are the sub-contractors in relation to the body building activity of the motor vehicle. The purchase order to which our attention was drawn, also refers to the expression sub-contracting. The appellants cannot be accused of any suppression of documents. As observed, we are not drawing any adverse inference for non-production of the documents. We have only observed that once it is sought to be contended that Rule 10A will have no application in the facts of the case, it was for the appellants to produce relevant documents like the invoice and agreement which would support the case putforth by the appellants. In that context in our considered opinion it was necessary for the appellants to disclose the nature of the understanding between the manufacturer of chassis and the said firms, and in case, such understanding was in the form of writing, to place on record the document in that respect. It is difficult to accept the contention that the work entrusted to the said firms was not to a job work within the meaning of expression under Rule 10A or that it was not the work on behalf of the principal manufacturer. In the facts and circumstances of the case, it is apparent that the said firms had cleared the goods in relation to the body fabricating and mounting on the chassis which were supplied to the said firms free of cost by the manufacturer of chassis. Being so, the activity for the purpose of valuation would squarely fall under Rule 10A and not under Rule 6. We, therefore, do not find any illegality in the impugned order as far as the demand of duty and interest payable thereon from the appellants. We find that the learned Advocate is justified in contending that matter being related to the interpretation of the provisions of law and the fact that the Apex Court in Prestige Engineering (India) Ltd.[1994 (9) TMI 66 - SUPREME COURT], case had taken a particular view on the aspect of expression 'job work', the appellant, taking shelter of the said decision, was seeking to claim benefit in terms of Rule 6. In the circumstances, we do not find any justification for imposition of penalty in the matter in hand. The impugned order does not disclose consideration of this aspect of the matter. The appeals partly succeed and they are allowed to the extent they make grievance regarding the imposition of penalty. However, as regards the challenge to the demand of duty and interest thereon, the same stands dismissed. Issues: (i) Whether goods cleared by firms who fabricate and mount bodies on chassis supplied free of cost by chassis manufacturers are to be valued under Rule 10A of the Central Excise Valuation Rules, 2000 or under Rule 6; (ii) Whether penalty imposed on the firms is justified.Issue (i): Whether Rule 10A applies to the fabrication and mounting activity and thus governs assessable value instead of Rule 6.Analysis: Rule 10A defines a job worker as a person engaged in manufacture or production of goods on behalf of a principal manufacturer from inputs or goods supplied by the principal manufacturer or an authorised person. The facts show chassis were supplied free of cost by the chassis manufacturers and the firms performed fabrication and mounting using inputs supplied in relation to those chassis. The context of precedent relied upon and a Board circular are in different statutory contexts and do not alter the meaning of 'on behalf of' as used in Rule 10A. Absence of written contracts did not permit the appellants to displace the factual matrix that manufacture was carried out from inputs supplied by the chassis manufacturer.Conclusion: Rule 10A applies and the valuation under Rule 10A, not Rule 6, governs the assessable value; this conclusion is against the assessee.Issue (ii): Whether imposition of penalty is justified in view of the legal controversy on construction of Rule 10A and relevant precedent.Analysis: The appellants relied on a bona fide legal view informed by earlier apex authority on the expression 'job work' and contested valuation under Rule 6. The dispute predominantly involved interpretation of provisions rather than clear suppression or mala fide conduct. The impugned order did not adequately consider this aspect before imposing penalty.Conclusion: Penalty is not justified and is set aside; this conclusion is in favour of the assessee.Final Conclusion: The appeals are partly allowed the challenge to the demand of duty and interest under valuation rules is dismissed while the appeals succeed against imposition of penalty, resulting in a split outcome where valuation is upheld but penalty is quashed.Ratio Decidendi: Where goods are manufactured by a person from inputs or goods supplied by a principal manufacturer, the activity falls within Rule 10A (job work) for valuation purposes and Rule 10A governs assessable value rather than Rule 6.