Job-work valuation principle: assessable value follows raw-material cost and job charges, not the supplier's finished-goods trading price.

Biscuits manufactured on job work under a principal-to-principal arrangement with an independent raw-material supplier are to be valued on the basis of the cost of raw materials, job-work charges, manufacturing profit and processing expenses, not on the supplier's trading price. The assessment turns on the nature of the manufacturing relationship: where the manufacturer is not a related person and acts as a job worker rather than an agent, the trader's resale price is not the correct measure of assessable value. On that basis, the department's valuation, demand and penalties were held unsustainable, and the impugned orders were set aside with consequential relief.

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Issues: Whether the biscuits manufactured on job work for the raw-material supplier were to be valued on the basis of the supplier's price or on the basis of the cost of raw materials and job-work charges when the arrangement was on a principal-to-principal basis and the manufacturer was not a related person.

Analysis: The appeals turned on the nature of the manufacturing arrangement and the correct basis of valuation. The material on record showed that the unit was manufacturing the goods as a job worker, with raw materials supplied by the other concern, and that the relationship was not one of principal and agent. In such a case, the manufacturer remains the job worker, and the assessable value is to be determined under the valuation principle applicable to goods deemed to be sold at the factory gate, taking into account the cost of raw materials, job-work charges, manufacturing profit and processing expenses, and not the trader's or supplier's price. The facts were found to fit the earlier decisions relied upon by the appellants.

Conclusion: The valuation adopted by the department was unsustainable, and the demand and penalties could not be maintained.

Final Conclusion: The impugned orders were set aside and the appeals were allowed with consequential relief.

Ratio Decidendi: Where goods are manufactured on job work on a principal-to-principal basis by an independent manufacturer, their assessable value is to be determined on the basis of the cost of raw materials and job-work charges, not on the price at which the raw-material supplier trades in the finished goods.

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