2025 (10) TMI 175 - AT - Central Excise

Rules 8 and 10A(iii) not applicable where job-worked finished goods sold or returned to principal; duties annulled

M/s. Smith Enterprises and M/s. E-Mox Device Company Versus Commissioner of GST and Central Excise, Puducherry

CESTAT allowed the appeal, holding that Rule 8 and Rule 10A(iii) of the Valuation Rules do not apply where job-worked finished goods are sold to or ... Value to be adopted for job worked goods was in terms of amendment to Rule 10A (iii) read with Rule 8 of CEVR, 2000 or not - Department contends that after 01.04.2007 the valuation should be done applying Rule 10A(iii) r/w Rule 8 of Central Excise Valuation Rules which applies when goods are not sold - HELD THAT:- The appellant does not captively consume the goods nor does M/s. Marico consume it on behalf of appellant. The very same issue has been considered by this Tribunal in the case of M/s Smith Enterprises, [2018 (2) TMI 139 - CESTAT CHENNAI] following the judgement in the case of M/s. Advance Surfactants India Ltd. Vs CCE, Mangalore [2011 (3) TMI 1380 - CESTAT, BANGALORE] where it was held that 'It needs to be mentioned that Rule 8 applies when goods are not sold. The goods (HDPE bottles) are sold by appellant to M/s. Marico. The appellant does not captively consume the goods nor does M/s.Marico consume it on behalf of appellant.' In various decisions Bhavani Enterprises, Sree Mukambigai Polymers and Smith Enterprises [2018 (2) TMI 139 - CESTAT CHENNAI] and Sree Mukambigai Polymers [2024 (5) TMI 6 - CESTAT CHENNAI], it was held that where the finished products manufactured on job work basis,were sent back to principal-manufacturer providing raw material and consumed by the principal-manufacturer for further manufacture of final product, Rules 10 and 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000 are not applicable and the question framed, is answered in favour of the Appellant. The impugned orders in appeal cannot sustain insofar as the duty demand which is challenged in these appeals is concerned - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the value of goods manufactured by a job-worker on behalf of a principal manufacturer is to be determined under Rule 10A(iii) read with Rule 8 of the Central Excise Valuation Rules, 2000. 2. Whether Rule 8 (valuation at 110% of cost of production where goods are not sold but used for consumption by the assessee or on his behalf) applies where the job-worked goods are returned to and consumed by the principal manufacturer for further manufacture. 3. If Rule 10A(iii) is attracted and Rules 2-10 do not apply, whether Rule 11 (residual/ reasonable means consistent with principles of the Rules and s.4(1) of the Act) and established pre-Rule 10A authorities support valuation on cost of materials plus processing charges. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of Rule 10A(iii) read with Rule 8 Legal framework: Rule 10A addresses valuation where excisable goods are produced by a job-worker on behalf of a principal manufacturer; clause (iii) applies to cases not covered by (i) or (ii) and directs mutatis mutandis application of the foregoing rules for value determination. Rule 8 prescribes valuation at 110% of cost of production where goods are not sold but used for consumption by the assessee or on his behalf. Precedent treatment: Tribunal decisions (including Advance Surfactants and subsequent decisions of this Tribunal) have considered the interplay of Rule 10A and Rule 8 and held that Rule 10A(iii) applies only when goods are manufactured by a job-worker on behalf of a principal; whether Rule 8 applies depends on the statutory phrase 'consumption by an assessee or on his behalf.' A reported decision (Ultrapack) applied Rule 8 on its facts and was distinguished. Interpretation and reasoning: The Court reads Rule 10A(iii) literally - it triggers application of the existing valuation rules only where the factual predicates of those rules are present. Rule 8 requires consumption by the assessee or on his behalf; where the job-worker manufactures goods for a principal who uses them in its factory, there is no consumption by the job-worker nor consumption on the job-worker's behalf. Hence Rule 8 does not automatically apply simply because the product is used by the principal for further manufacture. Ratio vs. Obiter: Ratio - Rule 10A(iii) does not import Rule 8 unless its factual requirements (consumption by the assessee or on his behalf) are satisfied; mere manufacture by a job-worker and return to the principal for further use does not constitute consumption by or on behalf of the job-worker. Conclusion: Rule 10A(iii) is attracted as the facts fall outside clauses (i) and (ii), but Rule 8 is not attracted on the given facts; valuation cannot be imposed at 110% of cost simply because the goods are used by the principal. Issue 2 - Whether Rule 8 applies where goods manufactured by job-worker are returned to principal for further manufacture Legal framework: Rule 8's operative words require consumption by the assessee or consumption on his behalf; Rule 10A's Explanation defines job-worker and principal manufacturer relationship. Precedent treatment: Multiple Tribunal decisions (including Advance Surfactants; followed in subsequent Bench decisions) hold that Rule 8 applies only when the goods are consumed by the job-worker or on his behalf; cases where repacking by a job-worker for the principal led to application of Rule 8 were decided on different facts and are distinguishable. Interpretation and reasoning: The Tribunal reasons that the job-worker neither consumes the goods nor are they consumed on his behalf by the principal; the principal's use is independent and does not satisfy Rule 8's requirement. Distinguishing precedents where facts showed consumption on behalf of the job-worker (e.g., repacking scenarios), the Court emphasizes fact-sensitive application of Rule 8. Ratio vs. Obiter: Ratio - Rule 8 will not be attracted where the job-worker is not the consuming entity and the principal's consumption cannot be said to be on behalf of the job-worker. Conclusion: Rule 8 is inapplicable on the facts; valuation cannot be fixed at 110% of cost under Rule 8 for the job-worked goods returned to and used by the principal. Issue 3 - Proper valuation method under Rule 10A(iii) when Rules 2-10 do not apply: role of Rule 11 and pre-Rule 10A authorities Legal framework: Rule 10A(iii) directs application of the foregoing rules mutatis mutandis; where those rules do not directly apply, Rule 11 permits use of reasonable means consistent with the rules' principles and s.4(1) of the Act to determine value. Precedent treatment: The Court treats established pre-Rule 10A jurisprudence (notably the line of authorities that apply cost of materials plus processing charges for job-worked goods) as binding on principles of valuation. Authorities holding that assessable value equals material cost plus processing charges (subject to facts) have been accepted by various Tribunals and administrative circulars. Interpretation and reasoning: By elimination of Rules 2-10 as inapplicable to the factual matrix, Rule 11 becomes the appropriate provision to determine value using reasonable means. The Tribunal invokes the Supreme Court ratio (Ujagar Prints and related decisions) and consistent Tribunal practice to validate valuation on cost of materials plus job-work charges as the reasonable method under Rule 11 and Rule 10A(iii) context. Ratio vs. Obiter: Ratio - When Rule 10A(iii) applies and Rules 2-10 do not furnish a fitting methodology, Rule 11 and settled judicial principles support valuation based on cost of materials plus processing charges rather than applying Rule 8. Conclusion: The correct assessable value for job-worked goods in the present factual matrix is cost of materials plus conversion/job-work charges; the demands premised on applying Rule 8 were unsustainable. Precedent application and distinguishing authorities Precedent followed: The Tribunal follows earlier decisions that held Rule 8 inapplicable to similar job-work facts and endorsed valuation on cost plus processing; subsequent affirmance by the Supreme Court of a related Tribunal outcome is noted as reinforcing the view that Rules 10A and 8 are fact-sensitive and do not automatically override the cost-plus method. Precedent distinguished: Decisions applying Rule 8 were distinguished on facts where consumption by or on behalf of the assessee was established (e.g., repacking cases). Administrative circulars and contrary clarifications that attempted to impose a blanket application of Rule 8 were rejected where inconsistent with the statutory text and factual matrix. Final conclusion and disposition The impugned valuation and differential duty demands founded on applying Rule 10A(iii) read with Rule 8 were unsustainable on the facts; the correct valuation method is cost of materials plus processing charges under the principles applied via Rule 11 and established authorities. The appeals are allowed and the challenged orders confirming duty (to the extent so challenged) are set aside with consequential benefits as per law.