Job-work valuation: customer-supplied free inputs not automatically includible, and extended limitation fails without suppression.

In a job-work valuation dispute, the value of customer-supplied free materials was held not to be automatically includible in the assessable value of intermediate products cleared by the job worker under Rule 4(5) of the Cenvat Credit Rules, 2004, so the related demand could not stand. The extended period of limitation was also unavailable because the assessee had taken a bona fide valuation view and the record did not show suppression or wilful misstatement; consequently, interest and penalty were not sustainable. The order was set aside with consequential relief.

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Issues: (i) Whether the value of goods supplied free of cost by customers was liable to be included in the assessable value of intermediate products manufactured by the job worker under Rule 4(5) of the Cenvat Credit Rules, 2004. (ii) Whether the demand was sustainable beyond the normal period of limitation and whether interest and penalty could be sustained.

Issue (i): Whether the value of goods supplied free of cost by customers was liable to be included in the assessable value of intermediate products manufactured by the job worker under Rule 4(5) of the Cenvat Credit Rules, 2004.

Analysis: The determining principle applied was that, where the dispute concerns an intermediate product manufactured by a job worker, the cost of customer-supplied material is not automatically includible in its assessable value merely because the goods are used in the manufacturing process. The earlier authority relied on by the Tribunal was distinguished because it dealt with the final product and not liability of the intermediate product. On the facts, the materials sent by customers were treated as goods covered by returnable or inspection-based dispatches, and the record did not support the premise that the value of such supplied items had to be loaded into the assessable value of the intermediate clearances.

Conclusion: The value of the free-supplied goods was not includible in the assessable value, and the demand on that count was unsustainable in favour of the assessee.

Issue (ii): Whether the demand was sustainable beyond the normal period of limitation and whether interest and penalty could be sustained.

Analysis: The extended period was held to be unavailable because the assessee entertained a bona fide view on valuation under Rule 4(5) of the Cenvat Credit Rules, 2004, and the materials on record did not establish suppression, wilful misstatement, or a comparable culpable intent. The disclosure of relevant clearances in periodic returns also weighed against invocation of the larger period. Since the demand itself could not stand on merits, the consequential levy of interest and penalty also failed.

Conclusion: The extended period of limitation could not be invoked, and the demands of interest and penalty were not sustainable in favour of the assessee.

Final Conclusion: The impugned order was set aside and the appeal succeeded with consequential relief according to law.

Ratio Decidendi: In a job-work valuation dispute, free-supplied customer inputs are not necessarily includible in the assessable value of an intermediate product, and a bona fide valuation view defeats invocation of the extended period absent proof of suppression or wilful misstatement.

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