1996 (12) TMI 145 - AT - Central Excise

Assessable value based on job worker costs upheld by Tribunal in landmark case

The Tribunal determined that the assessable value and duty payable on goods manufactured as a job worker should be based on the cost of raw materials, ... Valuation of goods manufactured on job work basis - comparable goods under Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975 - assessable value based on cost of raw materials, labour charges and profit - costing certificates and job work charges as evidence of assessable value - Ujagar Prints precedent on valuation of return-to-supplier job workComparable goods under Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975 - Rule 6(b) (comparable goods) does not apply where goods manufactured by a job worker from materials supplied by a third party are returned to that supplier - HELD THAT: - Rule 6(b) of the Valuation Rules applies when excisable goods are not sold by the assessee but are used or consumed by him or on his behalf in the production of another article. The goods in this case were manufactured by the appellant from raw materials supplied by third parties and were returned to those suppliers, not used or consumed in the appellant's own manufacture. Therefore the valuation method based on 'comparable goods' produced or sold by the assessee (Rule 6(b)(i)) is inapplicable to goods manufactured on job work and returned to the supplier. [Paras 2]Comparable-goods valuation under Rule 6(b)(i) is not applicable to the goods manufactured on job work and returned to the supplier.Assessable value based on cost of raw materials, labour charges and profit - costing certificates and job work charges as evidence of assessable value - Ujagar Prints precedent on valuation of return-to-supplier job work - Assessable value for goods manufactured on job work and returned to the supplier is to be computed on the basis of cost of raw materials, labour (job work) charges and profit, and the costing data supplied by the appellant sufficed to displace the demand - HELD THAT: - Following the principle in Ujagar Prints, where goods are manufactured from materials supplied by another and returned to that supplier, assessable value should be determined by reference to the cost of raw materials, labour charges and profit. The appellant's price lists used a costing formula based on the sum of cost of raw materials and job work charges; the job work charges included labour and a profit element and were supported by costing certificates from the suppliers' Chartered Accountants. Applying that precedent and accepting the costing data, the demand based on revaluation by reference to the appellant's own wholesale prices for its own comparable goods was unsustainable. The Tribunal therefore set aside the demand. [Paras 2, 3]Assessable value is to be computed on cost of raw materials plus labour/job-work charges and profit; the appellant's costing data supported this method and the demand was set aside.Final Conclusion: The appeal is allowed; the impugned demand is set aside as unsustainable because valuation by reference to 'comparable goods' was inapplicable and the correct assessable value is cost of raw materials plus labour/job-work charges and profit, supported by the appellant's costing data. Issues involved: Assessment of assessable value and duty payable on goods manufactured as job worker basis, applicability of Central Excise (Valuation) Rules, 1975, comparison of goods produced by the appellant for own account and on job work basis, time limitation for show cause notices.Assessment of assessable value and duty payable: The appellant, engaged in manufacturing aluminium strips sheets, faced a dispute regarding the assessable value and duty on goods manufactured as a job worker. The Price Lists submitted by the appellant indicated assessable value based on the total cost of raw materials and job work charges supported by Costing Certificates. The dispute arose due to show cause notices challenging the assessable value calculation based on wholesale prices of goods manufactured on job work basis compared to goods sold by the appellant. The adjudicating authority and Collector (Appeals) upheld the demand, but the Tribunal found the demand unsustainable as the goods were manufactured from raw materials supplied by the supplier and returned to them, thus determining the assessable value based on cost of raw materials, labour charges, and profit as per the Ujagar Prints case.Applicability of Central Excise (Valuation) Rules, 1975: The expression 'comparable goods' from Rule 6(b)(i) of the Rules was used by lower authorities to determine assessable value. However, Rule 6(b) applies when goods are not sold but used in the production of another article, which was not the case here as the goods were returned to the supplier. Therefore, the Tribunal found that the valuation method based on cost of raw materials, labour charges, and profit was appropriate, as supported by the costing data provided by the appellant, including job work charges covering labour charges and profit element.Time limitation for show cause notices: The appellant contended that the show cause notices were time-barred, but the adjudicating authority overruled this. While the Collector (Appeals) sustained the demand for a specific period, the Tribunal ultimately set aside the impugned orders, allowing the appeal in favor of the appellant.