2025 (11) TMI 595 - AT - Central Excise

Appeal allowed; Rule 10A(iii) inapplicable as job-worker manufacturing; valuation under Ujagar Prints and Rule 11; limitation unjustified

M/s. Mahendra Industries Versus Commissioner of Central Excise and Central Tax, Bengaluru

CESTAT allowed the appeal and set aside the impugned order. It held Rule 10A(iii) inapplicable because the facts showed job-worker manufacturing on behalf ... Classification of appellant according to activity carried on by them - manufacturer-job worker as claimed by the Appellant or the manufacturing activity as falling under job worker manufacturing on behalf of the principal manufacturer - invocation of provisions Rule 10A(iii) of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 - invocation of extended perid of limitation - HELD THAT:- It is found that as per the finding of the Adjudication authority, Rule 10A can be brought into play only when there is a situation 'where excisable goods are produced or manufactured by a job worker on behalf of a principal manufacturer and cleared to the buyer of the principal manufacturer or cleared to his Depot or consignment agent. The appellant has relied on the decision in the case of M/s. Advance Surfactants India Ltd. [2011 (3) TMI 1380 - CESTAT, BANGALORE] where it is held that 'By elimination of Rule 2 to 10 as they may not apply in a situation like in this case provisions of Rule 11 will apply and Revenue has to take the recourse to provisions of Rule 11 which talks about using reasonable means consistent with the principles and general provisions of these rules read with sub-section (1) of Section 4 of Central Excise Act, 1944. Keeping this in mind, we find that the ratio laid down by the Hon'ble Supreme Court in the case of Ujagar Prints and followed by various other decisions of this Tribunal and accepted by Revenue in their various Circulars will squarely apply i.e. to ascertain the assessable value on the cost of materials plus processing charges.' It is found that the decision of M/s. Advance Surfactants India Ltd. is squarely applicable, considering the facts of the case and therefore, the impugned order is liable to be set aside. Also, as regards invoking the extended period of limitation, there is no finding given by the Adjudication authority and there was no reason or justification to invoke the extended period of limitation. The impugned order is set aside, and the appeal is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the appellant's activities of enamel insulation and fiberglass insulation amount to manufacture by a manufacturer or constitute manufacturing as a job worker for a principal manufacturer, thereby determining the applicable valuation rule (Rule 10A(iii) read with Rule 8 or valuation under job-work principles). 2. Whether the Board's Circular interpreting Rule 10A and Rule 8 to value goods manufactured by a job worker for captive consumption by the principal manufacturer is sustainable against the statutory scheme of the Valuation Rules. 3. Whether invocation of the extended period of limitation and imposition of penalty were justified in the absence of contemporaneous findings of willful suppression or other grounds permitting extended limitation under the statute. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Characterization: Manufacturer vs. Job Worker; Applicable Valuation Rule Legal framework: Valuation provisions in the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, in particular Rule 8 (value where goods are not sold but used for consumption in manufacture), Rule 10A (scheme for goods produced or manufactured by a job worker on behalf of a principal manufacturer), and the residuary Rule 11 which permits use of reasonable means consistent with the general principles. Precedent treatment: Earlier decisions of the Tribunal and the Apex Court (as referred to in the judgment) have held that goods manufactured on a job-work basis are to be valued by aggregating cost of raw material plus job work/processing charges (following the apex court principles applied to job-work situations), and that Rule 8 applies only where goods are not sold and are consumed by the assessee or on his behalf. Interpretation and reasoning: The Court analyzed the factual matrix - raw material supplied by principal manufacturers consigning material to the appellant, processing (enamel/fiberglass insulation) by appellant, return of insulated conductors to principals for further manufacturing and clearance on payment of duty by appellant on transaction value (inputs + job charges). The Court reasoned that Rule 10A is a self-contained scheme applicable to goods produced by a job worker for a principal manufacturer and to the valuation principle when the principal sells the goods after receipt from the job worker. However, where goods manufactured by a job worker are received and consumed by the principal in further manufacture (captive use by the principal), the valuation cannot be displaced simply by applying Rule 8 to the job worker. Rule 8 applies when the excisable goods are not sold by the assessee and are consumed by the assessee or on his behalf - which does not equate to the job-worker situation where the principal is the effective owner and user of the processed goods. By elimination of inapplicable rules, the residuary Rule 11 and the apex-court-derived principle (cost of materials + processing charges/profit) govern valuation in job-work cases, including situations covered by Rule 10A(iii). Ratio vs. Obiter: Ratio - Where goods are manufactured by a job worker on materials supplied by a principal and returned for further manufacture/consumption by the principal, valuation must follow job-work principles (aggregate of raw material cost and job charges) consistent with the apex court's approach and Rule 11, and Rule 8 is inapplicable. Obiter - Observations on the textual scope of Rule 10A as a self-contained scheme and its interplay with Rule 8 serve as reasoning but the operative ratio is the method of valuation for job-work manufacture returned to principal. Conclusions: The appellant's activities constitute job work for principals; the method of valuation adopted by the appellant (cost of raw materials plus job/processing charges) is correct. Valuation under Rule 8 is not applicable to this job-work factual matrix; Rule 11/residuary principles and established job-work jurisprudence apply. The impugned demand based on alternate valuation under Rule 8/Rule 10A(iii) is unsustainable. Issue 2 - Validity of Board Circular Interpreting Rule 10A and Rule 8 Legal framework: Administrative circulars must conform to the statutory language and scheme of the Valuation Rules; subordinate clarifications inconsistent with statutory provisions are liable to be held untenable. Precedent treatment: Prior Tribunal benches have held similar Board circular clarifications inconsistent with Rule 8 and the statutory scheme; earlier administrative guidance recognizing apex-court principles for job-work valuation was also relied upon. Interpretation and reasoning: The Court examined the Board Circular which suggested that where goods manufactured by a job worker are used for captive consumption by the principal, valuation should be governed by Rule 10A(iii) read with Rule 8 (taking 110% of cost). The Court found that the Circular's view is inconsistent with the express language and purpose of Rule 8 (which applies where the assessee himself or on his behalf consumes the goods), and with the established judicial principle that goods produced on job work are valued by cost of materials plus processing charges/profit. Therefore the Circular cannot supplant the statutory scheme and apex-court principles. Ratio vs. Obiter: Ratio - The Circular's interpretation is untenable to the extent it purports to apply Rule 8 to job-work manufacture consumed by the principal; the correct approach is the established job-work valuation method. Obiter - Broader criticisms of the Circular's drafting and internal inconsistency are explanatory but not the core holding. Conclusions: The Board Circular is inconsistent with the Valuation Rules and judicial precedent on job-work valuation and is therefore unsustainable for assessing liability in the facts of this case; the appellant's reliance on established job-work valuation is justified. Issue 3 - Extended Period of Limitation and Penalty Legal framework: Extended limitation under the Central Excise statutory regime requires specified grounds (such as willful suppression of facts) and findings supporting invocation; penalty requires demonstration of culpable conduct as per law and precedent interpreting 'suppression' and mens rea. Precedent treatment: The Court invoked principles from higher judicial pronouncements that suppression of facts cannot be presumed in the absence of willful concealment and that extended limitation cannot be mechanically invoked without justification and findings. Interpretation and reasoning: The adjudicating authority issued a show cause notice covering a multi-year period and confirmed demand for differential duty without specifying reasons or making findings to justify invocation of the extended period. The Court observed the impugned order was silent on reasons for extending limitation and that records disclosed no attempt by the appellant to suppress material facts; valuation dispute was legal/interpretative in nature based on statutory construction, not evasion. In this context, invoking extended limitation and imposing penalty were prima facie unjustified. Ratio vs. Obiter: Ratio - Extended limitation and penalty require specific findings of concealment or other statutory grounds; in their absence, such measures are unsustainable. Obiter - Discussion of analogous authorities illustrating the standard for 'willful suppression' elucidates the principle. Conclusions: Invocation of the extended period of limitation and imposition of penalty were not justified on the record; absence of findings of willful suppression or other statutory grounds renders those aspects of the impugned order unsustainable. Overall Disposition The impugned order confirming differential duty, invoking extended limitation, and imposing penalty is set aside because (a) the appellant's operations are job-work manufacture for principals and valuation by cost of materials plus job charges is correct under the statutory scheme and judicial precedent, (b) the Board Circular relied upon by the adjudicator is inconsistent with the Valuation Rules and prior judicial pronouncements and therefore untenable, and (c) extended limitation and penalty were invoked without requisite findings of suppression or statutory justification.