2009 (3) TMI 444 - AT - Central Excise

Value of scrap from job work excluded from assessable value; extended limitation disallowed; appeal allowed, losses reserved

PR. ROLLING MILLS PVT. LTD. Versus COMMISSIONER OF C. EX., TIRUPATHI

CESTAT held that the value of scrap generated during job work need not be included in the assessable value of the job-produced goods, following the later ... Modvat credit - Correct valuation of the goods done on job work basis - Limitation - whether the value of the scrap obtained by the appellants while doing the job work is to be included in the assessable value of the goods manufactured by them - HELD THAT:- In the present case, the raw material is received from M/s. WIL which is obtained from Visakhapatnam Steel Plant. These raw materials are given to the appellant for conversion. A similar issue was dealt by the Supreme Court in the case of General Engineering Works [2005 (3) TMI 16 - SUPREME COURT] and it was held that in such circumstances the value of the scrap should be included to the value of the goods produced by the job worker. However, similar issue was considered by the Hon'ble Apex Court in the case of International Auto Ltd.[2005 (3) TMI 132 - SUPREME COURT]. In that case, the appellant was a job worker for floor plate assemblies for TELCO. The said assemblies were used by TELCO in the manufacture of excavators. TELCO supplied inputs to the appellant for the purpose of manufacture of assemblies on which credit had been taken by TELCO. The appellant used TELCO's inputs as well as its own inputs in manufacturing the assemblies. It cleared the assemblies from its factory upon payment of excise duty on the completed floor plate assemblies by including the value of only the inputs put in by the appellant and adding, thereto, its service charges. However, revenue proceeded against the appellants with a show cause notice proposing the inclusion of the value of TELCO's inputs in the assemblies for the purpose of duty. The appellant challenged it. The Tribunal confirmed the stand of the revenue by relying on the Apex Court's decision in the case of Burn Standard Co. Ltd. and Another [1991 (7) TMI 102 - SUPREME COURT]. When the issue reached the Apex Court, the Apex Court reversed the decision. The appellant prayed that it cannot be allowed upon to pay duty in respect of the inputs supplied by TELCO and therefore, the value of such inputs cannot be added to the vale of the assemblies. We find that the General Engineering case was decided on 10-3-2005 but the International Auto case was decided later on 17-3-2005. This case has been applied to the M/s. Lawkim Ltd. [2007 (3) TMI 158 - CESTAT, MUMBAI], whose facts are identical to the present case. If the intermediary products are not liable to duty at the hands of the job worker, then the question of adding the value of scrap does not arise at all. If the intermediary product is not liable for duty, the question of adding the value of scrap does not arise at all. In these circumstances, in our view, the value of scrap need not be included in the assessable value of the products manufactured by the appellant. Moreover, we do not find any justification for invoking the longer period. The show cause notice itself is relying on various documents which were submitted by the appellant to the department. If the department had scrutinized the records properly, they could have issued the show cause notice well in time. Therefore, the longer period is not applicable. We are not going into the question of the correct quantification on account of invisible losses -appeal allowed with consequential relief. Issues Involved:1. Correct valuation of goods done on a job work basis.2. Inclusion of the value of scrap in the assessable value.3. Invocation of the longer period for demand.4. Revenue neutrality.Issue-wise Detailed Analysis:1. Correct Valuation of Goods Done on Job Work Basis:The appellants undertook the conversion of billets, slabs, and blooms of iron/MS into rim bars/sections for M/s. Wheels India Limited (WIL). The primary issue was whether the value of the scrap generated during this process should be included in the assessable value of the goods manufactured. The appellants contended that the value of the entire quantity of raw materials supplied by WIL, including the scrap, was already accounted for in the assessable value. They argued that including the value of the scrap again would result in double counting.2. Inclusion of the Value of Scrap in the Assessable Value:The appellants cited several precedents to support their argument that the value of scrap should not be included again. They referenced the Tribunal's decision in Mahindra Ugine Steel Co. Ltd. v. CCE and the Supreme Court's decision in International Auto Limited, which held that the value of scrap need not be included if it is already accounted for in the value of raw materials. The Tribunal also noted that in the case of International Auto Limited, the Supreme Court had ruled that the job worker is not liable to pay duty on the intermediate product when duty is paid on the final product. The Tribunal concluded that the value of the scrap need not be included in the assessable value of the products manufactured by the appellant.3. Invocation of the Longer Period for Demand:The Show Cause Notice was issued on 25-5-2006, covering the period from 31-1-2002 to 31-8-2005. The appellants argued that there was no suppression of facts as they had kept the department informed of all relevant details, including the terms and conditions of the conversion work. They contended that the longer period could not be invoked as the department had all the necessary information and could have issued the notice within the standard period. The Tribunal agreed, noting that the documents relied upon by the department were submitted by the appellants and that proper scrutiny could have led to an earlier notice. Therefore, the longer period was not applicable.4. Revenue Neutrality:The appellants argued that the duty paid by them on the excisable goods would be available as Cenvat credit for WIL, resulting in revenue neutrality. They cited several decisions, including ABB Ltd. v. Commissioner of Service Tax and Jameshedpur Beverages v. Commissioner of Central Excise, to support their claim that in situations leading to revenue neutrality, the longer period could not be invoked. The Tribunal agreed, noting that the duty paid by the appellants would indeed be passed as Cenvat credit to WIL, thus confirming the revenue neutrality and further supporting the non-applicability of the longer period.Conclusion:The Tribunal allowed the appeal, concluding that the value of the scrap need not be included in the assessable value of the products manufactured by the appellant. It also held that the longer period for demand was not applicable due to the absence of suppression of facts and the revenue-neutral nature of the transactions. The appeal was allowed with consequential relief.