Job-worker valuation includes free-supplied inputs, but extended limitation fails absent suppression when the department already knew.

Where a job worker clears manufactured goods on payment of duty, valuation under Section 4 of the Central Excise Act, 1944 includes the value of free-supplied inputs used in the process; the cost of cylinders received under Rule 57F(2) could not be excluded from the assessable value of the brakes. The note also states that the extended limitation under Section 11A could not be invoked because the Department knew of the movement of cylinders and the assessee had written to the Range Superintendent about the valuation method, so suppression and wilful misstatement were not made out. On that basis, the demand was treated as time-barred and the penalty unsustainable.

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Issues: (i) Whether the value of cylinders received free of duty under Rule 57F(2) and used in the manufacture of brakes was includible in the assessable value of the final products when duty was paid by the job worker; (ii) Whether the demand was barred by limitation on account of suppression or wilful misstatement so as to attract the extended period under Section 11A.

Issue (i): Whether the value of cylinders received free of duty under Rule 57F(2) and used in the manufacture of brakes was includible in the assessable value of the final products when duty was paid by the job worker.

Analysis: Rule 57F(2) permitted movement of inputs or partially processed inputs for further processing or for manufacture of intermediate products. Where the job worker chose to discharge duty on the cleared goods, valuation had to be made under Section 4 of the Central Excise Act, 1944. The cost of material supplied free of cost could not be excluded merely because it came under Rule 57F(2), and the principle of valuation based on job charges plus material cost was applicable.

Conclusion: The value of the cylinders was rightly includible in the assessable value of the brakes, and the valuation dispute was decided against the assessee.

Issue (ii): Whether the demand was barred by limitation on account of suppression or wilful misstatement so as to attract the extended period under Section 11A.

Analysis: The Department had knowledge of the movement of cylinders under Rule 57F(2), and the assessee had intimated the Range Superintendent in writing that duty was being paid after excluding the value of the cylinders. These facts negatived suppression of material facts and wilful misstatement. In the absence of the ingredients necessary for the extended period, the proviso to Section 11A could not be invoked. Once the demand was time-barred, penalty was also unsustainable.

Conclusion: The demand was time-barred and the limitation issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded because the demand was held to be time-barred, resulting in setting aside of the adjudication order and the consequent penalty.

Ratio Decidendi: Where a job worker elects to pay duty on goods manufactured from free-supplied inputs, the assessable value includes the value of such inputs under Section 4, but the extended limitation under Section 11A cannot be invoked absent suppression when the Department had prior knowledge of the valuation method adopted.

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